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.

This article provides important information about filing your federal income taxes, which are due on or before April 15, 2008. (You may request an automatic extension of time to file but, if you owe any taxes, you must pay them on or before April 15, 2008, to avoid a late payment penalty.) It provides information to help you if you decide to file your own tax return: general guidance on filing status, dependents, exemptions, and some of the major credits that may be available to you.

Note: This issue provides general tax guidance and should not be used as the basis for advice in an individual case.

Many people choose to have their income taxes prepared for them, either using a free filing program or going to a paid preparer. Tax Preparation Help and Refund Anticipation Loans presented the available options for you if you want free tax preparation and filing and also warned taxpayers about refund anticipation loans. The next section offers more information about the dangers and costs of refund anticipation loans.

What if I do not have the money to pay my taxes?

If you do not have the money to pay the taxes you owe, file your return anyway. If you do not file your return when you are legally obligated to do so, the IRS has the right to collect the tax you owe, along with added interest and penalties. You should file your tax return even if you do not have the money to pay your taxes. You are only eligible to enter into an installment agreement/payment plan with the IRS if you file your tax return.

Important Information About Filing and Refund Delays

Your IRS refund may be delayed this year. President Bush signed tax legislation at the end of the year that delayed the ability of the IRS to program its computers in time for the 2007 tax filing season. This means that the IRS may not be able to process returns and send out refunds as early as it has done in the past.

Right now, the IRS is unable to process your return if you are a taxpayer who is eligible for education credits, residential energy credits, child and dependent care credits, or mortgage interest credits. The IRS hopes to be able to accept and process returns claiming these credits in mid-February. Each of these credits has a form that will not be accepted by the IRS until then. (Usually, the IRS is able to accept all returns with all forms by the middle of January.)

The IRS strongly encourages taxpayers who are eligible for any of the above credits to wait until February 11 to file a complete tax return using e-file. At that time, the IRS will be able to accept and process the returns. If you are eligible for one of the above-listed credits and file a return before mid-February, the IRS will not be able to process your return, and your refund will be delayed until after mid-February.

It is also not a good idea to file your return without one of the affected forms for the credit that you are claiming and then file an amended return with the form. If you do this, you may experience problems, such as:

• Slower receipt of your complete tax refund. Amended returns must be filed on paper and take longer (a minimum of 30-45 days) to process than original returns.
• The burden of having to file additional paperwork. Taxpayers will face additional paperwork if they decide to file without the proper forms and then go back and file an amended return.
• Increased costs. Filing an amended return may increase the return preparation costs for taxpayers who use a paid tax professional (since there would be two returns prepared instead of one).
• Increased chance of error. Paper returns have more errors than e-filed returns. Since amended returns can only be filed on paper, there is a greater chance of taxpayer error.
• Forgetting to file an amended return. The IRS is concerned that some taxpayers could forget to file an amended return, which would cost them a tax credit to which they are entitled. Filing electronically beginning Feb. 11 avoids this problem, and it gets the total refund out much faster than using an amended return.

Note: If you are considering filing for a refund anticipation loan and the amount of the loan and the interest rate is dependent upon a quick refund from the IRS, you may want to reconsider doing this. Since the IRS may not be able to provide a quick refund, you may end up paying more for the loan. Also, if you go to a tax preparer, the preparer may try to convince you to file early and then file an amended return. This will mean that you will pay two preparation fees and two filing fees.

New for 2007 Tax Year—Expanded NJ EITC

Last summer, Governor Corzine expanded the NJ Earned Income Tax Credit (NJ EITC) program to include nearly 300,000 additional low-income workers and their families. All residents who are eligible and file for a federal earned income credit can now also receive a New Jersey earned income tax credit. Previously, eligible applicants had to have New Jersey gross income of $20,000 or less and at least one qualifying child.

What is the New Jersey Earned Income Tax Credit?

