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Can I get a refund when no tax is withheld?

 

Dear Tax Talk,
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

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Dear 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 filing Form 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.


 
-- Posted: Oct. 31, 2003
   

 

 
 

 

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