Please note: This is an archived article. It does not apply to current-year tax preparation. Please see our current article to read up-to-date tax information.

Table of contents

• Do I need to file?
• I didn’t make a lot of money in 2006. Do I have to file a tax return?
• Is money I receive from public benefit programs taxable?
• Are Social Security retirement and disability benefits taxable?
• I was a member of the Armed Forces in 2006. Is my pay taxable?
• Are unemployment benefits taxable income?
• Is child support or foster care payments taxable?
• How can tax credits help me?
• I work and have to pay a lot for child care. Can I claim a special credit for care of a dependant?
• What is the Child Tax Credit?
• What is the Additional Child Tax Credit?
• What is the Earned Income Tax Credit?
• How much can I get back in EITC?
• Am I eligible for the EITC?
• I received a notice from the IRS about completing a Form 8836. What is this?
• I take care of a family member who is not my child. Can I claim the EITC?
• I understand that there is the New Jersey EITC. Does it work the same way as the federal credit?
• I think I’m Eligible for the child tax credit, the dependent care tax credit, and the EITC. Can I claim them all?
• If I get money back from the EITC, or through other refundable credits, will it affect my eligibility for programs like food stamps/SNAP, Medicaid, or TANF?
• I’m in school. Are there any special credits that can help me?
• I have a lot in education expenses and meet the qualifications for both education credits?
• Can I claim both the Hope and Lifetime Learning Credits?
• Are these education credits refundable?
• Telephone Tax Refund
• Can I get my refund electronically?
• I am an immigrant worker without a Social Security Number. How do I pay taxes?
• How is the ITIN used?
• Should I be concerned that the IRS will share information about my immigration status with other federal agencies?
• How do I get an ITIN?
• Can I get help applying for an ITIN?
• Once I have applied, how long will it be until I receive my ITIN?
• I didn’t apply for certain credits last year, but I think I might have been eligible. Is there something I can do?
• The person who does my taxes said that I am eligible for a refund and that he can get the money to me faster if I sign up for a rapid refund. Is that true?
• What if I owe taxes but don't have money to pay the government?
• This all seems complicated. Can I get help to file my taxes?
• What resources are available for low-income taxpayers?
• Volunteer Income Tax Assistance (VITA)
• IRS Agents
• Tax-Aide
• Taxpayer Advocate
• Low-Income Taxpayer Clinics

Do I need to file?

I didn’t make a lot of money in 2006. Do I have to file a tax return?

In general, whether you have to file a tax return depends upon your income, filing status (married, single, or head of household), and your age. But if you are a low-income worker, it is often a good idea to file a tax return even if you are not required to do so. This is because you may be eligible for tax exemptions, deductions, and credits that can help you get money back from the government. You cannot get these tax benefits unless you file a tax return.

Is money I receive from public benefit programs taxable?

Generally, you do not have to pay taxes on benefits you receive from a public welfare fund. This includes benefits like TANF or GA, Supplemental Security Income (SSI), child care grants, workers' compensation, and housing assistance payments. Also, you do not need to include most benefits paid by the Veterans Administration.

Are Social Security retirement and disability benefits taxable?

It depends. If the only income you received during 2006 was Social Security, which includes survivor and disability benefits, your benefits generally are not taxable. If you had other sources of income during the year, from work or investments, for example, some of your benefits may be taxable. If you received a lump-sum payment for a retroactive Social Security benefit, part of the lump-sum payment may also be taxable. You should receive a Form SSA-1099, which shows the amount of Social Security benefits paid to you in 2006. Note that Social Security is different from Supplemental Security Income (SSI) and that SSI benefits are not taxed.

I was a member of the Armed Forces in 2006. Is my pay taxable?

Some types of military compensation are included in gross income, and therefore subject to tax, while other military pay is not taxable. For example, pay while serving in a designated combat zone or qualified hazardous duty area is not taxed. Other types of allowances such as the Basic Housing Allowance or moving allowances also are not included as gross income. However, basic pay and pay while training are taxed.

Are unemployment benefits taxable income?

You must pay federal income tax on any unemployment insurance (UI) benefits you received from the government. When you made your initial UI benefit claim, you had a choice to voluntarily withhold taxes. If you selected this option, 10% of your weekly unemployment benefits were automatically sent to the IRS. You should receive a Form 1099-G, Certain Government Payments, which shows the amount of money that you got in unemployment in 2006. It will also show the amount of taxes that have already been withheld from those payments. This form is mailed in January. If you received unemployment during 2006 and did not receive a 1099-G by the end of January, contact your local Reemployment Call Center or a One-Stop Center to obtain a duplicate.