The NJ EITC is a percentage of your federal EITC equal to 20% of the federal EITC amount. For example, if your federal earned income tax credit is $3,000, the amount of your NJ EITC will be 20% of $3,000, or $600. Part-year New Jersey residents who qualify for the NJ EITC must prorate the amount of the credit based on the number of months they live in New Jersey. To be eligible for the NJ EITC, you must (1) file for and receive the federal credit, and (2) file a New Jersey resident income tax return. You must file the returns, even if you are not required to file because your income is considered too low to owe taxes. To be eligible for the federal and NJ EITC for tax year 2007, you must have earned income from wages or self-employment and must have an adjusted gross income of less than:

• $37,783 ($39,783 if married filing jointly) with two or more qualifying children;
• $33,241 ($35,241 if married filing jointly) with one qualifying child; or
• $12,590 ($14,590 if married filing jointly) with no qualifying child/children.

No one with more than $2,900 in investment income, such as interest or dividends, can claim the EITC. And, if your filing status is married/civil union partner, filing a separate return, you may not claim the NJ EITC.

Filing Requirements

Do I need to file a tax return?

Whether or not you need to file a tax return depends on your income, your filing status, and your age. However, if you are a low-income worker or wage earner, it is a good idea to file because you may be eligible for exemptions, deductions and credits, and a refund. You are not entitled to a refund unless you file a return.

Note: You must file if you had advance earned income credits withheld from your pay.

You can find the general rules for filing on the IRS website.

Taxable Income

What income is taxable?

If you work and earn wages, your income is generally taxable income. Most likely, your employer has already withheld taxes for you and submitted these taxes to the federal and state governments. Often, the amounts withheld are too high and, when you file a tax return, the government will return the excess amount to you in a refund. If you received wages during 2007, your employer must send you a Form W-2 with the 2007 wages and taxes you paid by January 31, 2008.

Generally, you do not pay taxes on means-tested benefits, such as TANF, GA, SSI, child care grants, and housing assistance programs.

If you receive unemployment compensation, you will receive a Form 1099-G showing the total amount you received in 2007. Unless you have elected to have taxes withheld from your weekly unemployment checks, you are responsible for reporting the income and paying income tax on the amount received.

If you receive Social Security retirement benefits or disability benefits, your income is not taxable if it is the only income you received throughout the year. If you had other sources of income, from work or investments, some of your Social Security or disability benefits may be taxable. About one-third of people who get Social Security have to pay income taxes on their benefits. Below are examples of situations where individuals receiving Social Security benefits will have to pay taxes.

• If you use the single filing status and your combined income is between $25,000 and $34,000, you may have to pay taxes on 50 percent of your Social Security benefits. If your combined income is more than $34,000, up to 85 percent of your Social Security benefits is subject to income tax.
  
  
• If you file as married filing jointly, you may have to pay taxes on 50 percent of your benefits if you and your spouse have a combined income that is between $32,000 and $44,000. If your combined income is more than $44,000, up to 85 percent of your Social Security benefits is subject to income tax.
  
  
• If you are married and file a separate return, you probably will pay taxes on your benefits.

At the end of each year, you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received. You may use this statement when you complete your federal income tax return to find out if you have to pay taxes on your benefits.

Filing Status

How do I determine my filing status?

Generally, your marital status on the last day of the year determines your filing status for the whole year. For example, if you were married on December 31, 2007, you are considered married for the entire year. If you are divorced on December 31, 2007, you are considered unmarried for the whole year.

There are five filing statuses: single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child. Below are some important guidelines about filing status:

• For federal tax purposes, a marriage means only a legal union between a husband and wife. One of the following conditions must also be met:
• You may be married and living together as husband and wife;
• You may be living together in a common law marriage that is recognized in the state where you now live or in the state where the common law marriage began;
• You may be married and living apart, but not subject to an order for separate maintenance; or
• You may be married and living apart but not under a final court decree of divorce.
• To be unmarried, you must be unmarried on the last day of the year or legally separated from your spouse under a divorce or separate maintenance decree. State law governs whether you are married or legally separated or divorced.
• If you obtain a court decree of annulment, which holds that no valid marriage ever took place, you are considered unmarried. You must also amend, or correct, returns for the past three years (or whatever years are not barred by the statute of limitations), changing your filing status to single or head of household. The form to use to amend your returns is a 1040X.
• If your spouse died during the year, you are considered married for the whole year for filing purposes.
• Once you file a joint return, you cannot change your mind and change the return to a separate return but, if you file a separate return, you can generally change to a joint return any time within three years of the due date of the returns.

