Category: IRS

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IRS Sex workers taxes

How a taxpayer’s filing status affects their tax return

A taxpayer’s filing status tells the IRS about them and their tax situation. This is just one reason taxpayers should familiarize themselves with each option and know their correct filing status. The IRS Interactive Tax Assistant can help them determine their filing status.

A taxpayer’s filing status typically depends on whether they are considered unmarried or married on Dec. 31, which determines their filing status for that entire year.

More than one filing status may apply in certain situations. If this is the case, taxpayers can usually choose the filing status that allows them to owe the least amount of tax.

When preparing and filing a tax return, filing status determines:
• If the taxpayer is required to file a federal tax return
• If they should file a return to receive a refund
• Their standard deduction amount
• If they can claim certain tax credits
• The amount of tax they owe
Here are the five filing statuses:
• Single. Normally, this status is for taxpayers who are unmarried, divorced or legally separated under a divorce or separate maintenance decree governed by state law.
• Married filing jointly. If a taxpayer is married, they can file a joint tax return with their spouse. If one spouse died in 2021, the surviving spouse can use married filing jointly as their filing status for 2021 if they otherwise qualify to use that status.
• Married filing separately. Married couples can choose to file separate tax returns. This may benefit taxpayers who want to be responsible only for their own tax or if it results in less tax than filing a joint return.
• Head of household. Unmarried taxpayers may be able to file using this status, but special rules apply. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person living in the home for half the year.
• Qualifying widow or widower with dependent child. This status may apply to a taxpayer filing a 2021 tax return if their spouse died in 2019 or 2020, and they didn’t remarry before the end of 2021 and have a dependent child. Other conditions also apply.

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IRS Sex workers taxes

Taxpayers must report gig economy earnings when filing taxes

Whether it’s a full-time job or just a side hustle, taxpayers must report gig economy earnings on their tax return. Understanding how gig work can affect taxes may sound complicated but, it doesn’t have to be. The IRS offers several resources to help gig economy taxpayers properly fulfill their tax responsibilities.
Here are some things gig workers should keep in mind.
Gig work is taxable:
• Earnings from gig economy work is taxable, regardless of whether an individual receives information returns. The reporting requirement for issuance of Form 1099-K changed for payments received in 2022 to totals exceeding $600, regardless of the total number of transactions. This means some gig workers will now receive an information return. This is true even if the work is full-time, part-time or if an individual is paid in cash.
• Gig workers may also be required to make quarterly estimated income tax payments and pay their share of Social Security and Medicare taxes.
Check worker classification:
• While providing gig economy services, it is important that the taxpayer is correctly classified.
• This means the business, or the platform, must determine whether the individual providing the services is an employee or independent contractor.
• Taxpayers can use the worker classification page on IRS.gov to see how they are classified.
• Independent contractors may be able to deduct business expenses, depending on tax limits and rules. It is important for taxpayers to keep records of their business expenses.
Pay the right amount of taxes throughout the year:
• An employer typically withholds income taxes from their employees’ pay to help cover income taxes their employees owe.
• Gig economy workers who are not considered employees have two ways to cover their income taxes:
o Submit a new From W-4 to their employer to have more income taxes withheld from their paycheck, if they have another job as an employee.
o Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.
The Gig Economy Tax Center on IRS.gov answers questions and helps gig economy taxpayers understand their tax responsibilities.

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IRS Sex workers taxes

It’s important for taxpayers to know the difference between standard and itemized deductions

