The Internal Revenue Service announced today that taxpayers who qualify for the first-time homebuyer credit and purchase a home this year before Dec. 1 have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.
Qualifying taxpayers who buy a home this year before Dec. 1 can get up to $8,000, or $4,000 for married filing separately.
“For first-time homebuyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit," said IRS Commissioner Doug Shulman. “This important change gives qualifying homebuyers cash they do not have to pay back.”
The IRS has posted a revised version of Form 5405, First-Time Homebuyer Credit, on IRS.gov.
The revised form incorporates provisions from the American Recovery and Reinvestment Act of 2009. The instructions to the revised Form 5405 provide additional information on who can and cannot claim the credit, income limitations and repayment of the credit.
This year, qualifying taxpayers who buy a home before Dec. 1, 2009, can claim the credit on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.
The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.
For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase.
The IRS also alerted taxpayers that the new law does not affect people who purchased a home after April 8, 2008, and on or before Dec. 31, 2008. For these taxpayers who are claiming the credit on their 2008 tax returns, the maximum credit remains 10 percent of the purchase price, up to $7,500, or $3,750 for married individuals filing separately. In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.
Friday, February 27, 2009
Does Your Child Have Investment Income?
What Every Parent Should Know about Child’s Investment Income
Children with investment income may have part or all of this income taxed at their parent’s tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income
This rule applies to children who have investment income of more than $1800 and meet one of three age requirements for 2008:
The child is younger than 18.
The child is 18 and has earned income that does not exceed one-half of their own support for the year.
The child is older than 18 and younger than 24 and a full-time student with earned income that does not exceed one-half of the child’s support for the year.
To figure the child's tax using this method, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,800, and attach it to the child's federal income tax return.
When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents' Election To Report Child's Interest and Dividends.
More information can be found in IRS Publication 929, Tax Rules for Children and Dependents. This publication and Forms 8615 and 8814 are available on the IRS Web site at IRS.gov in the Forms and Publications section. You may also order them by calling the IRS at 800-TAX-FORM (800-829-3676).
Form 8615, Tax for Children Under Age 18 With Investment Income of More Than $1,800 (PDF 49K)
Form 8615, Instructions (PDF 24K)
Form 8814, Parent's Election to Report Child's Interest and Dividends (PDF 43K)
Publication 929, Tax Rules for Children and Dependents (PDF 220K)
Children with investment income may have part or all of this income taxed at their parent’s tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income
This rule applies to children who have investment income of more than $1800 and meet one of three age requirements for 2008:
The child is younger than 18.
The child is 18 and has earned income that does not exceed one-half of their own support for the year.
The child is older than 18 and younger than 24 and a full-time student with earned income that does not exceed one-half of the child’s support for the year.
To figure the child's tax using this method, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,800, and attach it to the child's federal income tax return.
When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents' Election To Report Child's Interest and Dividends.
More information can be found in IRS Publication 929, Tax Rules for Children and Dependents. This publication and Forms 8615 and 8814 are available on the IRS Web site at IRS.gov in the Forms and Publications section. You may also order them by calling the IRS at 800-TAX-FORM (800-829-3676).
Form 8615, Tax for Children Under Age 18 With Investment Income of More Than $1,800 (PDF 49K)
Form 8615, Instructions (PDF 24K)
Form 8814, Parent's Election to Report Child's Interest and Dividends (PDF 43K)
Publication 929, Tax Rules for Children and Dependents (PDF 220K)
Global Income and the Exclusion
If you are living and working abroad you may be entitled to the Foreign Earned Income Exclusion. Here are some important facts about the exclusion:
1. The Foreign Earned Income Exclusion: United States Citizens and resident aliens who live and work abroad may be able to exclude all or part of their foreign salary or wages from their income when filing their U.S. federal tax return. They may also qualify to exclude compensation for their personal services or certain foreign housing costs.
2. The General Rules: To qualify for the foreign earned income exclusion, a U.S. citizen or resident alien must have a tax home in a foreign country and income received for working in a foreign country, otherwise known as foreign earned income. The taxpayer must also meet one of two tests: the bona fide residence test or the physical presence test.
3. The Exclusion Amount: The foreign earned income exclusion is adjusted annually for inflation. For 2008, the maximum exclusion is up to $87,600 per qualifying person.
4. Claiming the Exclusion: The foreign earned income exclusion and the foreign housing exclusion or deduction are claimed using Form 2555, which should be attached to the taxpayer’s Form 1040. A shorter Form 2555-EZ is available to certain taxpayers claiming only the foreign income exclusion.
5. Taking Other Credits or Deductions: Once the foreign earned income exclusion is chosen, a foreign tax credit or deduction for taxes cannot be claimed on the excluded income. If a foreign tax credit or tax deduction is taken on any of the excluded income, the foreign earned income exclusion will be considered revoked.
For more information about the Foreign Earned Income Exclusion get Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad and the instructions for Form 2555. Both are available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad (PDF 348K)
Form 2555, Foreign Earned Income
Form 2555-EZ, Foreign Earned Income Exclusion
1. The Foreign Earned Income Exclusion: United States Citizens and resident aliens who live and work abroad may be able to exclude all or part of their foreign salary or wages from their income when filing their U.S. federal tax return. They may also qualify to exclude compensation for their personal services or certain foreign housing costs.
2. The General Rules: To qualify for the foreign earned income exclusion, a U.S. citizen or resident alien must have a tax home in a foreign country and income received for working in a foreign country, otherwise known as foreign earned income. The taxpayer must also meet one of two tests: the bona fide residence test or the physical presence test.
3. The Exclusion Amount: The foreign earned income exclusion is adjusted annually for inflation. For 2008, the maximum exclusion is up to $87,600 per qualifying person.
4. Claiming the Exclusion: The foreign earned income exclusion and the foreign housing exclusion or deduction are claimed using Form 2555, which should be attached to the taxpayer’s Form 1040. A shorter Form 2555-EZ is available to certain taxpayers claiming only the foreign income exclusion.
5. Taking Other Credits or Deductions: Once the foreign earned income exclusion is chosen, a foreign tax credit or deduction for taxes cannot be claimed on the excluded income. If a foreign tax credit or tax deduction is taken on any of the excluded income, the foreign earned income exclusion will be considered revoked.