Is child support or foster care payments taxable?

Money you receive in child support is not considered taxable income. Payments you receive from a state or other licensed foster care placement agency for the care of a foster child in your home are generally not included as taxable income.

How can tax credits help me?

There are a number of tax credits for which low-income individuals and families may be eligible. Credits are especially valuable because they apply dollar for dollar against your tax liability (what you owe). For example, if you owe $200 in taxes but have $100 in credits, your final tax bill will be $100 ($200 tax bill - $100 credit = $100 final tax bill). Some of these tax credits, like the Earned Income Tax Credit (EITC), are refundable tax credits. A refundable tax credit is really valuable because it allows you to get money back from the government even if you have no tax liability.

You may be eligible for more than one type of tax credit, and the combined total of the credits can put a lot of money back in your pocket. Be aware, however, that different tax credits apply different qualifying tests—so, just because you qualify for one kind of credit does not necessarily mean you are eligible for all the credits. Also, the amount you get back in a credit usually is based on earnings and sometimes other factors. So just because you qualify for a credit does not mean that you will get the maximum amount available.

I work and have to pay a lot for child care. Can I claim a special credit for care of a dependant?

Yes. Some of what you pay for the care of your child or a sick spouse may be allowed as a credit against your taxes. The Child and Dependent Care Tax Credit allows you to reduce your taxes by a percentage of the money you spent (out of your own pocket) on child or adult care because you work. To qualify for this credit, you must have paid these care expenses so that you could work or look for work. You must also have at least one dependent who is under the age of 13, or a dependent spouse or child who is physically or mentally disabled. The amount of the credit varies with income and the amount you spent on eligible care during the year.

For 2006, the most you can claim in expenses if you have one qualifying child or spouse is $3,000, or $6,000 for two or more qualifying dependents. If you make $15,000 a year or less, the credit toward your taxes will be 35% of your qualifying expenses. So, if your income is $15,000 and you have one child, the most you can reduce your taxes is $1,050 ($3,000 maximum qualifying expenses x 35% = $1,050)—or $2,100 if you have two or more dependents. Once your income reaches $15,000 a year, the percentage of the expenses you can claim is gradually reduced and levels off at 20% when income reaches $43,000.

To claim the Child and Dependent Care credit, you need a Social Security Number or Individual Tax Identification Number (ITIN information). To claim this credit, you can complete either a 1040 or 1040NR with a Form 2441. You cannot claim the child and dependent care credit on Form 1040EZ.

What is the Child Tax Credit?

It is possible to get a credit of up to $1,000—called the Child Tax Credit—for each dependent child under the age of 17. This credit is in addition to the Child and Dependent Care Tax Credit mentioned above. To qualify for the credit, the child must be a U.S. citizen, a U.S. national, or a resident of the United States. For purposes of computing this credit, income only includes taxable earned income and non-taxable combat pay.

To claim the credit, you must file a Form 1040, 1040A, or Form 1040NR. You cannot claim the Child Tax Credit using a Form 1040EZ.

What is the Additional Child Tax Credit?

This credit is for individuals who get less than the full amount of the Child Tax Credit. This happens when the amount of taxes you owe is less than the amount of the $1,000 credit. In this case, you will need to complete Form 8812, Additional Child Tax Credit, which may give you a tax refund even if you do not owe any taxes.

What is the Earned Income Tax Credit?

This is a very important tax credit for low-income workers. The Earned Income Tax Credit (EITC) is particularly valuable because it is fully refundable. This means that the credit first reduces your income taxes and, if there is any left over, the government will send you a check for the rest of the credit. While you sometimes can get a credit even if you do not have a qualifying child, the credit is much larger for people who have a child, and is larger yet for people who have two or more children.

To claim the credit, both you and the children you are claiming must have valid Social Security Numbers. To apply, you must complete a Form 1040 or 1040A and a Schedule EITC.

How much can I get back in EITC?

The exact amount of your EITC will depend upon your earnings and the number of qualifying children you have, but it can be a lot of money. You meet the income guidelines for a federal 2006 EITC if you meet the conditions set forth in Chart 1. Here are the maximum (remember, it varies depending upon your income) federal EITC amounts for this year (there is also a New Jersey EITC):

• $4,536 with two or more qualifying children;
• $2,747 with one qualifying child;
• $412 with no qualifying children.

