ACC 330 Project One Milestone One

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330

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ACC 330 Project One Milestone One Research to compare tax credits and their corresponding forms.  Compare the current tax year with the prior tax year (for instance, 2021 and 2020).  Research the forms required for the respective tax year and complete the table.  Follow the example provided for Earned Income Tax Credit (EITC). Hint: Changes in requirement and parameter may include the following areas: amount of credit, income thresholds, qualified dependents and/or filing status. Note: All tax credits will be different and will contain varying amounts of information based on changes you observe over time. EXAMPLE: Form 1040 Earned Income Tax Credit (EIC) Address the following: Specify changes, uses, developments:  Example of when this may apply using professional terms to describe clients  Changes to the form from year A to year B  Changes to areas to consider from year to year  Possible new developments and why they may occur  The Earned Income Tax Credit (EITC) , also referred to as EIC, helps low-to-moderate income workers and their families by potentially reducing the taxes they owe and potentially increasing their refund. The credit varies depending on the taxpayers’ income, if they have any children or other dependents, if they are disabled, and/or if they meet other criteria. The taxpayer must have “earned income” to qualify, which includes taxable income or wages from working for someone else, yourself, or a business you own.  Required forms – The EITC is reported directly on Form 1040, but the line may change from year to year. For example, for 2020, EITC was reported on Form 1040, page 2, line 27 but for 2021, EITC was reported on Form 1040, page 2, line 27a (and includes lines 27a-c). Schedule EIC is filed for taxpayers with qualifying children, however, there are not notable differences between the schedule for 2020 to 2021. For detailed examples of calculating the EITC and how to complete the applicable forms, refer to Publication 596.  Changes to consider – The criteria for adjusted gross income and the number of children or relatives claimed for the tax year impact the calculation of this credit. For example, in 2020, the maximum credit that could be claimed by a taxpayer filing as single with zero children claimed, whose AGI was between $15,820 to $21,710, was $538. In 2021, however, the maximum credit that could be claimed by a

Address the following: Specify changes, uses, developments: taxpayer filing as single with zero children claimed whose AGI was between $21,430 to $27,380, was $1,502.  New developments – The example provided above, noting such as an increase in the EITC from 2020 to 2021 for the same scenario, was a result of expanded tax credits for taxpayers filing without dependent children for 2021, and there are also changes for beyond 2021 relating to the credit. Refer to the IRS Article below titled “IRS: Expanded credits for families highlight tax changes for 2021; many people who don’t normally file should file this year.” Documentation if applicable (statements from taxpayer(s), other substantiating proof, official IRS tax forms provided to the taxpayer(s), etc.)  Per IRS Publication 596, the IRS might request copies of the following to substantiate the EITC: birth certificates, school records, childcare records, documents reflecting child’s address, etc.  Form 8867 is also required to be filed when claiming the EITC. Form 8867 requires other due diligence to be performed, including a separate section on the form just related to the EITC. Refer to the current version of Form 8867. Citations – Include related IRS publications, IRS articles, tax forms for each year used for comparison, and any other supporting research  IRS publication – Publication 596, Earned Income Credit (EIC) - 2020. https://www.irs.gov/pub/irs-prior/p596--2020.pdf  IRS publication – Publication 596, Earned Income Credit (EIC) - 2021. https://www.irs.gov/pub/irs-pdf/p596.pdf (Note: This link is subject to change as it links to the most recent tax year automatically. If the form is updated by the IRS, the tax year reflected may change. If so, search for the applicable tax form year directly.)  IRS Article – “Earned Income and Earned Income Tax Credit (EITC) Tables.” IRS.gov. August 25, 2022. https://www.irs.gov/credits-deductions/individuals/earned- income-tax-credit/earned-income-and-earned-income-tax-credit-eitc-tables.  IRS Article – “Who Qualifies for the Earned Income Tax Credit (EITC).” IRS.gov. July 14, 2022. https://www.irs.gov/credits-deductions/individuals/earned-income-tax- credit/who-qualifies-for-the-earned-income-tax-credit-eitc.  IRS Article –“IRS: Expanded Credits for Families Highlight Tax Changes for 2021; Many People Who Don’t Normally File Should File Fhis Year.” IRS.gov. February 2022. https://www.irs.gov/newsroom/irs-expanded-credits-for-families-highlight- tax-changes-for-2021-many-people-who-dont-normally-file-should-file-this-year.  2020 Form 1040 (see page 2, line 27) – https://www.irs.gov/pub/irs-prior/f1040--

