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Non-filer Investigations - Criminal Investigation (CI)

Overview
Taxpayers who fail to file income tax returns and pay taxes pose a serious threat to tax administration and the American economy.

Who Must File
All citizens must comply with the requirements of the tax law to file returns and pay taxes.

Facts & Fiction of Frivolous Arguments
The 16th Amendment was ratified on February 3, 1913 giving Congress the power "to lay and collect taxes."

IRS Warns of Frivolous Tax Arguments
IRS issued Press Releases that summarize several cases where the taxpayer was fined or penalized for frivolous contentions.

Department of Justice Issues Injunction
The Department of Justice has issued several injunctions against promoters of illegal tax plans or shelters that urge taxpayer to violate the tax laws.

Statistical Data
Enforcement statistics on investigations initiated, prosecutions recommended, indictments, sentenced investigations and months to serve in prison.

Examples of Non-filer Investigations
Examples are written from public record documents filed in the district courts where the case was prosecuted.

 


Criminal Enforcement Home Page

How to Report Suspected Tax Fraud Activities

Page Last Reviewed or Updated: 30-Oct-2013

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Free tax service 5. Free tax service   Credits Table of Contents Credit for the Elderly or the DisabledCan You Take the Credit? Figuring the Credit Child and Dependent Care Credit Earned Income Credit (EIC)Do You Qualify for the Earned Income Credit (EIC)? Figuring the EIC This chapter briefly discusses the credit for the elderly or disabled, the child and dependent care credit, and the earned income credit. Free tax service You may be able to reduce your federal income tax by claiming one or more of these credits. Free tax service Credit for the Elderly or the Disabled This section explains who qualifies for the credit for the elderly or the disabled and how to figure this credit. Free tax service For more information, see Publication 524, Credit for the Elderly or the Disabled. Free tax service You can take the credit only if you file Form 1040 or Form 1040A. Free tax service You cannot take the credit if you file Form 1040EZ or Form 1040NR. Free tax service Can You Take the Credit? You can take the credit for the elderly or the disabled if you meet both of the following requirements. Free tax service You are a qualified individual. Free tax service Your income is not more than certain limits. Free tax service  You can use Figure 5-A and Figure 5-B as guides to see if you are eligible for the credit. Free tax service   Qualified Individual You are a qualified individual for this credit if you are a U. Free tax service S. Free tax service citizen or resident alien, and either of the following applies. Free tax service You were age 65 or older at the end of 2013. Free tax service You were under age 65 at the end of 2013 and all three of the following statements are true. Free tax service You retired on permanent and total disability (explained later). Free tax service You received taxable disability income for 2013. Free tax service On January 1, 2013, you had not reached mandatory retirement age (defined later under Disability income ). Free tax service Age 65. Free tax service You are considered to be age 65 on the day before your 65th birthday. Free tax service Therefore, you are considered to be age 65 at the end of 2013 if you were born before January 2, 1949. Free tax service Figure 5-A. Free tax service Are You a Qualified Individual? This image is too large to be displayed in the current screen. Free tax service Please click the link to view the image. Free tax service Figure 5-A, Are you a qualified individual? U. Free tax service S. Free tax service citizen or resident alien. Free tax service   You must be a U. Free tax service S. Free tax service citizen or resident alien (or be treated as a resident alien) to take the credit. Free tax service Generally, you cannot take the credit if you were a nonresident alien at any time during the tax year. Free tax service Exceptions. Free tax service   You may be able to take the credit if you are a nonresident alien who is married to a U. Free tax service S. Free tax service citizen or resident alien at the end of the tax year and you and your spouse choose to treat you as a U. Free tax service S. Free tax service resident alien. Free tax service If you make that choice, both you and your spouse are taxed on your worldwide income. Free tax service   If you were a nonresident alien at the beginning of the year and a resident alien at the end of the year, and you were married to a U. Free tax service S. Free tax service citizen or resident alien at the end of the year, you may be able to choose to be treated as a U. Free tax service S. Free tax service resident alien for the entire year. Free tax service In that case, you may be allowed to take the credit. Free tax service   For information on these choices, see chapter 1 of Publication 519, U. Free tax service S. Free tax service Tax Guide for Aliens. Free tax service Married persons. Free tax service   Generally, if you are married at the end of the tax year, you and your spouse must file a joint return to take the credit. Free tax service However, if you and your spouse did not live in the same household at any time during the tax year, you can file either a joint return or separate returns and still take the credit. Free tax service Head of household. Free tax service   You can file as head of household and qualify to take the credit even if your spouse lived with you during the first 6 months of the year if you meet certain tests. Free tax service See Publication 524 and Publication 501. Free tax service Under age 65. Free tax service   If you are under age 65 at the end of 2013, you can qualify for the credit only if you are retired on permanent and total disability and have taxable disability income (discussed later under Disability income ). Free tax service You are considered to