For more information about the Foreign Earned Income Exclusion get Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad and the instructions for Form 2555. Both are available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad (PDF 348K)
Form 2555, Foreign Earned Income
Form 2555-EZ, Foreign Earned Income Exclusion
Get the Facts on Early Distributions from Retirement Plans
If you took an early distribution from your retirement plan, here are some things you need to know:
1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
2. Early distributions are usually subject to an additional 10 percent tax.
3. Early distributions must also be reported to the IRS.
4. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
6. If you made nondeductible contributions to an IRA and later take early distributions from that same IRA, the portion of the distribution attributable to those contributions is not taxed.
7. If you received an early distribution from a Roth IRA the distribution attributable to contributions is not taxed.
8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
9. There are several exceptions to the additional 10 percent early distribution, such as when the distributions are used for purchase of a first home, certain medical and educational expenses or if you become disabled. Other exceptions can be found in IRS Publication 590, Individual
Retirement Arrangements (IRAs).
10. More information about early distributions from retirement plans and the additional 10 percent tax can be found in IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available on IRS.gov or by calling 800-TAX-FORM (800-829-3676). .
Publication 575, Pensions and Annuities (PDF 227K)
Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)
Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts (PDF 72K)
Form 5329 Instructions (PDF 40K)
1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
2. Early distributions are usually subject to an additional 10 percent tax.
3. Early distributions must also be reported to the IRS.
4. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
6. If you made nondeductible contributions to an IRA and later take early distributions from that same IRA, the portion of the distribution attributable to those contributions is not taxed.
7. If you received an early distribution from a Roth IRA the distribution attributable to contributions is not taxed.
8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
9. There are several exceptions to the additional 10 percent early distribution, such as when the distributions are used for purchase of a first home, certain medical and educational expenses or if you become disabled. Other exceptions can be found in IRS Publication 590, Individual
Retirement Arrangements (IRAs).
10. More information about early distributions from retirement plans and the additional 10 percent tax can be found in IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available on IRS.gov or by calling 800-TAX-FORM (800-829-3676). .
Publication 575, Pensions and Annuities (PDF 227K)
Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)
Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts (PDF 72K)
Form 5329 Instructions (PDF 40K)
Capital Gains and Losses - The Facts
Do you have questions about reporting gains and losses on your tax return? Here are some facts from the IRS.
Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss.
You must report all capital gains.
You may deduct capital losses only on investment property, not on property held for personal use.
Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss.
The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates. For 2008, the maximum capital gains rates are 0%, 15%, 25% or 28%.
If your capital losses exceed your capital gains, the excess can be deducted on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).
If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.
For more information about reporting capital gains and losses, use the following web sites:
Publication 17, Your Federal Income Tax (PDF 2015.9K)
Publication 550, Investment Income and Expenses (PDF 516K)
Publication 544, Sales and Other Dispositions of Assets (PDF 321K)
Publication 505, Tax Withholding and Estimated Tax (PDF 367K)
Publication 564, Mutual Fund Distributions (PDF 178K)
Publication 547, Casualties, Disasters, and Thefts (PDF 133K)
Publication 527, Residential Rental Property (Including Rental of Vacation Homes) (PDF 187K)
Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss.
You must report all capital gains.
You may deduct capital losses only on investment property, not on property held for personal use.
Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss.
The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates. For 2008, the maximum capital gains rates are 0%, 15%, 25% or 28%.
If your capital losses exceed your capital gains, the excess can be deducted on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).
If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.
For more information about reporting capital gains and losses, use the following web sites:
Publication 17, Your Federal Income Tax (PDF 2015.9K)
Publication 550, Investment Income and Expenses (PDF 516K)
Publication 544, Sales and Other Dispositions of Assets (PDF 321K)
Publication 505, Tax Withholding and Estimated Tax (PDF 367K)
Publication 564, Mutual Fund Distributions (PDF 178K)
Publication 547, Casualties, Disasters, and Thefts (PDF 133K)
Publication 527, Residential Rental Property (Including Rental of Vacation Homes) (PDF 187K)
Friday, February 20, 2009
Gambling Winnings Are Always Taxable Income
Gambling winnings are fully taxable and must be reported on your tax return. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other noncash prizes.
Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld federal income taxes from the payment.
Here are some general guidelines on gambling income and losses:
Reporting winnings: The full amount of your gambling winnings for the year must be reported on line 21, Form 1040. You may not use Form 1040A or 1040EZ. This rule applies regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form.
Deducting losses: If you itemize deductions, you can deduct your gambling losses for the year on line 28, Schedule A (Form 1040). You cannot deduct gambling losses that are more than your winnings.
It is important to keep an accurate diary or similar record of your gambling winnings and losses.
To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.
For more information see IRS Publication 529, Miscellaneous Deductions, or Publication 525, Taxable and Nontaxable Income, both available on the IRS Web site, IRS.gov, or by calling 800-TAX-FORM (800-829-3676).
Form W-2G, Certain Gambling Winnings (PDF 134K)
Publication 529, Miscellaneous Deductions (PDF 169K)
Publication 525, Taxable and Nontaxable Income (PDF 266K)
Tax Topic 419, Gambling Income and Expenses
Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld federal income taxes from the payment.
Here are some general guidelines on gambling income and losses:
Reporting winnings: The full amount of your gambling winnings for the year must be reported on line 21, Form 1040. You may not use Form 1040A or 1040EZ. This rule applies regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form.
Deducting losses: If you itemize deductions, you can deduct your gambling losses for the year on line 28, Schedule A (Form 1040). You cannot deduct gambling losses that are more than your winnings.
It is important to keep an accurate diary or similar record of your gambling winnings and losses.
To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.
For more information see IRS Publication 529, Miscellaneous Deductions, or Publication 525, Taxable and Nontaxable Income, both available on the IRS Web site, IRS.gov, or by calling 800-TAX-FORM (800-829-3676).
Form W-2G, Certain Gambling Winnings (PDF 134K)
Publication 529, Miscellaneous Deductions (PDF 169K)
Publication 525, Taxable and Nontaxable Income (PDF 266K)
Tax Topic 419, Gambling Income and Expenses
Thursday, February 19, 2009
Seven Facts to Help You Understand the Alternative Minimum Tax
1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. The Alternative Minimum Tax attempts to ensure that anyone who benefits from these tax advantages pays at least a minimum amount of tax.