Address the following: Specify changes, uses, developments: 2020.pdf.  2021 Form 1040 (see page 2, line 27a) – https://www.irs.gov/pub/irs-pdf/f1040.pdf. (Note: This link is subject to change as it links to the most recent tax year automatically. If the form is updated by the IRS, the tax year reflected may change. If so, search for the applicable tax form year directly.)  2020 Schedule EIC – https://www.irs.gov/pub/irs-prior/f1040sei--2020.pdf.  2021 Schedule EIC – https://www.irs.gov/pub/irs-pdf/f1040sei.pdf. (Note: This link is subject to change as it links to the most recent tax year automatically. If the form is updated by the IRS, the tax year reflected may change. If so, search for the applicable tax form year directly.)  Form 8867, Paid Preparer’s Due Diligence Checklist – https://www.irs.gov/pub/irs- pdf/f8867.pdf 1. Form 8863 Education Tax Credit American Opportunity Tax Credit (AOTC) Address the following: Specify changes, uses, developments:  Example of when this may apply using professional terms to describe clients  Changes to the form from year A to year B  Changes to areas to consider from year to year  Possible new developments and why they may occur  Form 8863, Education Credits – This form is used to claim education credits based on qualified education expenses paid to an eligible postsecondary educational institution. AOTC is a partially refundable credit, 40% of the credit can be refundable. It can be claimed up to a maximum of $2,500 for each eligible student. For single filers, HOH, married filing separately, this credit phases out after MAGI of $80,000 fully eliminated after MAGI of $90,000. For taxpayer filing joint returns, these totals are $160,000 and $180,000. This credit can only be claimed for the first four years of postsecondary education. The student must not have any felony drug convictions and must be enrolled at least half-time pursuing a program leading to a degree or other recognized education credentials.  Required Forms – With no changes to Form 8863 for calculating the American Opportunity Tax Credit in years 2020 and 2021, AOTC is reported directly on Form 1040, line 29, for both tax years 2020 and 2021.  Changes to consider – There are no changes for years 2020 and 2021 that affect the American Opportunity Tax Credit on Form 8863.

