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The Internal Revenue Service is a U.S. agency that enforces federal tax laws in the country. The agency states that incarceration doesn’t change a person’s obligation to pay taxes.
Though the IRS doesn’t monitor and track incarcerations, it investigates tax issues concerning incarcerated individuals or their dependents. The IRS has the authority to investigate possible frauds perpetrated by people using the correctional system to avoid financial obligations.
Prisoners are still responsible for paying taxes on all taxable income. However, how can inmates pay taxes if they’re in prison serving their sentence? How does incarceration affect their tax obligations to the IRS?
This article will discuss the rules and regulations imposed by the IRS on incarcerated people, including how inmates can pay their taxes. It will also discuss the methods provided by the IRS on how you can help your loved one behind bars pay their taxes.
If you have an incarcerated loved one, you can help them file their taxes and avoid the problems associated with tax evasion. You’ll need to communicate closely with your loved ones in prison and with different agencies linked to taxation.
LookUpInmate.org provides a vast database of contact information for correctional facilities in California, Texas, Florida, Pennsylvania, Michigan, and other states. You can get updates on what’s happening with your loved ones behind bars and help them fulfill specific obligations like paying taxes.
Preparing Tax Returns for Inmates
People in prison continue to have obligations to the state despite their restricted condition. Among these obligations is paying taxes. The following topics will discuss the hows and whys regarding inmates and taxes.
Do Incarcerated Individuals Have to File Tax Returns?
Incarceration doesn’t remove the obligation of a person to pay taxes. However, the government considers the limited means for inmates to earn an income.
An inmate should file a tax return if their income exceeds $12,000. For couples filing jointly, the threshold is $24,000. If an inmate’s income doesn’t exceed the threshold, there’s no need to file.
Do Incarcerated People Qualify for Ordinary Tax Benefits From Prison?
People behind bars don’t enjoy the same tax benefits as those outside prisons. For example, income earned inside a prison doesn’t qualify for tax credits like CTC (child tax credit) and EITC (earned income tax credit).
How Do Incarcerated People Send in Their Taxes?
An incarcerated individual can send their taxes through the help of an in-house tax or lawyer service.
An inmate can also give someone their trust through power of attorney to file their taxes and manage their finances on their behalf.
To file for power of attorney, an inmate must fill out Form 2848, Power of Attorney and Declaration of Representative, which may have to be notarized depending on state laws.
Below are specific questions that inmates may ask about filing taxes.
Filing Taxes if You’re Currently Incarcerated or Re-entering Society
Incarceration dramatically impacts your ability to earn an income. However, even during reentry into society, you may struggle to find a job to earn an income.
You May Be Eligible for Tax Credits
Even while incarcerated, you can be eligible for tax credits if you have other sources of income. An example of other sources is income earned by your spouse or income earned before imprisonment.
After release and reentry, you don’t immediately have the means to earn income. Still, you can receive tax credits to reduce tax liability and tax deductions to reduce taxable income levels.
Can You Still File Taxes for Previous Years?
You can still file taxes for the previous years before incarceration. You may be eligible for tax credits, but you must file your tax returns within three years after your last filing.
Are There Ways to File Your Taxes if You’re Currently Incarcerated?
You can request an automatic tax extension of six months if your imprisonment is temporary. You need to accomplish Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.
If you have a longer prison sentence, you can seek the help of in-house tax and lawyer services or a relative with power of attorney.
If you’re married, your spouse can complete the necessary documents and have them signed by you before mailing them to the IRS.
Free Tax Help Is Available for You
While incarcerated, you can request assistance with free tax help services inside prisons. Examples of such services are the Tax Counseling for the Elderly (TCE) program and Volunteer Income Tax Assistance (VITA) of the IRS.
Note that the American Association of Retired Persons (AARP) Foundation’s Tax Aide program operates most TCE sites.
Engaging a Tax Professional
Tax professionals called preparers can help you file your tax returns while you’re in prison. These professionals will prepare Form 8879 (IRS e-file Signature Authorization) and your tax return and send them electronically.
Power of Attorney, Conservatorship, and Dependency
You must complete Form 2848, which declares their representative has power of attorney. You and your representative must sign this form and send it along with the tax return.
Another option is to request the court to appoint a conservator to help manage your financial affairs. A common choice for a conservator is a spouse, children, parent, or a close family relative.
The last option is dependency. Note that you can be claimed as a dependent, but the claimant must justify the claim as specific rules apply.
Below are questions that families and friends of incarcerated loved ones may be asking regarding helping inmates pay taxes.
Can You File Taxes for Someone Who Is Incarcerated?
Yes, you can file taxes for someone in prison if you have power of attorney or you’re the conservator or guardian of an inmate.