be under age 65 at the end of 2013 if you were born after January 1, 1949. Free tax service You are retired on permanent and total disability if: You were permanently and totally disabled when you retired, and You retired on disability before the end of the tax year. Free tax service   Even if you do not retire formally, you may be considered retired on disability when you have stopped working because of your disability. Free tax service If you retired on disability before 1977 and were not permanently and totally disabled at the time, you can qualify for the credit if you were permanently and totally disabled on January 1, 1976, or January 1, 1977. Free tax service Permanent and total disability. Free tax service   You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. Free tax service A physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death. Free tax service See Physician's statement , later. Free tax service Substantial gainful activity. Free tax service   Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit. Free tax service   Full-time work (or part-time work done at the employer's convenience) in a competitive work situation for at least the minimum wage conclusively shows that you are able to engage in substantial gainful activity. Free tax service   Substantial gainful activity is not work you do to take care of yourself or your home. Free tax service It is not unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. Free tax service However, doing this kind of work may show that you are able to engage in substantial gainful activity. Free tax service    Figure 5-B. Free tax service Income Limits IF your filing status is. Free tax service . Free tax service . Free tax service THEN even if you qualify (see Figure 5-A), you CANNOT take the credit if: Your adjusted gross income (AGI)* is equal to or more than. Free tax service . Free tax service . Free tax service OR the total of your nontaxable social security and other nontaxable pension(s), annuities, or disability income is equal to or more than. Free tax service . Free tax service . Free tax service single, head of household, or qualifying widow(er) with dependent child $17,500 $5,000 married filing jointly and only one spouse qualifies in Figure 5-A $20,000 $5,000 married filing jointly and both spouses qualify in Figure 5-A $25,000 $7,500 married filing separately and you lived apart from your spouse for all of 2013 $12,500 $3,750 *AGI is the amount on Form 1040A, line 22, or Form 1040, line 38      The fact that you have not worked for some time is not, of itself, conclusive evidence that you cannot engage in substantial gainful activity. Free tax service Physician's statement. Free tax service   If you are under age 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. Free tax service   You do not have to file this statement with your tax return, but you must keep it for your records. Free tax service The Instructions for Schedule R (Form 1040A or 1040) include a statement your physician can complete and that you can keep for your records. Free tax service Veterans. Free tax service   If the Department of Veterans Affairs (VA) certifies that you are permanently and totally disabled, you can substitute VA Form 21-0172, Certification of Permanent and Total Disability, for the physician's statement you are required to keep. Free tax service VA Form 21-0172 must be signed by a person authorized by the VA to do so. Free tax service You can get this form from your local VA regional office. Free tax service Physician's statement obtained in earlier year. Free tax service   If you got a physician's statement in an earlier year and, due to your continued disabled condition, you were unable to engage in any substantial gainful activity during 2013, you may not need to get another physician's statement for 2013. Free tax service For a detailed explanation of the conditions you must meet, see the instructions for Schedule R (Form 1040A or 1040), Part II. Free tax service If you meet the required conditions, you must check the box on Schedule R (Form 1040A or 1040), Part II, line 2. Free tax service   If you checked Schedule R (Form 1040A or 1040), Part I, box 4, 5, or 6, print in the space above the box in Part II, line 2, the first name(s) of the spouse(s) for whom the box is checked. Free tax service Disability income. Free tax service   If you are under age 65, you must also have taxable disability income to qualify for the credit. Free tax service   Disability income must meet the following two requirements. Free tax service It must be paid under your employer's accident or health plan or pension plan. Free tax service It must be included in your income as wages (or payments in lieu of wages) for the time you are absent from work because of permanent and total disability. Free tax service Payments that are not disability income. Free tax service   Any payment you receive from a plan that does not provide for disability retirement is not disability income. Free tax service Any lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and is not disability income. Free tax service   For purposes of the credit for the elderly or the disabled, disability income does not include amounts you receive after you reach mandatory retirement age. Free tax service Mandatory retirement age is the age set by your employer at which you would have had to retire had you not become disabled. Free tax service Figuring the Credit You can figure the credit yourself, or the IRS will figure it for you. Free tax service Figuring the credit yourself. Free tax service   If you figure the credit yourself, fill out the front of Schedule R (Form 1040A or 1040). Free tax service Next, fill out Schedule R (Form 1040A or 1040), Part III. Free tax service Credit figured for you. Free tax service   If you can take the credit and you want the IRS to figure the credit for you, see Publication 524 or the Instructions for Schedule R (Form 1040A or 1040). Free tax service If you want the IRS to figure your tax, see chapter 30 of Publication 17, Your Federal Income Tax. Free tax service