Someone who is good with the tax code

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Someone who is good with the tax code

Postby dadmisseskids » Tue Apr 17, 2012 7:04 am

I'm trying to squeeze more out of my paycheck. I know I can but I'm trying to figure out just how much. I'm currently claiming single and zero but the kids live with me now and this year I'll be able to claim them. I used this calculator in determining the numbers (http://www.irs.gov/individuals/page/0,,id=14806,00.html) but I just wanted confirmation that my thoughts were correct.

I make $74,500 gross. My federal tax each week is about $290. Running the numbers on the IRS calculator, at this rate I would pay $13,930 in federal tax and get back $1,760 or $34/wk in each paycheck if I wasn't able to claim the kids.

Same scenario but with claiming the kids (HOH + 3) and no extra deductions. I would get back $6,628 or $127/wk in each paycheck.

This is where I get confused. "Child and dependent care credit" My kids are 8 and 9 and I have a sitter watch them three hours before school when I'm at work. I pay the sitter with checks every week but she doesn't have a tax ID. Can I use this credit?

Same scenario as claiming HOH + 3 and using the child care credit. I'll pay approximately $6500 for child care in 2012. I would get back $7,829 or $150/wk in each paycheck.

Same scenario as above but now with the child tax credit. I would get back $9,829 or $189/wk in each paycheck.

My effective tax rate, with the deductions above, would drop from about 17% to about 6% and instead of paying about $12,170 I would pay about $4100 in federal tax. Is there something I'm missing here or is it pretty cut and dry like the numbers above show?

Regarding the dependent care credit, with my current CS, NJ isn't responsible for child care expenses. In my state, they add the child care expenses into CS. In other words, my CS is $400 but if child care was to be added the CS amount would be $520. My day care expenses are about $6500. NJ's portion would be about $1625. Would there be a significant difference (bottom dollar amount) if NJ paid a portion or not when it comes to filing my taxes next year?

I know it's confusing because I don't understand the tax code that much myself.
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Re: Someone who is good with the tax code

Postby minuette » Tue Apr 17, 2012 9:49 am

This is where I get confused. "Child and dependent care credit" My kids are 8 and 9 and I have a sitter watch them three hours before school when I'm at work. I pay the sitter with checks every week but she doesn't have a tax ID. Can I use this credit?


It can be done, but it may prevent you from e-filing an income tax return. You would file your return with the Form 2441 completed with as much information about the provider as you can get, attach a statement regarding your attempt to obtain a TIN from the provider and maintain a Form W-10 (completed by the care provider) in your records to show your due diligence. I haven't prepared a return that required such a process this year. Two or three years ago, I did prepare a return with the same issue and the return could not be filed electronically. It worked out, though, the client was allowed to claim the credit, just took a bit longer to process.

(In theory, your care provider could apply for an ITIN and claim the child care income...but she would be on the hook for self-employment taxes, so I can understand why she might not want to do that.)

Regarding NJ's payments, I would argue that the driving factor in this circumstance is what the provider was paid. Whether the money was paid by NJ and you separately and directly or paid to you by NJ through CS then you paid the provider, I have seen nothing in Pub 503 or the 2441 instructions to indicate that you should reduce the claimable amount when figuring the credit. Considering that you would be on the hook for making good on the payments to the provider if NJ pays directly and misses some payments, this makes sense.

Finally, the IRS Withholding Calculator is a great tool but (like all calculators) GIGO applies. If your numbers are accurate and appropriately reflective of your situation, the Withholding Calculator is similarly accurate.
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Re: Someone who is good with the tax code

Postby dadmisseskids » Tue Apr 17, 2012 11:06 am

minuette wrote:It can be done, but it may prevent you from e-filing an income tax return. You would file your return with the Form 2441 completed with as much information about the provider as you can get, attach a statement regarding your attempt to obtain a TIN from the provider and maintain a Form W-10 (completed by the care provider) in your records to show your due diligence. I haven't prepared a return that required such a process this year. Two or three years ago, I did prepare a return with the same issue and the return could not be filed electronically. It worked out, though, the client was allowed to claim the credit, just took a bit longer to process.
In my situation, the sitter comes to my house. When you say "it can be done," does that mean you are doing something that isn't condidered correct or are there two ways to skin a cat here? According to publication 926, I am a household employer:
You have a household employee if you hired someone to do household work and that worker is your employee. The worker is your employee if you can control not only what work is done, but how it is done. If the worker is your employee, it does not matter whether the work is full time or part time or that you hired the worker through an agency. It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job.

