IRS Notice 797

Most people assume the worst when a letter from the Internal Revenue Service (IRS) shows up in the mail. The unopened letter, without even displaying its contents, can evoke fear from the recipient. The fear is that the IRS found an inconsistency in your federal tax return and that you owe money plus potential penalties and interest. Worst yet, you could be in serious legal trouble.

But the one IRS letter that you can be sure carries good news is Notice 797. Generally speaking, to receive IRS notice 797 is a guarantee that you do not owe money to the agency. It means quite the opposite of owing, in fact, as you may be up for some significant savings.

IRS notice 797 officially states that you could be eligible for a substantial federal tax refund. Notice 797 informs you of a benefit called the Earned Income Credit (EIC) or Earned Income Tax Credit (EITC).

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What is earned income credit (EIC)?

The EIC or EITC is an IRS credit that reduces working people’s federal tax liabilities. The EIC is a refundable federal income tax that benefits active members of the workforce who earn low to moderate income. That being said, only people who have filed income tax qualify for the EIC. Whether you have tax withholdings does not have an effect on your eligibility. You must file income tax to be considered for the credit.

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Depending on the state you work in, your employer sends you Notice 797 with the intention of informing employees that you may be eligible for the EIC. The usual way it works is that you receive the IRS EITC notice 797 at the same time as Form W-2.

How Much is the EIC?

The amount of the EIC depends on two factors:

  1. How many children you count as dependents
  2. Your income

Qualifying Children

In 2018, the EIC can be as high as:

  • $3,400 with one qualifying child
  • $5,616 with two qualifying children
  • $6,318 with three or more qualifying children
  • $510 with no qualifying children

To qualify, children must:

  • Be a US citizen, national, or resident
  • Be under the age of 17
  • Live with you for more than six months of the year

You must also be the giver of more than half of their support. In this way, a qualifying child can be an adopted child, grandchild or stepchild.

IRS Schedule 8812

While you are within your rights to claim a refund for every qualifying child, the EIC varies depending on your income. You must file the Schedule 8812 Form if the amount of tax you owe to the IRS is inferior to the total credit amount. IRS Form 8812 calculates an alternative refund known as “the additional child tax credit”. You can find Schedule 8812 Form on Form 1040.

EITC Fraud

The IRS is thorough in its screening process to curb earned income tax fraud. By matching internal information on file with external data from other governmental agencies, the IRS scans for errors as well as questionable returns that may reveal intentional negligence of the law.

If such errors are found in your claim, the IRS contacts you to verify the potentially problematic inaccuracies. The IRS holds the EIC until this measure of authentication is completed.

How Do I Claim my Refund?

There are two steps to claiming the EIC. Firstly, you must be eligible. Secondly, you must file a 2018 tax return with the IRS. As we confirmed above, the EIC only applies to people who have filed a tax return in a given year. This is true even if you have no withholdings on your income during the tax year.

How do I Know If I Am Eligible for the EIC?

Once you have confirmed that you are eligible for the EIC, you are welcome to claim your refund. But first, you must establish that you are in fact eligible for the tax credit.

IRS Publication 596 is a good resource to help you determine whether you qualify for the EITC or not. A quick search online can help answer your tax refund questions. Visit IRS.gov/EITC for more information or to download any IRS forms and publications you may need. If you prefer to have printed copies of the forms sent to you, call 1-800-829-3676.

How Do I Claim the EIC?

You do not need to have tax withholdings to get your EIC refund. A common misconception is that you cannot claim the credit if you had taxes withheld from your income or owed taxes. This is not the case. You can be eligible for the EIC even if you had no income withholdings and owed nothing.

However, you do need to file a 2018 income tax return. This you can do free of charge on the IRS website at IRS.gov/FreeFile. The service is free for people whose income is under $66,000. You can also meet with an IRS-authorized volunteer to assist you in person if you are over 60 years old or made less than $54,000. Call 1-800-906-9887 or visit IRS.gov/VITA to find a volunteer near you.

IRS notice 797 requirements

IRS notice 797 requirements differ by state. While some states demand less from your employer, others expect a more hands-on approach. Dependent on where you live, it is important to research exactly how IRS notice 797 is handled by your state.

Make sure, as an employer, to study the details about Notice 797 on your state or Comptroller’s websites. Whether the location of a poster or the specific wording on it, IRS notice 797 requirements aim to make information about the EIC as accessible to employees as possible. To this end, employers may feel inclined to post IRS notice 797 in Spanish.