Am I eligible for the EITC?

To qualify for the credit, you, your spouse, or both must earn money from working, and the credit is based on the amount of money earned by the two of you. (See Chart 2) Also, to qualify, a child must meet an age, residency, and relationship test.

Chart 1

Chart 2

I received a notice from the IRS about completing a Form 8836. What is this?

If you have children and received the federal EITC last year, you may get a Form 8836 in the mail this year. If you receive this notice, it means that you have been chosen to complete a certification form called the Qualifying Children Residency Statement. If you receive a notice from the IRS about the Qualifying Children Residency Certification Test, you must complete Form 8836 and send it back to the IRS, along with the other requested documents. This will show that the child or children for whom you are claiming the EITC meet the IRS's six-month residency requirement. It is very important that you provide the requested information as soon as possible, because your EITC refund will be held by the IRS until it can review the information you provide. This form must be mailed or faxed back—you cannot file a Form 8836 electronically.

I take care of a family member who is not my child. Can I claim the EITC?

Maybe. A child does not have to be your biological son or daughter for you to claim the EITC. And if you take care of a qualifying relative, it’s worth checking to see if you’re eligible for the EITC. Remember that you have three tests you need to meet (age, residency, and relationship). You meet the relationship test for the EITC if the child is a son, daughter, stepchild, eligible foster child, or a descendant of any of them (like a grandchild). Even a brother, sister, half-brother or half-sister, step-brother or step-sister, or a descendent of any of them (like a niece or nephew) may qualify. But where a child may meet the qualifying tests for more than one person, only one person may claim the EITC.

Example 1: Your adult daughter, Tara, and Tara’s 14-year-old son (your grandson), Keith, lived with you for all of 2006. Both you and Tara worked in 2006. Tara earned $12,000 and you earned $18,000. In this case, both you and Tara have eligible earned income and Keith meets the relationship (he is the son or grandson), age (he is 14), and residency (he lived in the home for more than 50% of the year) tests for both you and Tara. In this case, you and Tara must decide who can claim Keith. If you both apply, Tara, as the mother, will get the credit.

Example 2: Now we’ll change one fact in the example above. Let’s say Tara’s income is $33,000 and yours is still $18,000. In this case, Tara’s income is too high to qualify for the EITC, but yours is under the maximum earning limit. Even though Tara is not eligible for the EITC because her earnings are too high, you can still claim Keith for the EITC because he meets all of the tests.

I understand that there is the New Jersey EITC. Does it work the same way as the federal credit?

The NJ-EITC is available to certain households that qualify for the federal EITC. There are two main differences between the federal and NJ-EITC. First, you must have at least one qualifying child to get the state-based credit (the New Jersey credit is not available to adults without children). Second, the maximum amount you can earn and still qualify for the NJ-EITC is much less than the federal maximum. You only qualify for the NJ-EITC if your income was less than $20,000. With these conditions, if you qualify for a federal EITC, you will also be eligible for a New Jersey EITC. The New Jersey credit is equal to 20% of the federal credit. For example, if you have a federal EITC of $1,000, have at least one child, and made less than $20,000, you would be eligible for a state EITC worth an additional $200. To get the NJEITC, you must file a New Jersey tax return. This is true even if you make too little to file state income tax.

If you have questions about the state EITC, call the New Jersey Earned Income Credit Hotline at 1-888-895-9179.

I think I’m Eligible for the child tax credit, the dependent care tax credit, and the EITC. Can I claim them all?

Yes! You can claim both the child tax credit and dependent care tax credit. This is also in addition to the EITC.

Note: Just because you qualify for one of these credits does not mean that you will get the maximum credit available. The amount you receive from a tax credit depends on a number of factors, including earnings and the amount of money you paid for a particular expense.

If I get money back from the EITC, or through other refundable credits, will it affect my eligibility for programs like food stamps/SNAP, Medicaid, or TANF?

The federal and state EITC does not generally affect eligibility for Medicaid, Supplemental Security Income (SSI), food stamps/SNAP, or low-income housing. In New Jersey, income tax refunds, property tax rebates, and EITC refunds are not considered in determining eligibility for TANF.

I’m in school. Are there any special credits that can help me?

Two types of credits can help with the cost of education - the Hope credit and the lifetime learning credit.