It is important to select the correct filing status, since it affects your exemptions, standard deductions, and other credits. More information about filing status follows.

Married filing jointly. If you are married, you and your spouse can choose to file a joint return as married filing jointly. You can file a joint return even if only one of you had income. On a joint return, you report your combined income and deduct your combined expenses. The benefits of choosing to file a joint return are that your taxes may be lower than if you choose to file separately as an individual, and your standard deduction may be higher. Also, you may qualify for tax benefits and credits that would apply to all other filing statuses.

There is one thing to remember about choosing to file jointly: you and your spouse are both jointly and individually responsible for any tax that is owed. That means that, even if your spouse earned the money, the IRS can seek payment of any tax due from you as well as your spouse. There are ways to be relieved of this responsibility, known as innocent spouse relief, relief by separation of liability, and equitable relief. You can find more information in IRS Publication 971.

Married Filing Separately. If you are married, you and your spouse can choose to file as married filing separately. This filing status may benefit you if you want to be responsible for your own taxes or if it results in a lower tax rate. If you and your spouse cannot agree to file a joint return, use this status unless you qualify as head of household.

Usually, if you are married and you choose to file separately, your taxes are higher than if you file jointly. Also, you can only report your own income, personal exemption, and credits. You can only claim an exemption for your spouse if your spouse had no income and was not the dependent of another person.

Finally, there are certain restrictions if you choose this filing status:

• In most cases, you cannot take the credit for child and dependent care expenses.
• You cannot take the earned income tax credit.
• You cannot take education credits.
• You cannot claim the credit for the elderly or disabled if you lived with your spouse during any part of the year. If you did live with your spouse, you will have to include as income the amount of any Social Security or equivalent railroad retirement benefits you received. Also, you cannot roll over amounts from a traditional IRA into a Roth IRA.
• If your spouse itemizes deductions, you cannot claim the standard deduction.
• The child tax credit, the retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions are reduced at income levels that are half of those for a joint return.

Head of Household. You can use the head of household filing status if you are unmarried or considered unmarried on the last day of the year, you paid more than half the cost of keeping up a home for the year, and a “qualifying person” lived with you in your home for more than half of the year. If the qualifying person is your dependent parent, he or she does not have to live with you.

The tax rate for head of household will generally be lower than rates for singles or married filing separately, and the standard deduction will be higher.

You can use a chart found in IRS Publication 501 and at the IRS website to determine if you have a qualifying child for head of household filing status.

If you are divorced, you may have a separate agreement with your ex-spouse concerning who can claim an exemption for children.

Qualifying Widow(er) with Dependent Child. You may be eligible to use qualifying widow(er) with dependent child as your filing status for two years following the year your spouse died. For example, if your spouse died in 2005 and you have not remarried, you may be able to use this filing status for 2006 and 2007. Using this filing status allows you to use the lower joint return rates and the highest standard deduction amount, but you cannot file a joint return. To use this filing status, the child or children must have lived in your home all year, and you must have paid more than half the cost of keeping up the home (rent, electricity, etc.).

Single. If you cannot use one of the above filing statuses, you must file as single.

Exemptions

What exemptions are available?

Exemptions reduce your taxable income. You can deduct $3,400 for each exemption you claim. You are generally allowed one exemption for yourself, one for your spouse, and one for each of your dependents. If you are a nonresident alien (other than a resident of Canada or Mexico), you can only use an exemption for yourself. You are not allowed to claim exemptions for dependents. If you can be claimed as a dependent by another person, you cannot take a personal exemption even if the other person does not actually claim you as a dependent. Your spouse is never considered your dependent.

A dependent is a “qualifying child” or a “qualifying relative.” You can find a chart explaining this in IRS Publication 501 and at the IRS website.

If you can claim an exemption for your dependent, the dependent cannot claim his or her own exemption if he or she files a tax return. You cannot claim a married person as a dependent if he or she files a joint tax return.