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Address the following: Specify changes, uses, developments: Documentation if applicable (statements from taxpayer(s), other substantiating proof, official IRS tax forms provided to the taxpayer(s), etc.)  Eligible educational institutions file Form 1098-T to show taxpayer expenses related to education and are issued to the taxpayer. Form 1098-T is needed to file for AOTC per IRS Instructions for Form 8863. If the form is not available, proper procedures for Form 1098-T requirement must be followed.  This credit is only allowed to be used for a total of four years. To ensure accuracy and eligibility, prior years’ returns need to be checked and maintained. Citations – Include related IRS publications, IRS articles, tax forms for each year used for comparison, and any other supporting research  IRS Publication – Publication 970, Tax Benefits for Education -2020. https://www.irs.gov/pub/irs-prior/p970--2020.pdf  IRS Publication – Publication 970, Tax Benefits for Education -2021. https://www.irs.gov/pub/irs-pdf/p970.pdf  2020 Form 8863 - https://www.irs.gov/pub/irs-prior/f8863--2020.pdf  2020 Instructions for Form 8863 - https://www.irs.gov/pub/irs-prior/i8863-- 2020.pdf  2021 Form 8863 - https://www.irs.gov/pub/irs-prior/f8863--2021.pdf  2021 Instructions for Form 8863 - https://www.irs.gov/pub/irs-prior/i8863-- 2021.pdf  2020 Form 1040 (page 2, line 29) https://www.irs.gov/pub/irs-prior/f1040-- 2020.pdf  2021 Form 1040 (page 2, line 29) https://www.irs.gov/pub/irs-prior/f1040-- 2021.pdf 2. Form 8863 Lifetime Learning Credit (LLC) Address the following: Specify changes, uses, developments  Example of when this may apply using professional terms to describe clients  Changes to the form from year A to year B  Changes to areas to consider from year to year  Possible new developments and why they may occur  Form 8863, Education Credits is used to claim education credits based on qualified education expenses paid to an eligible postsecondary educational institution. The Lifetime Learning Credit is equal to 20% of adjusted qualified education expenses per return, with a maximum of $10,000 of adjusted qualified expenses. This results in a maximum credit of $2,000 per year. It is a nonrefundable credit and is limited to the amount of tax you must pay on your taxable income, subject to the maximum $2,000. This credit is available for all years of postsecondary education and for courses to acquire or improve job skills. It is also available for an unlimited

Address the following: Specify changes, uses, developments number of years. There are no requirements for a minimum number of courses and felony drug convictions don’t make students ineligible.  Required Forms – The Lifetime learning credit is calculated on form 8863 and the amount is transferred to Schedule 3 (Form 1040), Additional Credit and Payments, line 3 (on both 2020 and 2021 versions). The Schedule 3 amounts (line 13 on 2020 and line 15 on 2021) are then transferred to Form 1040, line 31.  Changes to consider/New developments – The Lifetime Learning Credit limit on modified adjusted gross income increased in 2021 from $69,000 ($138,000 if married filing jointly) to $90,000 ($180,000 if married filing jointly). Documentation if applicable (statements from taxpayer(s), other substantiating proof, official IRS tax forms provided to the taxpayer(s), etc.)  Documentation needed may include qualified education expenses including books, supplies and equipment only if required to be paid to the institution as a condition of enrollment. A form 1098-T may be issued, but the amount may not be correct.  Only amounts you actually paid (or are treated as having paid) should be used to calculate qualifying expenses. Citations – Include related IRS publications, IRS articles, tax forms for each year used for comparison, and any other supporting research  IRS Publication – Publication 970, Tax Benefits for Education -2020. https://www.irs.gov/pub/irs-prior/p970--2020.pdf  IRS Publication – Publication 970, Tax Benefits for Education -2021. https://www.irs.gov/pub/irs-pdf/p970.pdf  2020 Form 8863 - https://www.irs.gov/pub/irs-prior/f8863--2020.pdf  2020 Instructions for Form 8863 - https://www.irs.gov/pub/irs-prior/i8863-- 2020.pdf  2021 Form 8863 - https://www.irs.gov/pub/irs-prior/f8863--2021.pdf  2021 Instructions for Form 8863 - https://www.irs.gov/pub/irs-prior/i8863-- 2021.pdf  2020 Form 1040 (page 2, line 29) https://www.irs.gov/pub/irs-prior/f1040-- 2020.pdf  2021 Form 1040 (page 2, line 29) https://www.irs.gov/pub/irs-prior/f1040-- 2021.pdf  2020 Schedule 3 https://www.irs.gov/pub/irs-prior/f1040s3--2020.pdf  2021 Schedule 3 https://www.irs.gov/pub/irs-prior/f1040s3--2021.pdf