It’s important for taxpayers to know the difference between standard and itemized deductions
Taxpayers have two options when completing a tax return, take the standard deduction or itemize their deductions. Most taxpayers use the option that gives them the lowest overall tax.
Due to all the tax law changes in the recent years, including increases to the standard deduction, people who itemized in the past might want to switch to the standard deduction.
Here are some details about the two options.
Standard deduction
The standard deduction amount increases slightly every year and varies by filing status. The standard deduction amount depends on the taxpayer’s filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don’t itemize deductions are entitled to a higher standard deduction.
Most filers who use Form 1040 can find their standard deduction on the first page of the form. The standard deduction for most filers of Form 1040-SR, U.S. Tax Return for Seniors, is on page 4 of that form.
Not all taxpayers can take a standard deduction, which is discussed in the Instructions for Forms 1040 and 1040-SR. Those taxpayers include:
• A married individual filing as married filing separately whose spouse itemizes deductions—if one spouse itemizes on a separate return, both must itemize.
• An individual who files a tax return for a period of less than 12 months. This is uncommon and could be due to a change in their annual accounting period.
• An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.
Itemized deductions
Taxpayers choose to itemize deductions by filing Schedule A, Form 1040, Itemized Deductions. Itemized deductions that taxpayers may claim include:
• State and local income or sales taxes
• Real estate and personal property taxes
• Home mortgage interest
• Mortgage insurance premiums on a home mortgage
• Personal casualty and theft losses from a federally declared disaster
• Gifts to a qualified charity
• Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income
Some itemized deductions, such as the deduction for taxes, may be limited. Taxpayers should review the instructions for Schedule A Form 1040 for more information on limitations.

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IRS Sex workers taxes

Get ready for taxes: Here’s what’s new and what to consider when filing in 2022

The IRS encourages taxpayers to get informed about topics related to filing their federal tax returns in 2022. These topics include special steps related to charitable contributions, economic impact payments and advance child tax credit payments. Taxpayers can visit IRS.gov/getready for online tools, publications and other helpful resources for the filing season.
Here are some key items for taxpayers to know before they file next year.
Changes to the charitable contribution deduction
Taxpayers who don’t itemize deductions may qualify to take a deduction of up to $600 for married taxpayers filing joint returns and up to $300 for all other filers for cash contributions made in 2021 to qualifying organizations.
Check on advance child tax credit payments
Families who received advance payments will need to compare the advance child tax credit payments that they received in 2021 with the amount of the child tax credit that they can properly claim on their 2021 tax return.
• Taxpayers who received less than the amount for which they’re eligible will claim a credit for the remaining amount of child tax credit on their 2021 tax return.
• Eligible families who did not get monthly advance payments in 2021 can still get a lump-sum payment by claiming the child tax credit when they file a 2021 federal income tax return next year. This includes families who don’t normally need to file a return.
In January 2022, the IRS will send Letter 6419 with the total amount of advance child tax credit payments taxpayers received in 2021. People should keep this and any other IRS letters about advance child tax credit payments with their tax records. Individuals can also create or log in to IRS.gov online account to securely access their child tax credit payment amounts.
Economic impact payments and claiming the recovery rebate credit
Individuals who didn’t qualify for the third economic impact payment or did not receive the full amount may be eligible for the recovery rebate credit based on their 2021 tax information. They’ll need to file a 2021 tax return, even if they don’t usually file, to claim the credit.
Individuals will need the amount of their third economic impact payment and any plus-up payments received to calculate their correct 2021 recovery rebate credit amount when they file their tax return.
In early 2022, the IRS will send Letter 6475 that contains the total amount of the third economic impact payment and any plus-up payments received. People should keep this and any other IRS letters about their stimulus payments with other tax records. Individuals can also create or log in to IRS.gov online account to securely access their economic impact payment amounts.
More information:
Reconciling Your Advance Child Tax Credit Payments on Your 2021 Tax Return

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IRS Sex workers taxes

Here’s how businesses can deduct startup costs from their federal taxes

When starting a business, owners should treat all eligible costs incurred before beginning to operate the business as capital expenditures that are part of their basis in the business. Generally, the business can recover costs for assets through depreciation deductions.