Child and Dependent Care Credit You may be able to claim this credit if you pay someone to care for your dependent who is under age 13 or for your spouse or dependent who is not able to care for himself or herself. Free tax service The credit can be up to 35% of your expenses. Free tax service To qualify, you must pay these expenses so you can work or look for work. Free tax service If you claim this credit, you must include on your return the name and taxpayer identification number (generally the social security number) of each qualifying person for whom care is provided. Free tax service If the correct information is not shown, the credit may be reduced or disallowed. Free tax service You also must show on your return the name, address, and the taxpayer identification number of the person(s) or organization(s) that provided the care. Free tax service For more information, see Publication 503, Child and Dependent Care Expenses. Free tax service Earned Income Credit (EIC) The earned income credit (EIC) is a refundable tax credit for certain people who work and have earned income under $51,567. Free tax service The EIC is available to persons with or without a qualifying child. Free tax service Credit has no effect on certain welfare benefits. Free tax service   Any refund you receive because of the EIC cannot be counted as income when determining whether you or anyone else is eligible for benefits or assistance, or how much you or anyone else can receive, under any federal program or under any state or local program financed in whole or in part with federal funds. Free tax service These programs include the following. Free tax service Medicaid and supplemental security income (SSI). Free tax service Supplemental Nutrition Assistance Program (food stamps). Free tax service Low-income housing. Free tax service Temporary Assistance for Needy Families (TANF). Free tax service  In addition, when determining eligibility, the refund cannot be counted as a resource for at least 12 months after you receive it. Free tax service Check with your local benefit coordinator to find out if your refund will affect your benefits. Free tax service Do You Qualify for the Earned Income Credit (EIC)? Use Table 5-1 as an initial guide to the rules you must meet in order to qualify for the EIC. Free tax service The specific rules you must meet depend on whether you have a qualifying child. Free tax service If you have a qualifying child, the rules in Parts A, B, and D apply to you. Free tax service If you do not have a qualifying child, the rules in Parts A, C, and D apply to you. Free tax service  If, after reading all the rules in each part that applies to you, you think you may qualify for the credit, see Publication 596, Earned Income Credit, for more details about the EIC. Free tax service You can also find information about the EIC in the instructions for Form 1040 (line 64a), Form 1040A (line 38a), or Form 1040EZ (line 8a). Free tax service The sections that follow provide additional information for some of the rules. Free tax service Adjusted gross income (AGI). Free tax service   Under Rule 1, you cannot claim the EIC unless your AGI is less than the applicable limit shown in Part A of Table 5-1. Free tax service Your AGI is the amount on line 37 (Form 1040), line 21 (Form 1040A), or line 4 (Form 1040EZ). Free tax service Table 5-1. Free tax service Earned Income Credit (EIC) in a Nutshell First, you must meet all the rules in this column. Free tax service Second, you must meet all the rules in one of these columns, whichever applies. Free tax service Third, you must meet the rule in this column. Free tax service Part A. Free tax service  Rules for Everyone Part B. Free tax service  Rules If You Have a Qualifying Child Part C. Free tax service  Rules If You Do Not Have a Qualifying Child Part D. Free tax service  Figuring and Claiming the EIC 1. Free tax service Your adjusted gross income (AGI) must be less than: •$46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, •$43,038 ($48,378 for married filing jointly) if you have two qualifying children, •$37,870 ($43,210 for married filing jointly) if you have one qualifying child, or  •$14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Free tax service 2. Free tax service You must have a valid social security number. Free tax service  3. Free tax service Your filing status cannot be “Married filing separately. Free tax service ” 4. Free tax service You must be a U. Free tax service S. Free tax service citizen or resident alien all year. Free tax service  5. Free tax service You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). Free tax service  6. Free tax service Your investment income must be $3,300 or less. Free tax service  7. Free tax service You must have earned income. Free tax service 8. Free tax service Your child must meet the relationship, age, residency, and joint return tests. Free tax service  9. Free tax service Your qualifying child cannot be used by more than one person to claim the EIC. Free tax service  10. Free tax service You generally cannot be a qualifying child of another person. Free tax service 11. Free tax service You must be at least age 25 but under age 65. Free tax service  12. Free tax service You cannot be the dependent of another person. Free tax service  13. Free tax service You generally cannot be a qualifying child of another person. Free tax service  14. Free tax service You must have lived in the United States more than half of the year. Free tax service 15. Free tax service Your earned income must be less than: •$46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, •$43,038 ($48,378 for married filing jointly) if you have two qualifying children, •$37,870 ($43,210 for married filing jointly) if you have one qualifying child, or •$14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Free tax service Social security number. Free tax service   Under Rule 2, you (and your spouse if you are married filing jointly) must have a valid social security number (SSN) issued by the Social Security Administration (SSA). Free tax