3. Form 8812 Child Tax Credit Address the following: Specify changes, uses, developments:  Example of when this may apply using professional terms to describe clients  Changes to the form from year A to year B  Changes to areas to consider from year to year  Possible new developments and why they may occur  The Child Tax Credit helps families with qualifying children get a tax break. The CTC is a refundable credit to be used for qualifying children. Eligibility requires that each child claimed for the credit be under 18 years of age at the end of the year, be an eligible child, provide no more than half of their own support, have lived with the taxpayer for more than half the year, be claimed as a dependent, have been a US citizen, national or resident alien. Additionally, a taxpayer qualifies if they meet all eligibility factors and cannot exceed the following annual income limits: $150,000 for married filing jointly, $112,500 for head of household, and $75,000 for single and married filing separately.  Required forms – For tax year 2021 and later, Publication 972 will no longer be used to figure child tax credit. Instead, Schedule 8812 will be used. For 2020, Publication 972, line 15 is transferred to Form 1040, line 19. For 2021, Schedule 8812, line 15g is transferred to Form 1040, line 19, and Schedule 8812, line 15h is transferred to Form 1040, line 28. Instructions for Schedule 8812 include a worksheet that is used to determine the amount of line 5 in form 8812.  Changes to Consider – The Schedule 8812 and its instructions have been revised to be the single source for figuring and reporting child tax credit. This means Publication 972 is no longer used. The child tax credit increased from $2,000 to $3,000 ($3,600 for children under 6). In 2021, payments were made during the year. Letter 6419 details the payments made and must be kept with tax records. Documentation if applicable (statements from taxpayer(s), other substantiating proof, official IRS tax forms provided to the taxpayer(s), etc.)  Letter 6419 – advanced child tax credit received in 2021 Citations – Include related IRS publications, IRS articles, tax forms for each year used for comparison, and any other supporting research  IRS Article – “Child Tax Credit.” IRS.gov. August 25, 2022. https://www.irs.gov/credits-deductions/individuals/child-tax-credit  2020 Instructions for Schedule 8812 https://www.irs.gov/pub/irs-prior/i1040s8-- 2020.pdf  2021 Instructions for Schedule 8812 https://www.irs.gov/pub/irs-prior/i1040s8-- 2021.pdf  2020 Schedule 8812 Additional Child Tax Credit https://www.irs.gov/pub/irs-

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Address the following: Specify changes, uses, developments: prior/f1040s8--2020.pdf  2021 Schedule 8812 Credit for Qualifying Children and Other Dependents https://www.irs.gov/pub/irs-prior/f1040s8--2021.pdf  2020 Form 1040 (page 2, line 28) https://www.irs.gov/pub/irs-prior/f1040-- 2020.pdf  2021 Form 1040 (page 2, line 28) https://www.irs.gov/pub/irs-prior/f1040-- 2021.pdf  IRS Article - “About Publication 972, Child Tax Credit and Credit for Other Dependents”. August 29, 2022. IRS.gov. https://www.irs.gov/forms-pubs/about- publication-972  IRS Article – “Understanding Your Letter 6419”. January 4, 2023. IRS.gov. https://www.irs.gov/individuals/understanding-your-letter-6419 4. Form 8812 Other Dependent Credit Address the following: Specify changes, uses, developments:  Example of when this may apply using professional terms to describe clients  Changes to the form from year A to year B  Changes to areas to consider from year to year  Possible new developments and why they may occur  Taxpayers with dependents who don’t qualify for the child tax credit may be able to claim this credit for other dependents. This credit is non-refundable and can only reduce the tax bill. The maximum credit is $500 for each dependent that meets the criteria. The credit can be claimed for any dependent that is claimed as a dependent on the tax return, regardless of age or relation to the taxpayer. The credit begins to phase out when income is more than $200,000 ($400,000 for married filing jointly).  Changes to consider – Schedule 8812 and its instructions have been revised to be the single source for calculating and reporting credit for other dependents. The instructions include all applicable worksheets and Publication 972 is no longer used. Documentation if applicable (statements from taxpayer(s), other substantiating proof, official IRS tax forms provided to the taxpayer(s), etc.)  Not Applicable Citations – Include related IRS publications, IRS articles, tax forms for each year used for comparison, and any other supporting research  IRS Article – “An overview of the credit for other dependents”. January 24, 2022. IRS.gov. https://www.irs.gov/newsroom/an-overview-of-the-credit-for-other- dependents