For costs paid or incurred after September 8, 2008, the business can deduct a limited amount of start-up and organizational costs. They can recover the costs they cannot deduct currently over a 180-month period. This recovery period starts with the month the business begins to operate active trade or as a business.
Business start-up costs
Start-up costs are amounts the business paid or incurred for creating an active trade or business, or investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit, and to produce income in anticipation of the activity becoming an active trade or business.
Qualifying costs
A start-up cost is recoverable if it meets both of the following requirements:
• It’s a cost a business could deduct if they paid or incurred it to operate an existing active trade or business, in the same field as the one the business entered into.
• It’s a cost a business pays or incurs before the day their active trade or business begins.
Start-up costs include amounts paid for the following:
• An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
• Advertisements for the opening of the business.
• Salaries and wages for employees who are being trained and their instructors.
• Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
• Salaries and fees for executives and consultants, or for similar professional services.
Nonqualifying costs
Start-up costs don’t include deductible interest, taxes, or research and experimental costs.
Purchasing an active trade or business
Recoverable start-up costs for purchasing an active trade or business include only investigative costs incurred during a general search for or preliminary investigation of the business. These are costs that help in deciding whether to purchase a business. Costs incurred to purchase a specific business are capital expenses that can’t be amortized.

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IRS Sex workers taxes

Changes in 1099-K Threshold: What it Means for the Gig Economy

What this means to you is if you take tributes or any form of payment over $600 from PayPal, Cashapp, Zelle, or any other apps they will send you a 1099-K and IRS will get a copy too. Save this form for your taxes. IRS will cross reference it with the tax return that you file.

The American Rescue Plan Act of 2021 is intended to combat the economic and health impacts of the COVID-19 pandemic but within this $1.9 trillion stimulus package is a provision that will spell significant change for third-party settlement organizations and many gig workers.

The Act, which was signed into law March 2021, substantially reduces the reporting threshold associated with Form 1099-K from $20,000 in aggregate payments and 200 transactions to a threshold of $600 in aggregate payments, with no minimum transaction requirement. Form 1099-K is used to report payment card and third-party network transactions.

This change will become effective in 2022 and will impact the January 2023 filings.

Why the change? In short, the IRS is looking to reduce the tax gap through such measures as voluntary taxpayer compliance and information reporting. The tax gap is the difference between what taxpayers owe and what they pay timely.

The most recent IRS estimates of the tax gap relies on data from 2011 to 2013 and puts the average gross tax gap at $441 billion per year. Furthermore, a study by economists Natasha Sarin and Lawrence Summers projects that, between 2020 and 2029, the IRS will fail to collect nearly $7.5 trillion of taxes it is due.

Self-employment income is frequently underreported for income tax purposes, and, as noted by the Treasury Inspector General for Tax Administration (TIGTA), IRS tax gap studies estimate that when third parties do not provide information to the IRS, 63 percent of income is misreported. With the rise of the gig economy (think: Uber, Etsy, Lyft, etc.) in recent years, it is “likely that self-employment tax underreporting will continue to be a growing problem if not addressed,” the TIGTA stated.

“The purpose of lowering the threshold is to increase voluntary compliance. Tax gap studies through the years have consistently demonstrated that third-party reporting significantly raises voluntary compliance. So, by lowering the threshold, more transactions are now subject to reporting,” said Janice Krueger, subject matter expert for Greatland.

What it Means for Gig Workers
The change could be an unwelcome surprise for gig workers, especially if they haven’t been closely tracking their tax liability.

“The gig economy is a labor market based on temporary, flexible, freelance jobs where an individual earns income by providing on-demand services or goods. Income earned from the gig economy is taxable income whether a gig worker receives an information return or not. So, gig work is a certain activity a person does to earn income, often through an app or a digital platform,” said Krueger. “With the COVID-19 outbreak many individuals pursued other ways of earning income, especially if their current job was impacted by the pandemic.”

To further explain, consider the following example: Sally earns income as a driver through a ride-sharing platform. Currently, Sally would have to both earn at least $20,000 in payment for services and provide a minimum of 200 rides in a year before the online platform business, or third-party settlement organization (TPSO), would have an information reporting obligation. In such cases, the TPSO is required to send both Sally and the IRS a Form 1099-K listing the total amount of payments made during the year.

Effective in 2022, Sally would have to earn only $600 in payment for services, with no minimum of rides in a year, before the TPSO would have an information reporting obligation.