Filing Taxes When a Loved One Is Imprisoned
Having a loved one incarcerated is a tough time for a family. There are many adjustments that everyone must make to continue a relationship with a loved one behind bars.
Managing financial obligations is one of those complexities that can be managed through a proper understanding of the tax process for inmates.
What if Your Spouse Is Incarcerated?
There are several factors to consider when you have a spouse behind bars. The situation changes how you communicate with and support each other.
The Inmate’s Income Earned While Incarcerated Doesn’t Qualify As Earned Income Tax Credit (EITC) or Earned Income for the Child Tax Credit (CTC)
A child tax credit or CTC is a tax credit that offsets the cost of raising a child. You’ll need to earn more than $2,500 to benefit from CTC, of which $1,500 is refundable.
An earned income tax credit (EITC) is a tax credit that benefits low- and moderate-income earners. You need to earn an income under $59,187 to benefit from EITC.
Inmates can’t enjoy these EITC and CTC unless the inmate have other sources of income.
Credits in Lieu of Cash Payments Received by Inmates Are Taxable Income
Some state and federal prisons provide jobs for inmates. Often, inmates are given credits that they can use at the prison commissary.
However, credits earned by inmates can be taxable income. If an inmate’s income doesn’t exceed $12,000 ($24,000 for married couples filing jointly), there’s no need to file a tax return.
Are Inmates Exempt From the ACA Requirements to Maintain Minimum Health Insurance Coverage?
The ACA (Affordable Care Act) exemption applies to any month that includes a day an individual was incarcerated. The exemption specifically refers to the ACA requirements that they maintain at least a month’s worth of coverage.
Inmates who want to claim the exemption must file it on their income tax return.
What if Your Dependent Is Incarcerated?
Here are answers to questions you may have when an inmate is your child or your dependent.
If Your Child Meets the Requirements, Can You Claim Them as a Qualifying Child for the Dependency Exemption?
Yes, you can. These are the requirements for a qualifying child for the dependency exemption:
- Your child is younger than 19 years old or a student younger than 24 years of age
- Your child is permanently disabled
- Your child meets the “qualifying relative” test, dependent taxpayer test, joint return test, citizen or resident test
If You Meet the Support Test, Can You Claim Your Close Relative or Child as a Qualifying Relative for Dependency Exemption?
You can qualify someone else as your dependent if you pass the support test. The support test is one of the requirements of the IRS to qualify an individual as a dependant for legal and tax purposes.
You meet the test if you pay more than 50% of the prospective dependent’s yearly living expenses.
You May Qualify to Take the Child Tax Credit (CTC) on Your Incarcerated Qualifying Child if You Meet the Temporary Absence Requirement.
When your child meets the required age, residency, support, citizenship, relationship, and dependency test, your child can qualify for the CTC.
How to File a Tax Return
You have three options for filing your tax return.
You can fill out IRS Form 1040 (also referred to as Form 1040-SR, U.S. Individual Income Tax Return) by hand and mail it (not recommended). Or you can file your tax returns using tax software online through the IRS website. Another option is to hire a tax preparer to file your tax return.
Is There No Deduction for “Charitable” Contributions to the Inmate?
There are no deductions for any contributions to an inmate because it’s considered a gift. However, money sent or given to qualified charitable organizations is tax deductible.
Do Things Change if Your Spouse Is Incarcerated?
Married couples are still considered married even if one is incarcerated. You can still file your tax returns jointly or separately. The best choice for most married couples is to choose “married filing jointly.”
Does Your Spouse Have Income in Prison?
If your spouse works in prison and gets paid commissary credits, the credits count as income but not for other tax credits. However, the income earned from prison jobs isn’t eligible for EITC.
Can I Claim My Husband on My Taxes if He Is Incarcerated?
You can’t claim your husband as a dependent if he’s imprisoned for more than six months. The IRS requires a person to reside with the person claiming the dependency for more than six months in a year.
Can You Deduct Money You Send Your Spouse?
Money sent to an incarcerated loved one as a gift is not deductible. If the payments to your spouse are part of an alimony or a separate maintenance decree, you can deduct these payments. However, alimony doesn’t include voluntary payments not under the stipulations included with a divorce or other maintenance order and payment made for child support under a divorce decree.
Can You E-file for an Incarcerated Person?
Inmates can seek help from an in-house tax or lawyer service, especially if they have access to the internet. However, in cases where internet access is not possible, a person authorized by the inmate and given power of attorney can file on their behalf.
If you’re the spouse of an incarcerated loved one and you’re filing together, you can fill out the tax forms for them and then have them sign the papers.
What Are Tax Preparers’ Responsibilities?
A tax accountant or tax preparer is responsible for filing the necessary tax forms and informing the client how much to pay for taxes.