The Hope credit is a tax credit for students in their first or second year of higher (after high school) education. The eligible student must be enrolled in a program that leads to a degree, certificate, or other recognized education credential. You need to check with the school to make sure it is a recognized institution.

The maximum amount of the Hope credit is $1,500 but the credit is based on the amount of eligible school related expenses you had in 2006. Eligible expenses include things like tuition and certain required student fees. A student is eligible for a Hope credit as long as his or her class load was at least one-half of the regular full-time course schedule. A student who has been convicted of a felony drug crime is not eligible. This is another credit that gets smaller as your income increases and it begins to phase out if you made $45,000 ($90,000 if you file jointly) in 2006. If you made more than $55,000 ($110,000 if you file jointly) in 2006 you’re income is too high, and you are not eligible for the credit.

If your parents support you and claim you as a dependent on their income tax return, they are the ones who get to use the credit (and it is their income that is counted in determining whether or not they will get the credit). Even if your parents are the ones entitled to the credit, expenses that you pay will be counted toward the credit. If you support yourself or your spouse supports you, then you get to claim the credit. To file for a Hope Credit, you must complete a Form 8863.

The Lifetime Learning Credit has a maximum credit of $2,000 per family but can be applied to both higher education programs and to courses used to improve job skills. In other words, you don’t have to be trying to get a degree in order to get the credit. You can qualify for this credit even if you are taking only one class. And the felony drug rule doesn’t apply. This credit also gets smaller as income gets bigger—just as it does in the Hope Credit. To file for a Lifetime Learning Credit, you must complete a Form 8863.

I have a lot in education expenses and meet the qualifications for both education credits?

Can I claim both the Hope and Lifetime Learning Credits?

No. In any one year a student can take only one of the education credits. But if you have two qualifying students in a family, you can take the Hope Credit for one student and the Lifetime Learning Credit for the other.

Are these education credits refundable?

Both the Hope and Lifetime Learning Credits are nonrefundable credits. This means that you can use the credits to reduce the federal income taxes you owe, but you will not get a refund if your tax liability has been reduced to $0.

Telephone Tax Refund

The telephone tax refund is a one-time payment available to individuals filing a 2006 federal tax return. In response to court decisions, the IRS no longer collects taxes on long-distance phone service, including Internet and cell phone service, and is providing a refund for past taxes paid on long-distance service between March 1, 2003, and July 31, 2006. Telephone customers who had long-distance service anytime between these months may qualify.

So that telephone customers don’t have to collect old telephone bills and do their own calculations, the IRS is making a standard refund amount, between $30 and $60, available.

Taking the standard amount is optional (you can still collect old phone bills and calculate the amount of the refund on your own, but you must file a separate schedule and attach it to your tax return). Claiming the standard telephone refund is the easiest way to get the credit because there are no additional forms or paperwork to complete—a new box to claim the refund has simply been added to standard tax forms (for example, Form 1040, line 71).

Can I get my refund electronically?

Yes, the IRS can deposit your tax refund directly into your bank account, and it is a much faster way to get your refund than by check. This year, the IRS is offering a new option and allowing taxpayers to split their 2006 tax refund among up to three different checking or savings accounts.

To split your refund, you must complete and attach a Form 8888, Direct Deposit of Refund to More than One Account, to your tax return.

I am an immigrant worker without a Social Security Number. How do I pay taxes?

If you cannot get a Social Security Number but you want to show a work history and pay taxes, you can get an Individual Taxpayer Identification Number (ITIN) from the IRS.

Even if you are undocumented, paying your taxes can help you if you want to apply for permanent status in the future, because it shows a continued presence in the United States and good moral character. Also, ITIN holders are eligible for some tax benefits:

• You may be able to get a refund for excess taxes deducted from your paycheck.
• You may qualify for valuable tax credits, such as the Child Tax Credit and the Child and Dependent Care Credit. (Note that ITIN holders are not eligible for the Earned Income Tax Credit.)
• You may be able to claim tax exemptions for dependents.

ITINs are used to help individuals meet U.S. tax reporting requirements. ITINs are used for federal tax reporting only. An ITIN is not a general identification number—it will not authorize you to work in the United States, and it will not make you eligible for Social Security benefits. If you do become eligible for a Social Security Number in the future, however, the earnings you have reported under the ITIN may be used to establish benefits.

How is the ITIN used?