Under the new law, many more individuals will be receiving Form 1099-K reporting income from gig work, and accurately tracking and recording their tax liability (i.e., earned income and incurred expenses) will be especially important because it will need to be reported on their tax return.

“The Form 1099-K reports the gross amount of a reportable payment. It doesn’t include any adjustments for credits, cash equivalents, discounts, and so forth. The dollar amount of each transaction is determined on the date of the transaction,” added Krueger. “The other thing to note is if a gig worker is classified as an employee, for example, the individual will receive a W-2 from the employer. So, each of those gig workers needs to be classified first as whether they are an employee or an independent contractor.”

Impact on TPSOs
The change will have a major impact on TPSOs of goods and services. Not only does it significantly increase the number of Form 1099-Ks they will be required to file in a given year, but many will be required to take a closer look at their technology and processes to ensure compliance.

As explained by PwC, “The reduction in the reporting threshold will affect the onboarding practices of many TPSOs, specifically the process for collecting TINS [taxpayer identification numbers] that previously were based on higher thresholds. Failure to recognize the need for collecting TINs earlier in the TPSO relationship could expose organizations to excessive backup withholding obligations or liability if proper information is not obtained or the withholding is missed.”

Echoing the sentiment, Krueger said, “There’s going to be significantly more entities receiving 1099-K information. Third-party settlement organizations are going to be sending out many more 1099-Ks than they have in the past. So, it is important that when they onboard an entity, it should be a standard practice to obtain a taxpayer identification number upfront since this number is required to be reported on the 1099-K. If an entity provides incorrect taxpayer identification number information, then the third-party settlement organization would need to request correct information and to begin backup withholding if a correct TIN is not received.”

When a name and TIN combination doesn’t match the IRS database, it is the TPSO’s responsibility to then notify the entity via a B Notice (backup withholding notice). Unfortunately, rectifying the issue can prove time-consuming and frustrating for TPSOs. Furthermore, ignoring the mismatch can lead to penalties for the TPSO.

Take Action
Fortunately, there are steps that TPSOs can take to help ease the burden of ensuring compliance.

“It is essential to find a strategy that fully supports all reporting requirements and lessens the burden of annual wage and income reporting. Not only is it critical to find a 1099-K filing solution, but it’s also important find a W-2 and 1099-NEC solution in the event that workers are classified as employees or independent contractors not being paid by payment cards through a TPSO,” advised Krueger.

Implementing a comprehensive online 1099 and W-2 reporting platform, like Yearli.com by Greatland, can help TPSOs ensure they have access to a streamlined and compliant process for meeting all of these filing requirements.

It is important to note that, while the reduction of the reporting threshold associated with Form 1099-K is a federal threshold, there are Form 1099 filing requirements that vary by state and some states have already adopted a lower 1099-K threshold.

Yearli.com has a year-round compliance staff that remains in close contact with federal and state agencies to help ensure compliance at both the federal and state levels. It provides guidance to users on state reporting requirements and informs them of the best method to complete their filing obligations, as well as offers federal e-filing and a print and mail service for recipient copies.

Yearli.com also provides an automated TIN matching service, which can help TPSOs ensure that, when onboarding, names and TINs match the IRS database. Getting the name and TIN from an entity upfront and leveraging an automated TIN matching service is perhaps the best way for TPSOs to avoid backup withholding. Should a TPSO be subject to backup withholding, Yearli.com also supports the filing of Form 945 to the IRS.

The reduction of the reporting threshold associated with Form 1099-K will no doubt have a significant impact on the gig economy but, with the right tools and resources in place, TPSOs can alleviate the stress of ensuring compliance.

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IRS Sex workers taxes

Understanding the tax responsibilities that come with starting a business

If you are sex worker full time it may benefit you to form an LLC or an S-Corporation for tax purposes. If you have questions or need help feel free to ask us.

