Preparing Your Taxes "During These Times"

Can you hear the calendar pages turning? Is it getting louder the closer we get to tax day? If you have already filed your 2019 return, congratulations... if you haven't, you're one of many. Even with the temps still below seasonal averages here in the Northeast, there's still a great reason to be thankful if you live in Massachusetts. Due to the COVID-19 crisis, it just may warm you up a bit to hear that Massachusetts residents have until July 15 to file this year.

Maybe you're putting it off because it's all a bit overwhelming to you. What forms do I need? What deductions do I have? What is an educational credit? Should I itemize? Lucky for you, the VITA (Volunteer Tax Assistance) Team at QCC is ready to break it down for you. Even luckier, they still have free appointments available for tax prep and e-filing before the deadline. 

The VITA Team has consolidated information from IRS.gov regarding forms, dates and additional questions they are asked on a regular basis. Including who should file, education and healthcare forms, deductions, tax credits and more. Even with the days getting longer, we should probably get started, July 15 will come sooner than we think. :)

Who Should File?

Common Income Forms (irs.gov)

• Form W-2: This is filled out by the employer to document one’s earnings for the calendar year. This tax form contains important information needed to fill out Form 1040 including wages earned and the taxes the employer withheld.
• Form 1098: One of three varieties of this form will be received by someone who paid interest on a mortgage, student loan, donated a motor vehicle to charity or paid college tuition.
• Form 1099: These tax forms report all income that isn’t salary, wages or tips. For example, form 1099 is filed if you earned more than $600 from anyone company while working as an independent contractor as a consultant or freelancer within the tax year. 

The different types of 1099 forms include:

• 1099-DIV: reports dividends, distributions, capital gains and federal income tax withheld from investment accounts, including mutual fund accounts.
• 1099-INT: Tracks interest income earned on investment.
• 1099-OID: This Original Issue Discount is provided if one receives more than the stated redemption price on maturing bonds.
• 1099-MISC: Documents self-employment earnings, and miscellaneous income such as royalties, commissions or rents. It also covers all non-employee income that is not derived from investments.

IRS Form 1040

The IRS Form 1040 is one of the official documents that U.S. taxpayers can use to file their annual income tax returns. The form is divided into sections where you can report your income and deductions to determine the amount of tax you owe or the refund you can expect to receive. Depending on the type of income you report, it may be necessary to attach other forms or schedules to it.

Dependents:

Qualifying Child 

• The child must be your son, daughter, stepchild, foster child, brother, siter, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. 
• The child must be: (a) under age 19, (b) under age 24 at the end of the year, a full time student, (c) any age if permanently and totally disabled. 
• The child must have lived with you for more than half of the year. 
• The child must not have provided more than half of his or her own support for the year. 

    Qualifying Relative

• The person can’t be your qualifying child or the qualifying child of another taxpayer.
• The person’s  gross income for the year must be less than $4,200.
• You must provide more than half of the person’s total support for the year.  

Health Care Forms

Form 1095-A 

Form 1095-A is similar to Form 1095-C, but it is sent by Health Insurance Marketplaces and provides information as to any Marketplace Exchange coverage you had (via either Healthcare.gov or a state exchange), and any Premium Tax Credits you received during the previous year. Individuals do not need to file a 1095-A form, however, it is required to prepare tax returns. Form 1095-A contains information that is necessary to reconcile any Premium Tax Credit that is received.

Form 1095-B

Form 1095-B is similar to Form 1095-A and Form 1095-C but will be sent from an insurance company if you were enrolled in a multi-employer plan. Individuals do not need to file Form 1095-B though it is required to prepare a tax return and should be checked for accuracy and kept for records. Oftentimes one may receive more than one 1095 Form depending on who provided their health insurance during the same calendar year.

Form 1095-C: Employers that offer employer-sponsored self-insured coverage use this form to report information to the IRS and to employees about individuals who have minimum essential coverage under the employer plan and are not liable for the individual shared responsibility payment for the months they are covered under that plan.  Large employers (with 50 or more full-time employees) must file a Form 1095-C for each employee who was a full-time employee of the employer for any month of the calendar year. In this context, a full-time employee is someone who averages at least 30 hours a week.

The 1095-C form reports:

• The employer’s address and employer identification number (EIN)
• The employee’s address and Social Security number (SSN)
• The months during the year the employee was offered coverage
• The cost of the cheapest monthly premium the employee could have paid under the plan

Employers are required to send 1095-C’s to full-time employees by January 31 and file them with the IRS by February 28 if filing on paper (or March 31 if filing electronically) of the year following the calendar year to which the return relates.

Education Forms

Form 1098-E 

It is a Student Loan Interest Statement if you receive student loan interest of $600 or more from an individual during the year in the course of your trade or business. The $600 threshold applies to each borrower regardless of the number of student loans obtained by that borrower. However, you may file a separate Form 1098-E for each student loan of the borrower, or you may file one Form 1098-E for the interest from all student loans of the borrower.