Like an SSN, an ITIN is a nine-digit number. The ITIN is used in place of a Social Security Number on a tax return and identifies a taxpayer who has no SSN, or a spouse or dependent without an SSN who is listed on the tax return. It is easy to tell that a number is an ITIN and not an SSN because ITINs always begin with a 9. To file a return using an ITIN, just enter the ITIN in the space(s) provided for the SSN.

Should I be concerned that the IRS will share information about my immigration status with other federal agencies?

The IRS has a responsibility to protect the privacy of taxpayers. The IRS does not currently have authority to share your information with other agencies. But there have been reports of individual IRS employees using ITIN information to prosecute immigrants. These cases have all been out of Kentucky, and the IRS agent involved is under investigation. Be aware, however, that these privacy protections may not apply to volunteers who work in free tax preparation centers, like VITA sites. Because volunteers technically don’t work for the federal government, they may be able to share information with authorities.

Some government officials, claiming it is necessary to protect national security, are asking that information be shared between federal agencies, but this would require a change in federal law. Undocumented workers should be aware of these risks, but they must also understand that they have an obligation to pay their income taxes.

How do I get an ITIN?

You will need to complete a form W-7, Application for IRS Individual Taxpayer Identification Number. The form is also available in Spanish, or by calling 1-800-TAX FORM.

The application requires that you provide original or certified (notarized) copies of identity documents. A complete list of what is accepted by the IRS as proof of identity is included in the Form W-7 instructions (it includes things like a valid passport, foreign driver license, U.S. driver license, etc.). If you applied for an SSN but were denied, your ITIN application must also include a copy of the official letter or other documentation from the Social Security Administration stating that you were denied.

After you have finished the application and have collected the correct documents, attach them to your federal tax return and send the entire package of documents, including the tax return, to the address located on Form W-7. Be careful—do not mail the tax return separately to the address listed in the Form 1040, 1040A, or 1040EZ.

Note: If you plan to claim tax exemptions for your family members and they don’t have SSNs, you will need to get separate ITINs for your spouse and children, too.

Can I get help applying for an ITIN?

Yes, you can call the IRS at 1-800-829-1040 with questions about Form W-7. You can also use a local IRS-authorized Acceptance Agent or IRS Taxpayer Assistance Center to help you. Acceptance Agents are individuals, businesses, or schools that are not related to the IRS. Acceptance Agents review the ITIN application and all the documentation to make sure the application is correct. If everything is OK, they will send the application to the IRS for processing. Note that some Acceptance Agents charge a fee for these services, so you should find out before you use their service whether you will have to pay an Acceptance Agent for help. Be careful about using Notarios, who are not authorized. Click here for a complete list of authorized Acceptance Agents in New Jersey.

Once I have applied, how long will it be until I receive my ITIN?

Previously, a person would receive a card with an ITIN on it. Now, the ITIN comes in the form of an authorization letter. But current ITIN holders should just keep their existing cards—nothing new will be mailed. If your application is complete and you qualify for an ITIN, you should receive your letter from the IRS with your tax identification number in about four to six weeks. It is very important to keep this letter in a safe place with other important documents. If you don't receive information within six weeks, you can call the IRS to check on the status of your application.

I didn’t apply for certain credits last year, but I think I might have been eligible. Is there something I can do?

Yes! Generally, you have three years to claim a refund. That means that, if you are filing now for the 2006 tax year, you can also file an amended tax return for the 2005, 2004, and 2003 tax years. You will have to file separate forms, but there is no penalty for filing for a late EITC or other tax refund. Be aware, however, that if you are due a refund in one year but owe taxes for another year, the refund will first be applied to pay the taxes you owe. Also, if you owe money for unpaid child support or federal student loans, the refund will first go to pay off those debts. You will then get any balance left over from the refund. If you think you might have some tax liability, you should first consult with a Low-Income Taxpayer Clinic or get other legal help before you file for a refund. Current and prior year tax forms are available at www.IRS.gov or by calling 1-800-TAX-FORM.

The person who does my taxes said that I am eligible for a refund and that he can get the money to me faster if I sign up for a rapid refund. Is that true?