Example. You pay Betty Shore to babysit your child and do light housework 4 days a week in your home. Betty Introduction follows your specific instructions about household and equipment supplies that Betty needs to do her work. Betty is your employee.


So does this mean I cannot claim the child care tax credit or do they just state that I "shouldn't?" Seems weird you have to pay unemployment taxes for a teenage kid who watches your kids.
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Re: Someone who is good with the tax code

Postby dadmisseskids » Tue Apr 17, 2012 11:28 am

I think I get it now, as far as the IRS is concerned, someone needs to pay taxes. My ultimate concern is that Domestic Relations won't let me claim the sitter because she doesn't have a tax ID. After reading all of the tax code, I think that's why.
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Re: Someone who is good with the tax code

Postby jumbledone » Tue Apr 17, 2012 11:33 am

I hope you're not a politician...
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Re: Someone who is good with the tax code

Postby dadmisseskids » Tue Apr 17, 2012 11:40 am

"No taxes for anyone!"

Anyhow, I talked to the sitter and she said she'd be willing to be an independent contractor. Anyone know how much legwork/money is involved in starting one up for this purpose?
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Re: Someone who is good with the tax code

Postby chereeda » Tue Apr 17, 2012 11:45 am

If she has a social security number, you simply put that in place of the tax id #, along with their name and the amount paid. That's what I did five years ago and had no troubles submitting my return.

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Re: Someone who is good with the tax code

Postby Trevor » Tue Apr 17, 2012 11:47 am

Agreed, she'll just have to plug in the dollars on her 1040EZ. She may not even have a tax bill to pay.
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Re: Someone who is good with the tax code

Postby dadmisseskids » Tue Apr 17, 2012 11:51 am

So by her using her SSN, is she considered an independent contractor? The only reason why I ask is because I'm still confused if I need to do some bullshlt stuff with the IRS concerning unemployment taxes, medicaid, etc.

So if I understand correctly, the amount I pay her she claims and just rasies her gross income to whatever she made from other sources, right?
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Re: Someone who is good with the tax code

Postby dobradavid » Tue Apr 17, 2012 11:51 am

You can claim the credit - the sitter has a SSN?

If they are not reporting the income - then you may not wish to sahre theoir SSN with you.

dadmisseskids wrote:
minuette wrote:It can be done, but it may prevent you from e-filing an income tax return. You would file your return with the Form 2441 completed with as much information about the provider as you can get, attach a statement regarding your attempt to obtain a TIN from the provider and maintain a Form W-10 (completed by the care provider) in your records to show your due diligence. I haven't prepared a return that required such a process this year. Two or three years ago, I did prepare a return with the same issue and the return could not be filed electronically. It worked out, though, the client was allowed to claim the credit, just took a bit longer to process.
In my situation, the sitter comes to my house. When you say "it can be done," does that mean you are doing something that isn't condidered correct or are there two ways to skin a cat here? According to publication 926, I am a household employer:
You have a household employee if you hired someone to do household work and that worker is your employee. The worker is your employee if you can control not only what work is done, but how it is done. If the worker is your employee, it does not matter whether the work is full time or part time or that you hired the worker through an agency. It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job.

Example. You pay Betty Shore to babysit your child and do light housework 4 days a week in your home. Betty Introduction follows your specific instructions about household and equipment supplies that Betty needs to do her work. Betty is your employee.


So does this mean I cannot claim the child care tax credit or do they just state that I "shouldn't?" Seems weird you have to pay unemployment taxes for a teenage kid who watches your kids.
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