A preparer’s responsibilities include the following:
- Keep the client informed the tax preparation procedures
- Gather pay stubs, receipts, income statements, and other relevant records
- Transfer data from financial records into tax return databases or software
- Determining how much to pay considering deductions and exemptions
- Complete and file tax documents with the corresponding agencies and government entities
Recent Incidents of Tax Frauds Involving Prisoners
The IRS identified tax return fraud in more than 24,000 cases involving a prisoner’s Social Security Number in 2015. The tax returns claimed through this fraudulent activity reached more than $1.3 billion. Other cases identified by the IRS include identity theft, false power of attorney, and fictitious income.
The IRS is also dealing with tax refund fraud and tax evasion resulting in growing tax debt.
How Does IRS Find Evasion?
Finding tax evasion cases is a complex process involving special agents that obtain facts and evidence to establish criminal activity. The IRS employs different investigative methods, including interviewing witnesses and reviewing financial data.
The agency can also execute search warrants and subpoena bank records when required. Special agents work with IRS chief counsel criminal tax attorneys throughout an investigation.
Does the IRS Recognize Court Orders?
Federal tax laws supersede any court order in any tax-related issue. For example, in a case of child custody, even if the court determines the custodial outcome of a child, the person who wins the custody must still follow the tax laws regarding the claiming of a dependent.
Expensive Consequences
Income tax fraud is a serious criminal offense with expensive consequences. Tax preparers involved in these fraudulent activities or intentionally disregarding the rules and regulations of the Treasury Department and AICPA (American Institute of Certified Public Accountants) could face severe consequences.
AICPA is a non-profit organization representing a group of internationally certified professional accountants.
CPAs found guilty of tax fraud will be subject to corrective actions and penalties:
- License suspension or revocation
- Termination of AICPA membership
- A fine of 75% of fees collected from the tax return preparation
People in Prison Can Get a Stimulus Check, but There’s a Catch
The stimulus check is aid provided by the U.S. government to help people during economic distress. This check is given to taxpayers via paper checks or direct deposits.
However, advocacy groups say that state prison policies have created roadblocks, making it difficult for prisoners to claim money through stimulus checks.
Can Incarcerated People Still Get a Stimulus Check?
People in prison are also given this stimulus check after a class-action lawsuit approved the inclusion of qualified incarcerated individuals in this relief program. Stimulus check eligibility requires the inmate to have a Social Security number and tax information number (TIN) and has appropriately filed tax returns.
How Do People Behind Bars Request a Check?
An incarcerated individual should fill out the IRS Form 1040 with “EIP 200” written at the form’s top portion. EIP or economic impact payment is also known as the stimulus check. An inmate can get information about this form through prison authorities.
Can Another Person Request a Stimulus Payment for an Incarcerated Individual?
Yes, another person with power of attorney can help an inmate request a stimulus package. It’s best if an inmate has an attorney to help file the request for stimulus checks.
What Happens if the Deadline Is Missed?
For missed deadlines, the inmate’s tax returns for the 2020 tax year must be filed to claim a recovery rebate credit. You need to submit Form 1040 or 1040-SR to start the application process.
Do You Have to Send a Check Back if the IRS Asks?
In cases where you received a stimulus check not intended for you, it should be mailed back to the IRS. You should write “VOID” in the endorsement section of the check and send it back to your nearest IRS office.
What if a Spouse Not in Jail Got a Stimulus Check?
Joint filers can get their stimulus checks deposited into a joint bank account. Suppose a spouse receives a stimulus check intended for her husband. In that case, it’s best to have it deposited into her husband’s inmate account or hold on to the check until her husband’s release from prison.
References
1. On Federal Taxes: Reentry Mythbusters
https://www.irs.gov/pub/irs-utl/reentry_council_mythbuster_federal_taxes.pdf
2. Earned Income Tax Credit (EITC)
https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc
3. Dependents
https://www.irs.gov/faqs/filing-requirements-status-dependents/dependents/dependents-2
4. Support Test
https://www.investopedia.com/terms/s/support-test.asp
5. Topic No. 201 The Collection Process
https://www.irs.gov/taxtopics/tc201
6. What Is a Stimulus Check? Definition, How It Works, and Criticism
https://www.investopedia.com/terms/s/stimulus-check.asp
7. Calculating the Economic Impact Payment
https://www.irs.gov/newsroom/calculating-the-economic-impact-payment
8. How can I get my stimulus checks if I am incarcerated?
https://www.taxoutreach.org/blog/how-can-i-get-my-stimulus-check-if-i-am-incarcerated/
9. Economic impact payments: What you need to know
https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know
10. About Form 2848, Power of Attorney and Declaration of Representative
https://www.irs.gov/forms-pubs/about-form-2848
11. About Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return
https://www.irs.gov/forms-pubs/about-form-4868
12. IRS e-file Signature Authorization
https://www.irs.gov/pub/irs-pdf/f8879.pdf