Beware of tax products with names like “Instant Money” or “Fast Cash Refunds.” These names cover up what the product really is—a LOAN. Your tax preparer may try to sell you these products, telling you that you can get your refund in two or three days. But there are big problems with accepting these loans. First, you have to pay a fee just to get the loan, usually between $50 and $90. Second, the money you get from these products is not really your tax refund—it is just a loan based on the amount of the refund your tax preparer says you are due. Because it is a loan, if your tax preparer makes a mistake, or the IRS disputes that you are entitled to take particular tax credits, you will have to repay the loan. These loans have to be repaid with interest, and the interest rates are very high. If you can’t repay the loan because you’ve already spent the money, the bank that loaned the money will take action against you. This can ruin your credit.

Rapid refund programs are generally offered by companies that prepare your tax return. These companies will charge you for preparing and filing your tax return, and they will make an additional charge for the rapid refund. If you add all of these charges together, it is likely to be quite a lot of money and a large portion of the refund that you were expecting. Here’s an example:

Gary went to a commercial tax preparation firm. They did his taxes, told him he was due a $600 refund, and offered him a rapid refund. Gary was charged a total of $215 in fees by the company:

Tax preparation fee:	$100
Electronic filing fee:	$40
Rapid refund loan fee:	$75
Total fees:	$215

Because Gary paid so much in fees, the amount he will get back is only $385 instead of the $600 he is owed ($600 refund - $215 in total service fees = $385).

While this type of refund can put the money in your hands quickly, there are other ways to get your tax refund almost as fast. If you file your return electronically, your refund will take only a week or two longer than it would if you took a rapid refund. And, because you do not have to pay loan fees, the refund you get on your own will be larger than the rapid refund loan you take from the person who did your return. If you E-file with direct deposit (have the IRS put your refund directly into a bank account electronically rather than mailing you a check), the money will get to you even faster.

What if I owe taxes but don't have money to pay the government?

First, FILE YOUR RETURN, even if you do not have the money to send to the IRS. Filing your return on time will prevent fees for the late filing of a tax return. Filing your return on time will also make you eligible for payment options discussed below.

When you submit your return, try to pay as much as you can toward your tax bill. This is because any unpaid tax balance will have interest and a monthly late payment penalty.

The IRS offers several payment options. The first is an installment agreement. An installment agreement is based on an amount you can afford each month. The installment agreement can be set up in three ways:

• Direct debits made from your bank account to the IRS,
• Payroll deductions from your employer to the IRS, or
• Monthly installment payments by electronic funds transfer, credit card, personal or business check, money order, cashier’s check, certified funds or cash (cash payments can only be made in person at a local IRS Office—do not send cash through the mail).

To apply for an installment agreement, either submit a Form 9465, Installment Agreement Request, or write your own request for an installment agreement and attach the request to the front of your tax return. On your request, include the amount you can pay each month and the date in each month that you wish to make your payment. If your request is accepted, you will be charged a one-time fee of $43. If your request is denied, the IRS will generally request additional information. Remember, penalties and interest will be added to the balance even if the installment agreement is approved. The IRS website has more information on Installment Agreements.

Another option is for a payment agreement called an Offer In Compromise. The IRS has the authority to settle (compromise) a federal tax liability by accepting less than full payment under certain circumstances. The offer in compromise is only considered by the IRS as a last resort. In deciding whether to accept an offer in compromise, the IRS will look at any property you own that can reasonably be used for a tax payment, plus income you are likely to earn in the future.

The IRS will accept an offer in compromise where:

• There is a question that the tax amount is correct,
• It is unlikely that you could ever pay the amount due, or 
• You have an economic hardship or other special circumstances which may allow the IRS to accept less than the total balance due.

Note: If you are able to pay the balance due through an installment agreement, an offer in compromise will not be accepted.

To make an offer in compromise, use a Form 656, Offer in Compromise, and a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, or a Form 433-B, Collection Information Statement for Businesses. There is a $150 application fee, which must be submitted with the Form 656, unless your total monthly income falls at or below the Department of Health and Human Services poverty guidelines. If you are claiming the poverty guidelines exception, you need to certify your eligibility using For​m 656-A. When making the offer, you must indicate how you want to pay the reduced tax—in one lump sum, in monthly payments, or by a combination of a lump sum and regular payments. Generally, the IRS will expect more to be paid if a longer amount of time is requested. The IRS website has more information on Offer in Compromise.

Remember, both installment agreements and offers in compromise are only allowed when a timely return is filed. That is one of the reasons why it is important to file your tax return on time, even if you are unable to pay the tax.