Small business owners have a variety of tax responsibilities. The IRS knows that understanding and meeting tax obligations is vital to the success of all businesses, especially a new one. IRS.gov has the resources and information to help people through the process of starting a new business.
Here are some tips for new entrepreneurs:
Choose a business structure.
The form of business determines which income tax return a business taxpayer needs to file. The most common business structures are:
• Sole proprietorship: An unincorporated business owned by an individual. There’s no distinction between the taxpayer and their business.
• Partnership: An unincorporated business with ownership shared between two or more people.
• Corporation: Also known as a C corporation. It’s a separate entity owned by shareholders.
• S Corporation: A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.
• Limited Liability Company: A business structure allowed by state statute.
Choose a tax year.
A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:
• Calendar year: 12 consecutive months beginning January 1 and ending December 31.
• Fiscal year: 12 consecutive months ending on the last day of any month except December.
Apply for an employer identification number.
An EIN is also called a federal tax identification number. It’s used to identify a business. Most businesses need one of these numbers. It’s important for a business with an EIN to keep the business mailing address, location and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party and mailing it to the address on the form.
Have all employees complete these forms:
• Form I-9, Employment Eligibility Verification U.S. Citizenship and Immigration Services
• Form W-4 Employee’s Withholding Allowance Certificate
Pay business taxes.
The form of business determines what taxes must be paid and how to pay them.

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IRS Sex workers taxes

The first step of good tax planning is good recordkeeping

Year-round tax planning is for everyone. An important part of that is recordkeeping. Gathering tax documents throughout the year and having an organized recordkeeping system can make it easier when it comes to filing a tax return or understanding a letter from the IRS.
Good records help:
• Identify sources of income. Taxpayers may receive money or property from a variety of sources. The records can identify the sources of income and help separate business from nonbusiness income and taxable from nontaxable income.
• Keep track of expenses. Taxpayers can use records to identify expenses for which they can claim a deduction. This will help determine whether to itemize deductions at filing. It may also help them discover potentially overlooked deductions or credits.
• Prepare tax returns. Good records help taxpayers file their tax return quickly and accurately. Throughout the year, they should add tax records to their files as they receive them to make preparing a tax return easier.
• Support items reported on tax returns. Well-organized records make it easier to prepare a tax return and help provide answers if the return is selected for examination or if the taxpayer receives an IRS notice.

Download this spreadsheet to keep track of all of your expenses and income.   Expenses Spreadsheet

In general, the IRS suggests that taxpayers keep records for three years from the date they filed the tax return. Taxpayers should develop a system that keeps all their important information together. They can use a software program for electronic recordkeeping. They could also store paper documents in labeled folders.
Records to keep include:
• Tax-related records. This includes wage and earning statements from all employers or payers, interest and dividend statements from banks, certain government payments like unemployment compensation, other income documents and records of virtual currency transactions. Taxpayers should also keep receipts, canceled checks, and other documents – electronic or paper – that support income, a deduction, or a credit reported on their tax return.
• IRS letters, notices and prior year tax returns. Taxpayers should keep copies of prior year tax returns and notices or letters they receive from the IRS. These include adjustment notices when an action is taken on the taxpayer’s account, Economic Impact Payment notices, and letters about advance payments of the 2021 child tax credit. Taxpayers who receive 2021 advance child tax credit payments will receive a letter early next year that provides the amount of payments they received in 2021. Taxpayers should refer to this letter when filing their 2021 tax return in 2022.
• Property records. Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for computing gain or loss.
• Business income and expenses. For business taxpayers, there’s no particular method of bookkeeping they must use. However, taxpayers should find a method that clearly and accurately reflects their gross income and expenses. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.
• Health insurance. Taxpayers should keep records of their own and their family members’ health care insurance coverage. If they’re claiming the premium tax credit, they’ll need information about any advance credit payments received through the Health Insurance Marketplace and the premiums they paid.

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IRS Sex workers taxes

Gig Economy Tax

What is the Gig Economy?
The gig economy—also called sharing economy or access economy—is activity where people earn income providing on-demand work, services or goods. Often, it’s through a digital platform like an app or website.