Address the following: Specify changes, uses, developments:  IRS Publication - IRS Publication 501 – Dependents, Standard Deduction and Filing Information 2021. https://www.irs.gov/pub/irs-prior/p501--2021.pdf  IRS Publication IRS Publication 501 – Dependents, Standard Deduction and Filing Information 2020. https://www.irs.gov/pub/irs-prior/p501--2020.pdf  2020 Instructions for Schedule 8812 https://www.irs.gov/pub/irs-prior/i1040s8-- 2020.pdf  2021 Instructions for Schedule 8812 https://www.irs.gov/pub/irs-prior/i1040s8-- 2021.pdf  2020 Schedule 8812 Additional Child Tax Credit https://www.irs.gov/pub/irs- prior/f1040s8--2020.pdf  2021 Schedule 8812 Credit for Qualifying Children and Other Dependents https://www.irs.gov/pub/irs-prior/f1040s8--2021.pdf  2020 Form 1040 (page 2, line 28) https://www.irs.gov/pub/irs-prior/f1040-- 2020.pdf  2021 Form 1040 (page 2, line 28) https://www.irs.gov/pub/irs-prior/f1040-- 2021.pdf 5. Form 2441 Child and Dependent Care Credit Address the following: Specify changes, uses, developments:  Example of when this may apply using professional terms to describe clients  Changes to the form from year A to year B  Changes to areas to consider from year to year  Possible new developments and why they may occur  Form 2441, Child and Dependent Care Expenses is used to claim credit when you paid someone to care for your child or other qualifying person so you could work or look for work. The maximum credit amounts changed from $3,000 ($6,000 for two or more) to $8,000 ($16,000 for two or more) per dependent. Taxpayers must past qualifying person test, earned income test, work related expense test, joint return test, and provider identification test to take the credit.  Changes to Form – Carefully review the changes to Form 2441 that have been made for 2021. Additional question was added above Part 1 to qualify for the refundable credit. This was a nonrefundable credit in prior years. The credit can be up to 50% of your employment related expenses for 2021, up from 35% in 2020. The maximum credit amounts changed from $3,000 ($6,000 for two or more) per dependent to $8,000($16,000 for two or more) per dependent. The decimal account calculations needed for Line 8 have been moved to the Instructions for Form 2441. Documentation if applicable (statements from taxpayer(s), other substantiating proof, official  Form W-10 Dependent Care Provider’s Identification and Certification

Address the following: Specify changes, uses, developments: IRS tax forms provided to the taxpayer(s), etc.) Citations – Include related IRS publications, IRS articles, tax forms for each year used for comparison, and any other supporting research  2021 Instructions for Form 2441. https://www.irs.gov/pub/irs-prior/i2441--2021.pdf  2020 Instructions for Form 2441. https://www.irs.gov/pub/irs-prior/i2441--2020.pdf  IRS Publication – IRS Publication 503 – Child and Dependent Care Expenses – 2020. https://www.irs.gov/pub/irs-prior/p503--2020.pdf  IRS Publication – IRS Publication 503 – Child and Dependent Care Expenses – 2021. https://www.irs.gov/pub/irs-prior/p503--2021.pdf  2021 Form 2441 Child and Dependent Care Expenses https://www.irs.gov/pub/irs- prior/f2441--2020.pdf  2020 Form 2441 Child and Dependent Care Expenses https://www.irs.gov/pub/irs- prior/f2441--2021.pdf  IRS Article “About Form 2441, Child and Dependent Care Expenses. January 11, 2023. IRS.gov. https://www.irs.gov/forms-pubs/about-form-2441  Form W-10 Dependent Care Provider’s Indentification and Certification

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ACC 330 Project One Milestone One

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