If you file your return but do not pay the tax due and you do not request an installment agreement or make an offer in compromise, it is likely that you will receive notices from the IRS. Do not ignore the notices. If you ignore the notices and do not make arrangements to pay your taxes, the IRS may file a Notice of Federal Tax Lien and will be able to take collection action, which could include a Notice of Levy or offsetting any possible tax refunds you may be entitled to in the future.

Your rights are protected throughout the collection process, and the IRS is willing to help find solutions when you can’t pay your taxes. For more information on this, you can obtain Publication 594, The IRS Collection Process, and Publication 1, Your Rights as a Taxpayer. Also, you can contact the IRS at 1-800-829-1040. Before you call, have your financial information with you, such as pay stubs, medical information, and proof of payments you are making on homes, child care, student loans, cars and credit cards.

This all seems complicated. Can I get help to file my taxes?

Tax regulations are complicated. You may need someone to help you prepare your taxes. Going to a commercial tax service can be expensive, but many low-income filers are eligible for free or reduced-cost tax preparation assistance.

If you have access to and are comfortable using the Internet, you can use Free File, an online service provided by the IRS to help you prepare and file your taxes electronically. Free File is free to use, and you are eligible for Free File as long as your income in 2006 was $52,000 or less.

Free File is easy to use. You will be prompted to answer a series of questions. The computer program then automatically enters the information into the appropriate tax forms for you—it does all the calculations and even identifies which tax credits you are eligible for. Most people using Free File get tax refunds in as little as 10 days. The IRS website has more information on Free File. But remember, Free File will only help you file your federal income taxes. You will still need to file your New Jersey return separately.

For some people it may be better to find a free tax preparation site. You may be able to get free tax preparation help at a Volunteer Income Tax Assistance (VITA) site, which helps low-income people who cannot prepare their own tax returns. There is also Tax Counseling for the Elderly (TCE), which provides free tax preparation to low- and moderate-income people with special attention to those age 60 and older.

What resources are available for low-income taxpayers?

Volunteer Income Tax Assistance (VITA)

VITA volunteers can help you prepare your 1040 forms and any related forms that help you get the tax credits and deductions for which you are eligible. VITA volunteers provide free tax preparation services to people with incomes below $35,000. There are dozens of local VITA sites around the state. To get information on the site nearest you, call 1-800-TAX-1040 (1-800- 829-1040). The IRS representative can give you a list of sites in your area if you provide your zip code.

IRS Agents

If you have a specific question about how to fill out your tax forms, or about whether you might qualify for a particular credit or deduction, you can speak directly with a trained IRS agent. To speak with an IRS representative, call 1-800-829-4933 or 1-800-TAX-1040. If you are hearing impaired and have TTY equipment, you can call 1-800-829-4059.

Tax-Aide

Tax-Aide is a program sponsored by the Association for the Advancement of Retired Persons (AARP). Tax preparation services are provided free of charge and are available to people of all ages with middle and low incomes, with a particular emphasis on serving people 60 or older. To find the Tax-Aide office nearest you, call 1-888-AARP-NOW or visit AARP’s website.

Taxpayer Advocate

If you are experiencing problems with past income tax filings, the taxpayer advocate may be able to help you. The taxpayer advocate deals primarily with individuals experiencing delays in resolving tax problems or taxpayers who are faced with a special hardship. To reach the taxpayer advocate, call 973-921-4355, or call the Taxpayer Advocate Service toll-free phone number: 1-877-777-4778.

Low-Income Taxpayer Clinics

Low-income tax clinics represent individuals in legal disputes with the IRS involving audits, appeals, and collections. If you are currently having a problem with the IRS, and have not been able to resolve it on your own, these clinics may be able to help you. You must qualify financially to receive help from these programs.

The Federal Tax Clinic at Rutgers Law School in Newark represents low-income individuals in legal disputes with the IRS. The clinic does not handle issues involving state taxes or criminal matters. All applicants for legal assistance will be screened for income and case merit. To see whether you might be eligible for assistance from the tax clinic, call 973-353-1685.

South Jersey Legal Services’ Low Income Tax Clinic (LITC) provides representation to migrant farmworkers and non-English-speaking individuals who have tax disputes and procedural problems with the IRS. They also conduct outreach and community legal education seminars on tax-related issues at farmworker labor camps, low-wage worker residential areas, and evening community education programs. For information on representation, call the clinic at 1-800-510-2492.​​​​​​​​​​​​​​​

This information last reviewed: Nov 2, 2011