Gig Economy Income is Taxable
You must report income earned from the gig economy on a tax return, even if the income is:

From part-time, temporary or side work
Not reported on an information return form—like a Form 1099-K, 1099-MISC, W-2 or other income statement
Paid in any form, including cash, property, goods, or virtual currency

What to Do
Gig Workers
Find forms, keep records, deduct expenses, file and pay taxes for your gig work.

Here is a spreadsheet we created for you to track income and expenses:

Expenses Spreadsheet

Digital Platforms and Businesses
Classify workers, report payments, pay and file taxes for a digital marketplace or business.

What is Gig Work?
Gig work is certain activity you do to earn income, often through an app or website (digital platform), like:

Drive a car for booked rides or deliveries
Rent out property or part of it
Run errands or complete tasks
Sell goods online:
IWC, AVN, Night flirt etc
Rent equipment
Provide creative or professional services
Provide other temporary, on-demand or freelance work
Note: This list does not include all types of gig work.

What are Digital Platforms?
Digital platforms are businesses that match workers’ services or goods with customers via apps or websites. This includes businesses that provide access to:

Ridesharing services
Delivery services
Crafts and handmade item marketplaces
On-demand labor and repair services
Property and space rentals
Note: This list does not include all types of digital platforms.

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IRS Sex workers taxes

IRS working to help those without a permanent address get benefits including stimulus payments and tax credits

While the third round of Economic Impact Payments continue to be made automatically to most people, the IRS can’t issue a payment to eligible Americans when information about them isn’t available in the tax agency’s systems.
Economic Impact Payments, also known as stimulus payments, are different from most other tax benefits.
People don’t need a permanent address, a bank account or even a job to get these payments. Individuals may qualify for this money if they have a Social Security number and are not being supported by someone else who can claim them as a dependent.
Eligible people who haven’t received these payments should file a 2020 tax return, even if they don’t usually file. This will give the IRS information needed to send them a payment. Those experiencing homelessness may list the address of a friend, relative or trusted service provider, such as a shelter, drop-in day center or transitional housing program, on their tax return.
Those who missed either of the first two payments can still get this money by filing a 2020 tax return and claiming the recovery rebate credit. Filing a 2020 tax return is the only way, eligible people can receive the money from the first or second payments now. Most people can use IRS Free File to provide very basic information. There’s even a special section on IRS.gov that can help: Claiming the 2020 recovery rebate credit if you aren’t required to file a tax return.
The credit will be included in the filer’s tax refund. The IRS will send any third EIP amount they are eligible for separately after their return has been processed. Using IRS Free File to file a tax return and choosing direct deposit is the quickest and safest way to get a refund.
The American Rescue Plan expands EITC and the child tax credit benefits for the 2021 tax year. Some people will be able to get advance payments of the child tax credit later this year. There is nothing those who qualify need to do at this point other than file a 2020 tax return.
Options for those without a bank account People who don’t have a bank account should visit the Federal Deposit Insurance Corporation website for details on opening an account online or use the FDIC’s BankFind tool to locate an FDIC-insured bank.
BankOn, American Bankers Association, Independent Community Bankers of America, National Credit Union Administration have lists of banks and credit unions that can open an account online. Veterans, can visit the Veterans Benefits Banking Program for financial services at participating banks.
Many reloadable prepaid cards or mobile payment apps also have account and routing numbers that individuals can provide to the IRS to get their payments.
Individuals experiencing homelessness can also receive the EITC For people experiencing homelessness who have a job, filing a tax return often carries a bonus — getting a refund based on various tax benefits, especially the earned income tax credit for low-and moderate-income workers and working families.
To get the credit, federal law requires that a worker live in the U.S. for more than half of the year and meet other requirements. This means living in a home in any of the 50 states or the District of Columbia. Therefore, individuals experiencing homelessness, including those who stay at one or more homeless shelters, can meet that requirement.
Because it’s a refundable credit, those who qualify and claim the credit could pay less federal tax, no tax, or even get a tax refund. The amount varies depending on the worker’s income, marital status, and other factors.
To find out if they’re eligible, people can use the EITC Assistant on IRS.gov. It’s available in both English and Spanish.