I get a refund when no tax is withheld?
I am working a part-time job, 30 to 35 hours
per week. I claim three dependents (my children and myself) and
make $6.25 per hour. My employer takes out Medicaid and Social Security,
but no federal tax. Why is this? How will this affect me at the
end of the year? I file as head of household. Will I get any money
back when I file? Thank you. -- TJ
Fortunately or unfortunately, based on your level of income and
filing status, your earnings are not enough so that you owe federal
income tax. Therefore, your employer is not withholding income tax
from your paycheck.
Since you did not have any federal income tax withheld,
there will be none to be refunded when you file your tax return.
However, you may still have a tax refund based on the earned
income credit and the additional child tax credit.
The earned income credit is a refundable credit for
certain low-income taxpayers. Refundable means that you can get
money back when you file your return even if your tax bill is zero.
Since you have two dependent children, you are probably eligible
to receive the credit if you have no special circumstances.
The earned income credit used to be relatively simple,
but it led to a lot of abuse. As a result, IRS
Publication 596, Earned Income Credit, is now 55 pages long.
The IRS developed an interactive,
step-by-step interview to guide you through the eligibility
requirements. If you believe you qualify for the earned income credit,
you need to attach Schedule
EIC to your return. Your employer can also give you an advanced
earned income credit in your paycheck so you don't have to wait
to file your tax return. For the 2003 tax year, the maximum credit
available to an eligible filer is $4,204.
The additional child tax credit is similar to the
earned income credit. If you qualify for the earned income credit,
you may also qualify to claim the additional child tax credit by
8812 along with your tax return.
You also may have been eligible for these credits
on your 2002 tax return that you filed earlier this year. I performed
a rough calculation of what your refund might have been, assuming
you qualified for both credits. I assumed that you earned $12,000
last year. Using the 2002 tax rate schedule, your refund would have
been more than $4,400. You would have received approximately $4,100
in earned income credit and $300 in additional child tax credit.
If you believe you were eligible for these credits
in 2002 and before, you should be able to amend
your returns to claim the credits and receive the refunds.