You cannot claim a person as a dependent unless that person is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico for some part of the year.

You must list the Social Security number of any dependent for whom you claim an exemption. Without a Social Security number, the IRS may refuse to allow the exemption and reduce your tax return. If your dependent does not have a Social Security number, you should apply for one by filing a Form SS-5 with the Social Security Administration. If you do not have the Social Security number by the time you need to file your return, you should use Form 4868 to ask the IRS for an automatic extension of time to file the return.

If your dependent is not eligible for a Social Security number, your dependent must apply for an individual taxpayer identification number using Form W-7.

Deductions and Credits

What deductions are available?

You can either take the standard deduction or you can itemize your deductions. A deduction reduces the amount of income on which you are responsible for paying tax. Itemized deductions include mortgage interest paid throughout the year, real estate property taxes paid, charitable contributions, and unreimbursed business expenses. You should use the standard deduction if it is higher than your itemized expenses.

The standard deduction is based on your filing status and whether you are 65 or older or blind. The amount you can use is listed on your tax return form.

What credits are available?

Credits may increase your tax refund and lower the amount of tax you owe the IRS. Each credit has different rules and works differently. Some credits simply reduce and possibly eliminate the tax you owe, while other credits may actually put money in your pocket. You must file a tax return to claim a credit.

Earned Income Tax Credit. The Earned Income Tax Credit (EITC) is a credit that is only available to you if you are a United States citizen or a resident alien with a Social Security number and earned income. If you receive a Social Security number after you file your tax return and you qualify for the credit, you may file an amended tax return and go back up to three years to claim the credit. This is true even if you used to use an Individual Taxpayer Identification Number (ITIN) or invalid Social Security number on your previous returns.

You must have earned income to apply for this credit. This includes income from wages, tips, and self-employment. The following are not considered to be earned income: unemployment benefits, child support, Social Security benefits, pensions, alimony, welfare benefits, food stamps, job training benefits, and interest.

You must use the filing status single, married filing jointly, head of household, or qualifying widower. You cannot use married filing separately. You must file a Form 1040 to claim this credit. You may not use Form 1040EZ or Form 1040A.

You cannot claim EITC if you have investment income, such as dividends, interest, or rents, of more than $2,800 for the taxable year 2007.

A qualifying child for EITC is not the same as a qualifying child for purposes of filing status. A qualifying child for the EITC must meet each of the tests described below:

• The relationship test. The child you are claiming must be your son, daughter, adopted child, stepchild, grandchild, or great-grandchild. This child could also be your brother, sister, stepbrother, stepsister, niece, nephew, or descendants of these relatives. And the child can be an eligible foster child, if the child was placed with you by an authorized placement agency.
• The age test. The child must be under age 18 at the end of the year or a full-time student under age 24. To be a full-time student, the child must be enrolled in school full time for at least five months of the year.
• The residence test. The child must live with you in the United States for more than half the year.
• The self-support test. The child cannot provide more than half of his or her own support.
• The citizen/resident test. The child must have a valid Social Security number.

All of these tests must be satisfied in order for a child to qualify.

For more information on the EITC, refer to page one of this article. Remember, if you qualify for the federal EITC, you qualify for the NJ EITC and should file a New Jersey income tax form to claim the credit.

Child Tax Credit. The child tax credit may be available to you if you have a child who was under the age of 17 at the end of 2007. You cannot use a Form 1040EZ but must use a Form 1040, 1040A or 1040NR. The child tax credit will not affect your ability to receive food stamps, public housing, welfare, or SSI.

To qualify for the credit, you must be raising the child as your own. The child can be your son, daughter, stepson, stepdaughter, adopted child, brother, sister, niece, nephew, grandchild, or eligible foster child (one placed with you by a court or authorized placement agency). You must be able to get a dependent exemption on your return for the child and the child must be a citizen or resident alien with a Social Security number. If the child does not have a Social Security number when you file the return, you should apply through the Social Security Administration for a number and use Form 4868 to request an automatic extension of time to file your tax return until you get the child’s Social Security number.