2. Congress created the AMT in 1969, targeting a small number of high-income taxpayers who could claim so many deductions they owed little or no income tax.
3. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.
4. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.
5. The AMT exemption amounts are set by law for each filing status.
6. For tax-year 2008, Congress raised the alternative minimum tax exemption to the following levels:
$69,950 for a married couple filing a joint return and qualifying widows and widowers
$46,200 for singles and heads of household
$34,975 for a married person filing separately
7. Taxpayers may find more information about the Alternative Minimum Tax and how it impacts them by referring to IRS Form 6251, Alternative Minimum Tax —Individuals, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional Resources:
AMT Assistant
IRS Form 6251, Alternative Minimum Tax—Individuals
2. Congress created the AMT in 1969, targeting a small number of high-income taxpayers who could claim so many deductions they owed little or no income tax.
3. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.
4. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.
5. The AMT exemption amounts are set by law for each filing status.
6. For tax-year 2008, Congress raised the alternative minimum tax exemption to the following levels:
$69,950 for a married couple filing a joint return and qualifying widows and widowers
$46,200 for singles and heads of household
$34,975 for a married person filing separately
7. Taxpayers may find more information about the Alternative Minimum Tax and how it impacts them by referring to IRS Form 6251, Alternative Minimum Tax —Individuals, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional Resources:
AMT Assistant
IRS Form 6251, Alternative Minimum Tax—Individuals
Are Your Social Security Benefits Taxable?
How much, if any, of your social security benefits are taxable depends on your total income and marital status. Generally, if social security benefits were your only income for 2008, your benefits are not taxable and you probably do not need to file a federal income tax return.
If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status. Your taxable benefits and modified adjusted gross income are figured in a worksheet in the Form 1040A or Form 1040 Instruction booklet.
Before you go to the instruction book, do the following quick computation to determine whether some of your benefits may be taxable:
First, add one–half of the total social security you received to all your other income, including any tax exempt interest and other exclusions from income.
Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.
The 2008 base amounts are:
$32,000 for married couples filing jointly
$25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year
$0 for married persons filing separately who lived together during the year
For additional information on the taxability of social security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Publication 915 is available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Resources:
Publication 915, Social Security and Equivalent Railroad Retirement Benefits (PDF 994.0KB)
If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status. Your taxable benefits and modified adjusted gross income are figured in a worksheet in the Form 1040A or Form 1040 Instruction booklet.
Before you go to the instruction book, do the following quick computation to determine whether some of your benefits may be taxable:
First, add one–half of the total social security you received to all your other income, including any tax exempt interest and other exclusions from income.
Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.
The 2008 base amounts are:
$32,000 for married couples filing jointly
$25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year
$0 for married persons filing separately who lived together during the year
For additional information on the taxability of social security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Publication 915 is available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Resources:
Publication 915, Social Security and Equivalent Railroad Retirement Benefits (PDF 994.0KB)
Thursday, February 12, 2009
Disabled Taxpayers Tax Benefits
There are several tax credits and benefits available to qualifying taxpayers with disabilities as well as to the parents of disabled children. Listed below are several tax credits and other benefits available if you or someone else listed on your federal tax return is disabled.
The Earned Income Tax Credit The EITC is available to disabled taxpayers as well as to the parents of a child with a disability. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability, who have no qualifying children, but are older than 25 and younger than 65 do, in fact, qualify for EITC.
Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
The Credit for the Elderly or Disabled This credit may be available to taxpayers who are age 65 or older, or who are younger than 65 and are retired on permanent and total disability.
Child or Dependent Care Credit Taxpayers who pay someone to come to their home and care for their dependent or spouse may be entitled to claim this credit. There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.
Impairment-Related Work Expenses Employees who have a physical or mental disability limiting their employment, may be able to claim business expenses in connection with their workplace.
The expenses must be necessary for the taxpayer to work.
Impact on the Standard Deduction Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.
Gross Income Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income may be excluded from a taxpayer’s gross income.
For more information on tax credits and benefits available to disabled taxpayers, see Publication 3966, Living and Working with Disabilities, or Publication 907, Tax Highlights for Persons with Disabilities, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Publication 3966, Living and Working with Disabilities
Publication 907, Tax Highlights for Persons with Disabilities
The Earned Income Tax Credit The EITC is available to disabled taxpayers as well as to the parents of a child with a disability. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability, who have no qualifying children, but are older than 25 and younger than 65 do, in fact, qualify for EITC.
Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
The Credit for the Elderly or Disabled This credit may be available to taxpayers who are age 65 or older, or who are younger than 65 and are retired on permanent and total disability.
Child or Dependent Care Credit Taxpayers who pay someone to come to their home and care for their dependent or spouse may be entitled to claim this credit. There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.
Impairment-Related Work Expenses Employees who have a physical or mental disability limiting their employment, may be able to claim business expenses in connection with their workplace.
The expenses must be necessary for the taxpayer to work.
Impact on the Standard Deduction Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.
Gross Income Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income may be excluded from a taxpayer’s gross income.
For more information on tax credits and benefits available to disabled taxpayers, see Publication 3966, Living and Working with Disabilities, or Publication 907, Tax Highlights for Persons with Disabilities, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Publication 3966, Living and Working with Disabilities
Publication 907, Tax Highlights for Persons with Disabilities
To File or not To File
You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.
For example, a married couple both under age 65 generally is not required to file until their joint income reaches $17,900. However, self-employed individuals generally must file a tax return if their net income from self employment was at least $400.
Check the “Individuals” section of the IRS Web site at IRS.gov or consult the instructions for form 1040, 1040A, or 1040EZ for specific details that may affect your need to file a tax return with IRS this year.
Even if you don’t have to file, here are six reasons why you may want to file:
1. Federal Income Tax Withheld. If you are not required to file, you should file to get money back if Federal Income Tax was withheld from your pay, if you made estimated tax payments, or had a prior year overpayment applied to this year's tax.
2. Recovery Rebate Credit. If you did not qualify or did not receive the maximum amount for the 2008 Economic Stimulus Payment, you may be entitled to a Recovery Rebate Credit when you file your 2008 tax return.