service Any qualifying child listed on Schedule EIC also must have a valid SSN. Free tax service (See Qualifying child , later, if you have a qualifying child. Free tax service )   If your social security card (or your spouse's if you are married filing jointly) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. Free tax service An example of a federally funded benefit is Medicaid. Free tax service Investment income. Free tax service   Under Rule 6, you cannot claim the EIC unless your investment income is $3,300 or less. Free tax service If your investment income is more than $3,300, you cannot claim the credit. Free tax service For most people, investment income is the total of the following amounts. Free tax service Taxable interest (line 8a of Form 1040 or 1040A). Free tax service Tax-exempt interest (line 8b of Form 1040 or 1040A). Free tax service Dividend income (line 9a of Form 1040 or 1040A). Free tax service Capital gain net income (line 13 of Form 1040, if more than zero, or line 10 of Form 1040A). Free tax service  If you file Form 1040EZ, your investment income is the total of the amount of line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. Free tax service   For more information about investment income, see Publication 596, Earned Income Credit. Free tax service Earned income. Free tax service   Under Rule 7, you must have earned income to claim the EIC. Free tax service Under Rule 15, you cannot claim the EIC unless your earned income is less than the applicable limit shown in Table 5-1, Part D. Free tax service Earned income includes all of the following types of income. Free tax service Wages, salaries, tips, and other taxable employee pay. Free tax service Employee pay is earned income only if it is taxable. Free tax service Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. Free tax service But there is an exception for nontaxable combat pay, which you can choose to include in earned income. Free tax service Net earnings from self-employment. Free tax service Gross income received as a statutory employee. Free tax service Gross income defined. Free tax service   Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). Free tax service Do not include any social security benefits unless (a) you are married filing a separate tax return and you lived with your spouse at any time in 2013, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). Free tax service If (a) or (b) applies, see the instructions for Form 1040, lines 20a and 20b to figure the taxable part of social security benefits you must include in gross income. Free tax service Self-employed persons. Free tax service   If you are self-employed and your net earnings are $400 or more, be sure to correctly fill out Schedule SE (Form 1040), Self-Employment Tax, and pay the proper amount of self-employment tax. Free tax service If you do not, you may not get all the credit to which you are entitled. Free tax service Disability benefits. Free tax service   If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Free tax service Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. Free tax service Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. Free tax service   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. Free tax service It does not matter whether you have reached minimum retirement age. Free tax service If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code J. Free tax service Income that is not earned income. Free tax service   Examples of items that are not earned income under Rule 7 include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits — except for payments covered under Disability benefits earlier), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. Free tax service Do not include any of these items in your earned income. Free tax service Workfare payments. Free tax service   Nontaxable workfare payments are not earned income for the EIC. Free tax service These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if sufficient private sector employment is not available, or (2) community service program activities. Free tax service Qualifying child. Free tax service   Under Rule 8, your child is a qualifying child if your child meets four tests. Free tax service The four tests are: Relationship, Age, Residency, and Joint return. Free tax service   The four tests are illustrated in Figure 5-C. Free tax service See Publication 596 for more information about each test. Free tax service Figure 5-C. Free tax service Tests for Qualifying Child A qualifying child for the EIC is a child who is your. Free tax service . Free tax service . Free tax service Son, daughter, stepchild, foster child,  or a descendant of any of them (for example, your grandchild) OR Brother, sister, half brother, half sister, stepbrother,  stepsister, or a descendant of any of them (for example, your  niece or nephew) was . Free tax service . Free tax service . Free tax service Under age 19 at the end of 2013 and younger than you (or your spouse if filing jointly) OR Under age 24 at the end of 2013, a student, and younger than you (or your spouse if filing jointly) OR Permanently and totally disabled at any time during the year, regardless of age who. Free tax service . Free tax service . Free tax service Is not filing a joint return for 2013  (or is filing a joint return for 2013 only as a claim for refund of income tax withheld or estimated tax paid) who. Free tax service . Free tax service . Free tax service Lived with you in the United States for more than half of 2013. Free tax service  If the child did not live with you for the required time, see Publication 596 for more information. Free tax service Figuring the EIC To figure the amount of your credit, you have two choices. Free tax service Have the IRS figure the EIC for you. Free tax service If you want to do this, see IRS Will Figure the EIC for You in Publication 596. Free tax service Figure the EIC yourself. Free tax service If you want to do this, see How To Figure the EIC Yourself in Publication 596. Free tax service Prev  Up  Next   Home   More Online Publications