For each child you claim, you get $1,000 deducted from the taxes you owe. Generally, the credit does not pay you a refund; it simply lowers your taxes.

Additional Child Credit. Depending on your income, you may qualify for the additional child tax credit. If you qualify for this credit, you will receive a refund if the child tax credit reduces the taxes you owe and generates a refund. You must use IRS​ Form 8812 to claim the additional child tax credit.

Child and Dependent Care Tax Credit. The child and dependent care tax credit reduces your taxes by a percentage of the money you spent on child and adult care because you needed to go to work. You must have at least one dependent under the age of 13, or a dependent spouse or child who is physically or mentally disabled. The amount of the credit will depend on your income and the amount of money you spent on eligible care during the year. The child or adult for whom you are claiming the credit must be a U.S. citizen or alien resident with a Social Security number. You also need a Social Security number to claim the credit. If you file your return using an ITIN, you are not able to claim this credit. You cannot use Form 1040EZ to claim this credit.

ITINs

What are ITINs?

ITINs, or Individual Taxpayer Identification Numbers, should be used to file your return if you cannot legally obtain a Social Security number. ITINs are used for tax reporting purposes only. They are not general identification numbers and will not authorize you to work in the United States or receive Social Security benefits. However, if you are able to legally obtain a Social Security number in the future, the income that you have reported using the ITIN may be used to establish and increase Social Security benefits.

The IRS keeps all its return information strictly confidential. That means that, if you use an ITIN to file a return because you have worked in the United States but do not have a Social Security number, that information will not be shared with any other federal or state agency, including immigration.

To obtain an ITIN, you must complete a Form W-7, Application for IRS Individual Taxpayer Identification Number. The form is available at IRS website or by calling 1-800-TAX-FORM. You must provide certain identification documents which are listed on the application form.

Resources for Low-Income Taxpayers

What resources are available for low-income taxpayers?

VITA. VITA (Volunteer Income Tax Assistance) sites throughout New Jersey will help you prepare your forms if your income is below $35,000. To get information on the site closest to you, call 1-800-829-1040 or go to the IRS website.

IRS agents. Trained IRS agents can answer questions and can be reached at 1-800-829-4933 or 1-800-829-1040. If you are hearing-impaired and have TTY equipment, you can call 1-800-829-4059.

Tax-Aide. Tax-Aide is a free tax-preparation program sponsored by the Association for the Advancement of Retired Persons (AARP) for senior citizens. To find the Tax-Aide office nearest you, call 1-888-AARP-NOW or visit AARP’s website.

Community centers and organizations. Community centers and organizations throughout the state run free programs for low-income taxpayers. Check your newspapers to find more information.

IRS Free File. The IRS Free File program makes tax software available to eligible taxpayers for free. To be eligible for this program in 2007, taxpayers must have earned $54,000 or less. You can get Free File only through the IRS website. Find more information in Tax Preparation Help and Refund Anticipation Loans, or at the IRS website.

Warning About Notarios

In much of Latin America, notarios (notaries or notary publics) are attorneys. However, in the United States, a notary public is not a lawyer, an accountant, or a licensed qualified tax preparer. Notarios in the United States cannot give legal advice or prepare tax returns. In the United States, a notary public can only administer oaths and witness signatures.

Unfortunately, scam artists use the title notario. They prey on immigrants with limited English skills and little understanding of the American legal system by misrepresenting themselves as lawyers or tax preparers. Therefore, beware of notarios who are providing legal services or tax preparation services because they might be involved in the unauthorized practice of law or unauthorized preparation of tax returns.

One Last Point: Read and Understand Your Tax Return Before You Sign and File It!

You are ultimately responsible for everything on your tax return, whether it was prepared for you or you prepared it yourself. When you sign and file your return, you are stating that you have reviewed every line of the return and you agree with everything on the return. Be careful! If you do not understand an entry made by a preparer, ask questions until you understand how and why the preparer completed the return. Sign the return only if you agree with it. If you cannot prepare your return by yourself, go to one of the free sites listed above under resources for low-income taxpayers.

This information last reviewed: Nov 2, 2011