3. Earned Income Tax Credit. You may qualify for the Earned Income Tax Credit, or EITC, if you worked, but did not earn a lot of money. EITC is a refundable tax credit meaning you could qualify for a tax refund.
4. Additional Child Tax Credit. This credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
5. First time Homebuyer Credit. If you bought a main home after April 8, 2008, and before July 1, 2009 and did not own a main home during the prior 3 years, you may be able to take this refundable credit.
6. Health Coverage Tax Credit. Certain individuals, who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit when you file your 2008 tax return.
For more information about filing requirements and your eligibility to receive tax credits, visit the IRS Web site at IRS.gov.
Forms and Publications
Recovery Rebate Credit Information Center
Earned Income Tax Credit
First-Time Homebuyer Credit Information Center
Health Coverage Tax Credit
1040 Central
For example, a married couple both under age 65 generally is not required to file until their joint income reaches $17,900. However, self-employed individuals generally must file a tax return if their net income from self employment was at least $400.
Check the “Individuals” section of the IRS Web site at IRS.gov or consult the instructions for form 1040, 1040A, or 1040EZ for specific details that may affect your need to file a tax return with IRS this year.
Even if you don’t have to file, here are six reasons why you may want to file:
1. Federal Income Tax Withheld. If you are not required to file, you should file to get money back if Federal Income Tax was withheld from your pay, if you made estimated tax payments, or had a prior year overpayment applied to this year's tax.
2. Recovery Rebate Credit. If you did not qualify or did not receive the maximum amount for the 2008 Economic Stimulus Payment, you may be entitled to a Recovery Rebate Credit when you file your 2008 tax return.
3. Earned Income Tax Credit. You may qualify for the Earned Income Tax Credit, or EITC, if you worked, but did not earn a lot of money. EITC is a refundable tax credit meaning you could qualify for a tax refund.
4. Additional Child Tax Credit. This credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
5. First time Homebuyer Credit. If you bought a main home after April 8, 2008, and before July 1, 2009 and did not own a main home during the prior 3 years, you may be able to take this refundable credit.
6. Health Coverage Tax Credit. Certain individuals, who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit when you file your 2008 tax return.
For more information about filing requirements and your eligibility to receive tax credits, visit the IRS Web site at IRS.gov.
Forms and Publications
Recovery Rebate Credit Information Center
Earned Income Tax Credit
First-Time Homebuyer Credit Information Center
Health Coverage Tax Credit
1040 Central
What to Do If You Are Missing a W-2
Did you get your W-2? These documents are essential to filling out most individual tax returns. You should receive a Form W-2, Wage and Tax Statement, from each of your employers each year. Employers have until February 2, 2009 to provide or send you a 2008 W-2 earnings statement either electronically or in paper form. If you haven’t received your W-2, follow these steps:
1. Contact your employer. If you have not received your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.
2. Contact the IRS. If you still do not receive your W-2 by February 17th, contact the IRS for assistance at 800-829-1040. When you call, have the following information:
Employer's name, address, city, and state, including zip code;
Your name, address, city and state, including zip code, and Social Security number; and
An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. File your return. You still must file your tax return on time even if you do not receive your Form W-2. If you have not received your Form W-2 by February 17th, and have completed steps 1 and 2 above, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
4. File a Form 1040X. On occasion, you may receive your missing documents at a later date and some may have conflicting information. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Form 4852, Substitute for Form W-2, Wage and Tax Statement (PDF 29K)
Form 1040X, Amended U.S. Individual Income Tax Return (PDF 123K)
Instructions for Form 1040X (PDF 43K)
1. Contact your employer. If you have not received your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.
2. Contact the IRS. If you still do not receive your W-2 by February 17th, contact the IRS for assistance at 800-829-1040. When you call, have the following information:
Employer's name, address, city, and state, including zip code;
Your name, address, city and state, including zip code, and Social Security number; and
An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. File your return. You still must file your tax return on time even if you do not receive your Form W-2. If you have not received your Form W-2 by February 17th, and have completed steps 1 and 2 above, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
4. File a Form 1040X. On occasion, you may receive your missing documents at a later date and some may have conflicting information. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Form 4852, Substitute for Form W-2, Wage and Tax Statement (PDF 29K)
Form 1040X, Amended U.S. Individual Income Tax Return (PDF 123K)
Instructions for Form 1040X (PDF 43K)
How to Claim the Rebate Credit on Your Return
The IRS sent taxpayers nearly 119 million economic stimulus payments last year. When filing a 2008 federal tax return, taxpayers will need to know the amount of their stimulus payment to properly determine if they are eligible for a recovery rebate credit.
Here are six tips for finding how much you received and correctly claiming the credit on your return:
1. Get your notice. Check the amount listed on Notice 1378, which the IRS mailed last year to individuals who received the economic stimulus payment.
2. Visit IRS.gov to find the amount. If you don’t have your Notice 1378, go to the “How Much Was My 2008 Stimulus Payment?” tool that is available on the IRS Web site, IRS.gov. This tool can provide the correct amount in a matter of a few seconds.
3. Call the IRS at 1-866-234-2942. If you don’t have Internet access, call the IRS. After a brief recorded announcement, select option one to find out the amount of your economic stimulus payment. You will need to provide your 2007 filing status, Social Security Number and the number of exemptions claimed on the tax return.
4. Keep the amount handy. With the amount of last year’s economic stimulus payment in hand, you will be able to enter the figure on the recovery rebate credit worksheet or in the appropriate location when your tax preparation software requests it. This number will not appear on your actual tax return but is vital to ensure the accurate determination of the recovery rebate credit amount.
5. Trust the software or the worksheet to get it right. Tax preparation software will automatically and correctly calculate the amount of the rebate recovery credit for you. The software will also properly report the credit on your tax return. If you are filing a paper return, the worksheet will guide you in calculating the proper amount of the credit. The recovery rebate credit should be reported on Line 70 of Form 1040, Line 42 of Form 1040A or Line 9 of Form 1040EZ. In order to avoid an error, use extra care when responding to the software questions or when completing the worksheet. Do not enter the stimulus payment directly on your return.
