What is the difference between earned income credit and child tax credit?

Question

I have two kids. Im self employed (childcare provider) the state paid me 5000 this year and sent me a 1099MISC form i have two kids that i'm claiming. I recieved another 6000 this year form parents and have to make my own 1099MISC What amount would give me the best return? I know i will get a refund of 2000 based on the 5000 from the state but will that increase or decrease if i add income? and in what box sholud i write in when i do my own 1099MISC?

Answer 1

You don't give yourself a 1099. You just show it as income on a schedule C. You are self employed so you have to do your return on a schedule C. Your total income would be $11000. If you have two dependents and file as HH then you will have no income tax liablity but you will owe social security and medicare. The child tax credit will not come into play because your tax burden is $0. The EIC however will help you pay the SS and Medicare. That is calculated at 15.3% of your AGI. You will probably need some professional help to maximize your refund. You would normally have expenses for child care but the more expenses you deduct from the 11000 the less will be the SS but the EIC will diminish faster.

Answer 2

I see this is listed under United Kingdom, but unless their tax system is even more like the US system with the same forms etc., I'm guessing you might be in the USA instead. If you are in the UK, then quit reading now, I don't know anything about UK taxes, this answer applies to USA.

If you're getting money from parents for providing child care, you are required to provide your EIN or social security number to them so they can claim a child care credit for what they paid you, but nobody needs to do 1099's on that amount although you do have to claim it on your return. That $6000, plus the $5000 you received from the state for providing child care, would be your income on a schedule C or C-EZ. Any expenses required for this business would be listed there also, and deducted from your $11,000 gross income.

I assume when you talk about the refund of $2000 based on the $5K from the state, you're talking about an earned income credit, since with two qualifying children, filing single or head of household, that would be about what it would be. If you had NO expenses, then your business income would be $11,000, since you'd add also the amount you received from the parents. But I'm guessing that you did have SOME deductible expenses, so your income probably isn't quite that high. EIC with $11K income and two qualifying children, filing single or head of household, would be $4410. If you have deductible expenses, so your income is a little lower, your EIC will be a little lower also.

With your income and two kids, you're not likely to owe federal income tax. You will owe self-employment tax on this income, though - that will be around $1554, or less if you have expenses to deduct. The self-employment tax will be subtracted from whatever your EIC is before you get your refund.

Answer 3

If you are talking about other parents that you provided daycare services for, they will not be giving you a 1099 and you do not give yourself one. You have to keep track of your income and claim it on Schedule C with the other income you received from the state. You MUST claim the actual amount you received.

Make sure that Schedule SE is prepared to calculate the Self Employment tax. There's no way around that.