Form 1098-T

It is a Tuition Statement if you are an eligible educational institution. You must file for each student you enroll and for whom a reportable transaction is made. Also, if you are an insurer, file Form 1098-T for each individual to whom you made reimbursements or refunds of qualified tuition and related expenses.

What is Tax Credit?

Tax credits reduce the amount of income tax you owe to the federal and state governments. Credits are generally designed to encourage or reward certain types of behavior that are considered beneficial to the economy, the environment or to further any other purpose the government deems important. In most cases, credits cover expenses you pay during the year and have requirements you must satisfy before you can claim them.

There are two types of tax credits:

• A nonrefundable tax credit means you get a refund only up to the amount you owe.
• A refundable tax credit means you get a refund, even if it's more than what you owe.

Earned Income Credit: The Earned Income Tax Credit, EITC or EIC, is a benefit for working people with low to moderate-income. To qualify, you must meet certain requirements and file a tax return, even if you do not owe any tax or are not required to file. EITC reduces the amount of tax you owe and may give you a refund.

Child Tax Credit: The Child Tax Credit (CTC) is designed to give an income boost to the parents or guardians of children and other dependents. It only applies to dependents who are younger than 17. The credit is worth up to $2,000 per dependent, but your income level determines exactly much you can get. You need to have earned at least $2,500 to qualify for the CTC. Then it phases out for income above $200,000 for single filers and $400,000 for joint filers. The most you can get is a partial credit if your earned income is above that threshold.

Child and Dependent Care Credit: The taxpayer may be able to claim the child and dependent care credit if you paid expenses for the care of a qualifying individual to enable you (and your spouse, if filing a joint return) to work or actively look for work. Generally, you may not take this credit if your filing status is married filing separately. However, see What’s Your Filing Status? in Publication 503.pdf, Child and Dependent Care Expenses, which describes an exception for certain taxpayers living apart from their spouse and meeting other requirements. The amount of the credit is a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. The percentage depends on your adjusted gross income.

Educational Credit: An education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund. There are two education credits available: the American opportunity tax credit (AOTC) and the lifetime learning credit (LLC). The AOTC is partly refundable. To get either credit, the taxpayer or student usually must receive Form 1098-T, Tuition Statement, from the school attended. 

Qualified Education Expenses for Education Credits

Qualified expenses are amounts paid for tuition, fees and other related expenses for an eligible student that are required for enrollment or attendance at an eligible educational institution. You must pay the expenses for an academic period* that starts during the tax year or the first three months of the next tax year.

Eligible expenses also include student activity fees you are required to pay to enroll or attend the school. For example, an activity fee that all students are required to pay to fund all on-campus student organizations and activities.

For AOTC only, expenses for books, supplies and equipment the student needs for a course of study are included in qualified education expenses even if it is not paid to the school. For example, the cost of a required course book bought from an off-campus bookstore is a qualified education expense.

For LLC only, with an exemption, expenses for sports, games, hobbies or non-credit courses and the expenses for higher education that result in a degree or other recognized education credential are paid by the student however these expenses would qualify if the course helps students acquire or improve job skills. 

What Are Deductions?

The federal tax law allows you to deduct several different personal expenses from your taxable income each year. This can really pay off during tax season because the reduction to taxable income reduces the amount of income that is subject to federal income tax. However, not all expenses you incur will provide tax savings; the Internal Revenue Code is very specific about the types of expenses you can deduct and the taxpayers who may claim them.

Standard Deduction: The IRS allows all taxpayers who do not itemize deductible expenses to claim the standard deduction. The government sets the standard deduction amount every year for each filing status.

Itemized Deduction: when searching for ways to reduce your taxable income, itemizing your deductions can really maximize your tax savings. The benefit of itemizing is that it allows you to claim a larger deduction than the standard deduction. However, it requires you to complete a Schedule A attachment to your return and to maintain records of all your expenses.

Itemized Deduction, You can include: 

• Medical and Dental Expenses
• Mortgage Interest and Expenses 
• Taxes you pay
• Gifts to Charity 
• Un-reimbursed Employee Business Expense 
• Job - Related Travel Expenses Form 2106
• Miscellaneous Deductions 
• Less Common Deductions

How to check the status of your tax refund :

To check the status of your personal income tax refund, you’ll need the following information:

• Your Social Security number or Individual Taxpayer Identification Number
• Tax year of the refund
• Amount of refund
• Check your Refund website: https://www.irs.gov/refunds  IRS Federal Phone: 800-829-1040

So, that's the basics from the VITA Program team members at QCC. Special thanks to Eduardo Rivas, Shreyans Patel, Miosotis Rosado, Juan Maderos and Maria Rosado for compiling this useful information into one place. If you or someone you know falls into any of those categories, they may be able to prepare your taxes for free:

• Low and moderate-income families (making $56,000 or less)
• Persons with disabilities
• Limited English speakers who may need assistance with tax preparation.

Questions? Contact Eduardo Rivas at vita@qcc.mass.edu