6. Most taxpayers won’t qualify for more. For most taxpayers, the correct entry for the recovery rebate credit will either be blank or zero because they have already received the money as a stimulus payment. If you complete the worksheet, and there is any question about the amount that should be reported for the recovery rebate credit, you or your preparer should enter a zero on the appropriate line above. For most people this will be the correct amount, and for the others the IRS will determine whether a recovery rebate credit is due and, if so, how much. If the IRS calculates a different credit amount than is reflected on your return, you will receive a notice that alerts you to the change.
IRS Offers Tips to Avoid Recovery Rebate Credit Confusion
Recovery Rebate Credit Information Center
Here are six tips for finding how much you received and correctly claiming the credit on your return:
1. Get your notice. Check the amount listed on Notice 1378, which the IRS mailed last year to individuals who received the economic stimulus payment.
2. Visit IRS.gov to find the amount. If you don’t have your Notice 1378, go to the “How Much Was My 2008 Stimulus Payment?” tool that is available on the IRS Web site, IRS.gov. This tool can provide the correct amount in a matter of a few seconds.
3. Call the IRS at 1-866-234-2942. If you don’t have Internet access, call the IRS. After a brief recorded announcement, select option one to find out the amount of your economic stimulus payment. You will need to provide your 2007 filing status, Social Security Number and the number of exemptions claimed on the tax return.
4. Keep the amount handy. With the amount of last year’s economic stimulus payment in hand, you will be able to enter the figure on the recovery rebate credit worksheet or in the appropriate location when your tax preparation software requests it. This number will not appear on your actual tax return but is vital to ensure the accurate determination of the recovery rebate credit amount.
5. Trust the software or the worksheet to get it right. Tax preparation software will automatically and correctly calculate the amount of the rebate recovery credit for you. The software will also properly report the credit on your tax return. If you are filing a paper return, the worksheet will guide you in calculating the proper amount of the credit. The recovery rebate credit should be reported on Line 70 of Form 1040, Line 42 of Form 1040A or Line 9 of Form 1040EZ. In order to avoid an error, use extra care when responding to the software questions or when completing the worksheet. Do not enter the stimulus payment directly on your return.
6. Most taxpayers won’t qualify for more. For most taxpayers, the correct entry for the recovery rebate credit will either be blank or zero because they have already received the money as a stimulus payment. If you complete the worksheet, and there is any question about the amount that should be reported for the recovery rebate credit, you or your preparer should enter a zero on the appropriate line above. For most people this will be the correct amount, and for the others the IRS will determine whether a recovery rebate credit is due and, if so, how much. If the IRS calculates a different credit amount than is reflected on your return, you will receive a notice that alerts you to the change.
IRS Offers Tips to Avoid Recovery Rebate Credit Confusion
Recovery Rebate Credit Information Center
Friday, February 6, 2009
Five Important Changes for Taxpayers
Here are a few tax law changes you may want to note before filing your 2008 federal tax return:
1. Expiring Tax Breaks Renewed The following popular tax breaks were renewed for tax-years 2008 and 2009:
Deduction for state and local sales taxes on Form 1040 Schedule A, Line 5
Educator expense deduction on Form 1040, Line 23 or Form 1040A, Line 16
Tuition and fees deduction on Form 8917
In addition, the residential energy-efficient property credit is extended through 2016. In general, solar electric, solar water heating and fuel cell property qualify for this credit. Starting in 2008, small wind energy and geothermal heat pump property also qualify.
2. Standard Deduction Increased for Most Taxpayers The 2008 basic standard deductions all increased. They are:
$10,900 for married couples filing a joint return and qualifying widows and widowers
$5,450 for singles and married individuals filing separate returns
$8,000 for heads of household
Beginning this year, taxpayers can claim an additional standard deduction based on the state or local real-estate taxes paid in 2008. Also new for 2008, a taxpayer can increase his standard deduction by the net disaster losses suffered from a federally declared disaster.
3. Contribution Limits Rise for IRAs and Other Retirement Plans This filing season, more people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes between $53,000 and $63,000. For married couples filing jointly, the income phase-out range is $85,000 to $105,000.
4. Standard Mileage Rates Adjusted for 2008 The standard mileage rates for business use of a vehicle:
50.5 cents per mile from Jan. 1 to June 30, 2008
58.5 cents per mile driven during the rest of 2008
The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:
19 cents per mile Jan. 1 to June 30, 2008
27 cents from July 1 to Dec. 31, 2008
The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents a mile. Special rates apply to the Midwest disaster area.
5. Kiddie Tax Revised The tax on a child's investment income previously only applied to children younger than age 18. It now applies if the child has investment income greater than $1,800 and is:
Younger than 18
18 years of age and had earned income that was equal to or less than half of his or her total support in 2008
Older than 18 and younger than 24, a student and during 2008 had earned income that was equal to or less than half of his or her total support.
IRS FS 2009-1 Highlights of 2008 Tax Law Changes
Form 1040 instructions (PDF 941K)
Publication 526 Charitable Contributions
1. Expiring Tax Breaks Renewed The following popular tax breaks were renewed for tax-years 2008 and 2009:
Deduction for state and local sales taxes on Form 1040 Schedule A, Line 5
Educator expense deduction on Form 1040, Line 23 or Form 1040A, Line 16
Tuition and fees deduction on Form 8917
In addition, the residential energy-efficient property credit is extended through 2016. In general, solar electric, solar water heating and fuel cell property qualify for this credit. Starting in 2008, small wind energy and geothermal heat pump property also qualify.
2. Standard Deduction Increased for Most Taxpayers The 2008 basic standard deductions all increased. They are:
$10,900 for married couples filing a joint return and qualifying widows and widowers
$5,450 for singles and married individuals filing separate returns
$8,000 for heads of household
Beginning this year, taxpayers can claim an additional standard deduction based on the state or local real-estate taxes paid in 2008. Also new for 2008, a taxpayer can increase his standard deduction by the net disaster losses suffered from a federally declared disaster.
3. Contribution Limits Rise for IRAs and Other Retirement Plans This filing season, more people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes between $53,000 and $63,000. For married couples filing jointly, the income phase-out range is $85,000 to $105,000.
4. Standard Mileage Rates Adjusted for 2008 The standard mileage rates for business use of a vehicle:
50.5 cents per mile from Jan. 1 to June 30, 2008
58.5 cents per mile driven during the rest of 2008
The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:
19 cents per mile Jan. 1 to June 30, 2008
27 cents from July 1 to Dec. 31, 2008
The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents a mile. Special rates apply to the Midwest disaster area.
5. Kiddie Tax Revised The tax on a child's investment income previously only applied to children younger than age 18. It now applies if the child has investment income greater than $1,800 and is:
Younger than 18
18 years of age and had earned income that was equal to or less than half of his or her total support in 2008
Older than 18 and younger than 24, a student and during 2008 had earned income that was equal to or less than half of his or her total support.
IRS FS 2009-1 Highlights of 2008 Tax Law Changes
Form 1040 instructions (PDF 941K)
Publication 526 Charitable Contributions
What Income Is Taxable?
While most income you receive is generally considered taxable, there are some situations when certain types of income are partially taxed or not taxed at all.
Some common examples of items that are not included in your income are:
Adoption Expense Reimbursements for qualifying expenses
Child support payments
Gifts, bequests and inheritances
Workers' compensation benefits
Meals and Lodging for the convenience of your employer
Compensatory Damages awarded for physical injury or physical sickness
Welfare Benefits
Cash Rebates from a dealer or manufacturer
Economic Stimulus Payment received in 2008
Some income may be taxable under certain circumstance, but not taxable in other situations.
Examples of items that may or may not be included in your income are:
Life Insurance.
If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price.
Scholarship or Fellowship Grant.
If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify. All other items—including income such as wages, salaries and tips—must be included in your income, unless it is specifically excluded by law. Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.
These examples are not all-inclusive. For more information, visit the IRS Web site at IRS.gov to view or download Publication 525, Taxable and Nontaxable Income from the Forms and Publications section or call 800-TAX-FORM (800-829-3676).
Publication 525, Taxable and Nontaxable Income (PDF 1178.2KB)
Some common examples of items that are not included in your income are:
Adoption Expense Reimbursements for qualifying expenses
Child support payments
Gifts, bequests and inheritances
Workers' compensation benefits
Meals and Lodging for the convenience of your employer
Compensatory Damages awarded for physical injury or physical sickness
Welfare Benefits
Cash Rebates from a dealer or manufacturer
Economic Stimulus Payment received in 2008
Some income may be taxable under certain circumstance, but not taxable in other situations.
Examples of items that may or may not be included in your income are:
Life Insurance.
If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price.
Scholarship or Fellowship Grant.
If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify. All other items—including income such as wages, salaries and tips—must be included in your income, unless it is specifically excluded by law. Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.
These examples are not all-inclusive. For more information, visit the IRS Web site at IRS.gov to view or download Publication 525, Taxable and Nontaxable Income from the Forms and Publications section or call 800-TAX-FORM (800-829-3676).
Publication 525, Taxable and Nontaxable Income (PDF 1178.2KB)
Thursday, February 5, 2009
Tips to Avoid Recovery Rebate Credit Confusion
In response to errors showing up on early tax filings, the Internal Revenue Service today urged taxpayers and tax preparers to make sure they properly determine eligibility for the recovery rebate credit before they file their 2008 federal tax returns.
Some individuals who did not get the economic stimulus payment, and a smaller number of those who did, may be eligible for the recovery rebate credit. However, most taxpayers who received the economic stimulus payment last year will not qualify for the recovery rebate credit on their 2008 federal income tax return.
An early sampling of tax returns shows about 15 percent have errors involving the recovery rebate credit. Some tax returns erroneously claim the credit, do not claim the proper amount of recovery rebate credit or mistakenly enter the amount of the stimulus payment they received on the recovery rebate credit line.
To avoid delays in tax refunds, it is critical that taxpayers know the correct amount of the stimulus payment they received last year, if any, to help determine whether they qualify for the recovery rebate credit now.
The amount of the stimulus payment will not be entered directly on the tax return. For people using a paper tax return, the stimulus payment amount will be required when completing a related worksheet. For people using tax software, the stimulus payment amount will be needed as part of the return preparation process.
How to Get the Recovery Rebate Credit Right
The IRS sent taxpayers nearly 119 million stimulus payments last year. There are three ways individuals can find out how much they received:
Check the amount listed on Notice 1378, which the IRS mailed last year to individuals who received the economic stimulus payment.
Go to the How Much Was My Stimulus Payment? tool that is available on the IRS Web site, IRS.gov. This can provide the correct amount in a matter of a few seconds.
Individuals can call the IRS at 1-866-234-2942. After a brief recorded announcement they can select option one to find out the amount of their economic stimulus payment. They will need to provide their filing status, Social Security Number and number of exemptions.
With the amount of last year’s economic stimulus payment in hand, the taxpayer can then enter the figure on the recovery rebate credit worksheet or in the appropriate location when tax preparation software requests it.
If the taxpayer or preparer is using tax software, the amount of the rebate recovery credit will automatically be calculated and reported properly. If the taxpayer is using the paper method, the rebate recovery credit, as determined through the worksheet, should be reported on Line 70 of Form 1040, Line 42 of Form 1040A or Line 9 of Form 1040EZ.
For most taxpayers, the correct entry for the recovery rebate credit will either be blank or zero.
If there is any question at all as to the amount that should be reported for the recovery rebate credit, the taxpayer or preparer should enter a zero on the appropriate line above, and the IRS will determine whether a recovery rebate credit is due, and, if so, how much.
Some of the major factors that could qualify you for the recovery rebate credit include:
Your financial situation changed dramatically from 2007 to 2008.
You did not file a 2007 tax return.
Your family gained an additional qualifying child in 2008.
You were claimed as a dependent on someone else’s return in 2007 but cannot be claimed as dependent by someone else in 2008.
Stimulus Payments Not Taxable; Reports of Extensive Refund Delays False
The IRS has received a number of recurring questions involving stimulus payments and the recovery rebate credit. Here are some important tips to keep in mind:
Taxability. The economic stimulus payment is not taxable and it should not be reported as income on the 2008 Form 1040, 1040A or 1040EZ.
Refund delays. IRS personnel are aware of reports that errors in claiming the recovery rebate credit could delay tax refunds for as much as eight to 12 weeks. These reports are false. As the IRS detects and corrects return errors concerning the recovery rebate credit, refund delays are currently no longer than about one week.
One payment. In addition, the IRS notes taxpayers will receive a single refund that includes any recovery rebate credit to which they are entitled. The IRS will not be issuing separate recovery rebate credit payments.
Refund amounts. The IRS reminds taxpayers they should not use their regular refund from last year in calculating the recovery rebate credit. Some taxpayers may be confusing their regular tax refunds with the economic stimulus payment they received when completing their 2008 tax return.
Direct Deposit Requests. Taxpayers who request a direct deposit will receive the refund in the form of a direct deposit even if errors are detected.
For more information, visit the Recovery Rebate Credit Information Center as well as the rebate questions and answers.
Some individuals who did not get the economic stimulus payment, and a smaller number of those who did, may be eligible for the recovery rebate credit. However, most taxpayers who received the economic stimulus payment last year will not qualify for the recovery rebate credit on their 2008 federal income tax return.
An early sampling of tax returns shows about 15 percent have errors involving the recovery rebate credit. Some tax returns erroneously claim the credit, do not claim the proper amount of recovery rebate credit or mistakenly enter the amount of the stimulus payment they received on the recovery rebate credit line.
To avoid delays in tax refunds, it is critical that taxpayers know the correct amount of the stimulus payment they received last year, if any, to help determine whether they qualify for the recovery rebate credit now.
The amount of the stimulus payment will not be entered directly on the tax return. For people using a paper tax return, the stimulus payment amount will be required when completing a related worksheet. For people using tax software, the stimulus payment amount will be needed as part of the return preparation process.
How to Get the Recovery Rebate Credit Right
The IRS sent taxpayers nearly 119 million stimulus payments last year. There are three ways individuals can find out how much they received:
Check the amount listed on Notice 1378, which the IRS mailed last year to individuals who received the economic stimulus payment.
Go to the How Much Was My Stimulus Payment? tool that is available on the IRS Web site, IRS.gov. This can provide the correct amount in a matter of a few seconds.
Individuals can call the IRS at 1-866-234-2942. After a brief recorded announcement they can select option one to find out the amount of their economic stimulus payment. They will need to provide their filing status, Social Security Number and number of exemptions.
With the amount of last year’s economic stimulus payment in hand, the taxpayer can then enter the figure on the recovery rebate credit worksheet or in the appropriate location when tax preparation software requests it.
If the taxpayer or preparer is using tax software, the amount of the rebate recovery credit will automatically be calculated and reported properly. If the taxpayer is using the paper method, the rebate recovery credit, as determined through the worksheet, should be reported on Line 70 of Form 1040, Line 42 of Form 1040A or Line 9 of Form 1040EZ.
For most taxpayers, the correct entry for the recovery rebate credit will either be blank or zero.
If there is any question at all as to the amount that should be reported for the recovery rebate credit, the taxpayer or preparer should enter a zero on the appropriate line above, and the IRS will determine whether a recovery rebate credit is due, and, if so, how much.
Some of the major factors that could qualify you for the recovery rebate credit include:
Your financial situation changed dramatically from 2007 to 2008.
You did not file a 2007 tax return.
Your family gained an additional qualifying child in 2008.
You were claimed as a dependent on someone else’s return in 2007 but cannot be claimed as dependent by someone else in 2008.
Stimulus Payments Not Taxable; Reports of Extensive Refund Delays False
The IRS has received a number of recurring questions involving stimulus payments and the recovery rebate credit. Here are some important tips to keep in mind:
Taxability. The economic stimulus payment is not taxable and it should not be reported as income on the 2008 Form 1040, 1040A or 1040EZ.
Refund delays. IRS personnel are aware of reports that errors in claiming the recovery rebate credit could delay tax refunds for as much as eight to 12 weeks. These reports are false. As the IRS detects and corrects return errors concerning the recovery rebate credit, refund delays are currently no longer than about one week.
One payment. In addition, the IRS notes taxpayers will receive a single refund that includes any recovery rebate credit to which they are entitled. The IRS will not be issuing separate recovery rebate credit payments.
Refund amounts. The IRS reminds taxpayers they should not use their regular refund from last year in calculating the recovery rebate credit. Some taxpayers may be confusing their regular tax refunds with the economic stimulus payment they received when completing their 2008 tax return.
Direct Deposit Requests. Taxpayers who request a direct deposit will receive the refund in the form of a direct deposit even if errors are detected.
For more information, visit the Recovery Rebate Credit Information Center as well as the rebate questions and answers.
Obama's Tax Recovery Plan
Congress is in the middle of considering the American Recovery and Reinvestment Act (HR 598), the first major tax bill of the year. Already HR 598 has passed the House Ways and Means Committee on January 22, 2009. Senators have their own version of the law to be discussed by the Senate Finances Committee on January 27. Update: the House passed the bill on January 28, 2009, by a vote of 244 in favor to 188 against, largely along party lines. The bill now goes to the Senate for consideration.
The legislation proposes several tax breaks that were touted by President Obama during his campaign, such as the Making Work Pay Tax Credit and reworking of the Hope education tax credit into the American Opportunity Tax Credit. The legislation also proposes to expand the child tax credit and earned income credit, and would revise the first-time home buyer tax credit.
The legislation contains more than just tax cuts. It also contains about $550 billion in spending measures. To see where the spending is going, the Economix blog of the New York Times has compiled a nice little pie chart.
Here's a summary of the major tax provisions:
Marking Work Pay Tax Credit
A new tax credit of $500 per person to offset a worker's FICA taxes on the first 6.2% of earned income (wages or self-employment). The tax credit is phased out once a person's modified adjusted gross income exceeds $75,000 (or $150,000 for joint filers). The credit would be retroactive to January 1, 2009, and could be taken either through a reduction in withholding or as a credit on a person's tax return. This tax credit is not available to dependents who have a job, and the credit does not effect the employer's share of FICA taxes.
Modification of the First-Time Home Buyer Tax Credit
The first time home buyer tax credit provides a tax credit of up to $7,500 ($3,750 for separate filers). The tax credit must be repaid over 15 years in what is essentially a zero-interest loan from the Treasury. The credit is available for people who buy a home after April 9, 2008, and before July 1, 2009. HR 598 proposes to eliminate the repayment requirement for homes purchased after December 31, 2008.
American Opportunity Tax Credit
HR 598 proposes to expand the current Hope education tax credit. Currently worth a maximum credit of $1,800 for students in their first two years of college education, HR 598 would expand this maximum to $2,500. It would also expand the list of qualifying expenses to include text books (currently only tuition is a qualifying expense), and it would make 40% of the tax credit refundable, meaning this amount could be refunded to the taxpayer if their tax liability was reduced to zero by using various tax credits. In a novel twist, HR 598 would ask the Treasury Department to conduct a study to see if the government could require community service as a condition for being eligible for the tax breaks for higher education.
Refundable Child Tax Credit
HR 598 would make the child tax credit refundable for 2009 and 2010. Currently, the child tax credit is refundable based on the 15% of earned income in excess of $8,500. HR 598 would remove this threshold, and thus make the tax credit fully refundable. That means more taxpayers would be able to receive the child tax credit even if they have zero tax liability.
Expands Earned Income Credit
The legislation would expands the earned income credit to provide higher earned income credit for families with three or more children. Currently, the EIC maxes out at 40% of the first $12,570 of earned income for families with two or more children. The leglistation would add a new maximum of 45% of the first $12,570 of earned income for families with three or more children.
Extends Tax Breaks for Energy Efficiency
Increases the tax credit amount to 30% of the cost of qualifying energy-efficient products such as storm windows, doors, skylights, and insulation; and increases the maximum credit to $1,500 for years 2009 and 2010. The nonbusiness energy property credit is currently limited to 10% of expenses, and capped at $500. Also would remove the maximum limits on the residential energy efficient property credit for solar hot water, geothermal and wind energy equipment. The residential energy tax credits are not available for tax year 2008.
Enhanced Depreciation for Business Assets
Extends the 50% bonus depreciation for 2009 and 2010. Section 179 expenses limits of $250,000 would be extended an additional year to 2009.
Net Operating Loss Carrybacks for BusinessesBusinesses would be allowed to carryback a net operating loss five years instead of two years under current law, and would be available for losses booked in 2008 or 2009. By carrying back their losses, businesses can obtain a refund of taxes paid in a previous year.
Work Opportunity Tax Credit for New Hires
Businesses would be eligible for a tax credit based on hiring certain types of employees. HR 598 would add two new classes of employees for which businesses could claim a tax credit: unemployed veterans and disconnected youths.
The legislation proposes several tax breaks that were touted by President Obama during his campaign, such as the Making Work Pay Tax Credit and reworking of the Hope education tax credit into the American Opportunity Tax Credit. The legislation also proposes to expand the child tax credit and earned income credit, and would revise the first-time home buyer tax credit.
The legislation contains more than just tax cuts. It also contains about $550 billion in spending measures. To see where the spending is going, the Economix blog of the New York Times has compiled a nice little pie chart.
Here's a summary of the major tax provisions:
Marking Work Pay Tax Credit
A new tax credit of $500 per person to offset a worker's FICA taxes on the first 6.2% of earned income (wages or self-employment). The tax credit is phased out once a person's modified adjusted gross income exceeds $75,000 (or $150,000 for joint filers). The credit would be retroactive to January 1, 2009, and could be taken either through a reduction in withholding or as a credit on a person's tax return. This tax credit is not available to dependents who have a job, and the credit does not effect the employer's share of FICA taxes.
Modification of the First-Time Home Buyer Tax Credit
The first time home buyer tax credit provides a tax credit of up to $7,500 ($3,750 for separate filers). The tax credit must be repaid over 15 years in what is essentially a zero-interest loan from the Treasury. The credit is available for people who buy a home after April 9, 2008, and before July 1, 2009. HR 598 proposes to eliminate the repayment requirement for homes purchased after December 31, 2008.
American Opportunity Tax Credit
HR 598 proposes to expand the current Hope education tax credit. Currently worth a maximum credit of $1,800 for students in their first two years of college education, HR 598 would expand this maximum to $2,500. It would also expand the list of qualifying expenses to include text books (currently only tuition is a qualifying expense), and it would make 40% of the tax credit refundable, meaning this amount could be refunded to the taxpayer if their tax liability was reduced to zero by using various tax credits. In a novel twist, HR 598 would ask the Treasury Department to conduct a study to see if the government could require community service as a condition for being eligible for the tax breaks for higher education.
Refundable Child Tax Credit
HR 598 would make the child tax credit refundable for 2009 and 2010. Currently, the child tax credit is refundable based on the 15% of earned income in excess of $8,500. HR 598 would remove this threshold, and thus make the tax credit fully refundable. That means more taxpayers would be able to receive the child tax credit even if they have zero tax liability.
Expands Earned Income Credit
The legislation would expands the earned income credit to provide higher earned income credit for families with three or more children. Currently, the EIC maxes out at 40% of the first $12,570 of earned income for families with two or more children. The leglistation would add a new maximum of 45% of the first $12,570 of earned income for families with three or more children.
Extends Tax Breaks for Energy Efficiency
Increases the tax credit amount to 30% of the cost of qualifying energy-efficient products such as storm windows, doors, skylights, and insulation; and increases the maximum credit to $1,500 for years 2009 and 2010. The nonbusiness energy property credit is currently limited to 10% of expenses, and capped at $500. Also would remove the maximum limits on the residential energy efficient property credit for solar hot water, geothermal and wind energy equipment. The residential energy tax credits are not available for tax year 2008.
Enhanced Depreciation for Business Assets
Extends the 50% bonus depreciation for 2009 and 2010. Section 179 expenses limits of $250,000 would be extended an additional year to 2009.
Net Operating Loss Carrybacks for BusinessesBusinesses would be allowed to carryback a net operating loss five years instead of two years under current law, and would be available for losses booked in 2008 or 2009. By carrying back their losses, businesses can obtain a refund of taxes paid in a previous year.
Work Opportunity Tax Credit for New Hires
Businesses would be eligible for a tax credit based on hiring certain types of employees. HR 598 would add two new classes of employees for which businesses could claim a tax credit: unemployed veterans and disconnected youths.
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