Friday, May 29, 2009
News Releases from the IRS for 2009
Spring 2009 Statistics of Income Bulletin Now Available IR-2009-56, May 29, 2009 — Statistics about the tax returns filed by individuals with high incomes for 2006 are now available.
IRS Offers Tax Credit Guidance to Businesses Hiring Unemployed Veterans and Certain YouthIR-2009-55, May 28, 2009 — Businesses that hired veterans and certain younger workers during the first part of 2009 should be aware of Aug. 17 certifiation date for the work opporturnity tax credit (WOTC).
Interest Rates Remain the Same for the Third Quarter of 2009IR-2009-54, May 28, 2009 — Quarterly interest rates for the quarter beginning July 1 are now available.
IRS Accepting Applications for Low Income Taxpayer Clinic GrantsIR-2009-52, May 22, 2009 — The IRS announced today that the 2010 Low Income Taxpayer Clinic (LITC) grant application process is now open.
Law Offers Special Tax Breaks for Small Business; Act Now and Save, IRS SaysIR-2009-51, May 20, 2009 — IRS urges small businesses to act now and take advantage of tax-saving opportunities included in the recovery law.
IRS Announces Withholding Adjustment Option for Pension Plans and Provides Taxpayer EducationIR-2009-50, May 14, 2009 — The IRS released new withholding adjustment procedures for pensions as part of outreach efforts to educate taxpayers about the benefits they will receive under the American Recovery and Reinvestment Act.
IRS Reminds Small Tax-Exempt Organizations to File e-PostcardsIR-2009-49, May 6, 2009 — The IRS reminds many small tax-exempt organizations to file their annual electronic informational return.
Next Tax Talk Today Highlights Estate, Gift and Employment Tax IR-2009-48, May 4, 2009 — The Internal Revenue Service’s Tax Talk Today will feature a special 100-minute program on Tuesday, May 12 at 2 p.m. to discuss current estate, gift and employment tax issues.
IRS Seeks Applications for Advisory CouncilIR-2009-47, May 1, 2009 — New members sought for the Internal Revenue Service Advisory Council (IRSAC), which has eight open seats for three-year terms starting in January 2010.
News Release and Fact Sheet ArchiveNews releases and fact sheets from November 2002 forward and an archive of news releases and fact sheets in PDF format back to 1997.
Litmus Test for Bankruptcy
The "means test" for bankruptcy is a "litmus" test for whether a taxpayer qualifies for the Currently Non-Collectible status with the IRS.
The "means test" is a function of bankruptcy that provides the minimal level of income that a household can generate in order to qualify for Chapter 7 Bankruptcy (i.e. liquidation of assets and debts).
The Bureau of Labor Statistics are used to determine the level of income allowed (based on number in family and the state you reside) to be able to qualify for Chapter 7. Also, these same BLS data is used for IRS Allowable Living Expenses for determination of a client's ability to pay.
Generally (and client has to verify with documentation- our 90% question today), if a person qualifies for Chapter 7 under their circumstances (and these may be temporary circumstances)- they would qualify for CNC (subject to documentation and inability to liquidate assets/full payment of liquid assets).
For example, if a 2-person household in NC has $40,000 in income- $52,355 would be the amount of income they would normally be allowed to have to file for Chap 7- also, this is the maximum ALEs that would correlate to a potential CNC.
The "means test" is a function of bankruptcy that provides the minimal level of income that a household can generate in order to qualify for Chapter 7 Bankruptcy (i.e. liquidation of assets and debts).
The Bureau of Labor Statistics are used to determine the level of income allowed (based on number in family and the state you reside) to be able to qualify for Chapter 7. Also, these same BLS data is used for IRS Allowable Living Expenses for determination of a client's ability to pay.
Generally (and client has to verify with documentation- our 90% question today), if a person qualifies for Chapter 7 under their circumstances (and these may be temporary circumstances)- they would qualify for CNC (subject to documentation and inability to liquidate assets/full payment of liquid assets).
For example, if a 2-person household in NC has $40,000 in income- $52,355 would be the amount of income they would normally be allowed to have to file for Chap 7- also, this is the maximum ALEs that would correlate to a potential CNC.
http://www.irs.gov/pub/irs-pdf/p908.pdf
Form 1099-A and 1099-C Taxability
By the way, there were over 2 million of these issued in 2008.
Read this:
http://www.irs.gov/businesses/small/article/0,,id=207042,00.html
Read this:
http://www.irs.gov/businesses/small/article/0,,id=207042,00.html
Thursday, May 21, 2009
Obama's Plan Could Hurt Senior Citizens
You know those $250 checks now being sent to Social Security recipients courtesy of President Obama's economic recovery package? Well, some seniors may have to pay some of it back to the government.
The problem, according to a Washington Times report, is that Social Security beneficiaries who are still working full time also qualify for Obama’s $400 Making Work Pay workplace tax cuts and, unless the tax laws are changed, they cannot qualify for both. The “surplus” will, have to be paid back to the government.
“Congressional and IRS officials say taxpayers cannot double-dip into both programs,” says the Times. “If you are getting extra Social Security money and benefit from a lower withholding in your paycheck, the two will have to be reconciled when you file your 2009 tax returns next year.”
If this comes as a surprise to you, you are far from alone. “I have seen no publicity to tell people drawing Social Security that they are not eligible for both the Social Security payment and the Making Work Pay tax credit,” Roberton Williams, senior fellow at the Tax Policy Center in the Urban Institute told the Washington Times. “The only people who know this are those who carefully read the stimulus bill," said Mr. Williams, adding, "It's only 600 pages long.”
Also See:
$250 Social Security, SSI Checks to be Sent During May 2009
Obama Tax Cuts
Economic Stimulus Package - How it Could Affect You
The problem, according to a Washington Times report, is that Social Security beneficiaries who are still working full time also qualify for Obama’s $400 Making Work Pay workplace tax cuts and, unless the tax laws are changed, they cannot qualify for both. The “surplus” will, have to be paid back to the government.
“Congressional and IRS officials say taxpayers cannot double-dip into both programs,” says the Times. “If you are getting extra Social Security money and benefit from a lower withholding in your paycheck, the two will have to be reconciled when you file your 2009 tax returns next year.”
If this comes as a surprise to you, you are far from alone. “I have seen no publicity to tell people drawing Social Security that they are not eligible for both the Social Security payment and the Making Work Pay tax credit,” Roberton Williams, senior fellow at the Tax Policy Center in the Urban Institute told the Washington Times. “The only people who know this are those who carefully read the stimulus bill," said Mr. Williams, adding, "It's only 600 pages long.”
Also See:
$250 Social Security, SSI Checks to be Sent During May 2009
Obama Tax Cuts
Economic Stimulus Package - How it Could Affect You
Obama's Proposed Tax Hikes
President Obama has proposed many changes to the tax laws. What follows is a summary of tax hikes, expanded information reporting requirements, and higher penalties.
Currently there are six tax brackets: 10%, 15%, 25%, 28%, 33%, and 35%. Those tax brackets were implemented in 2001 and are scheduled to expire at the end of 2010. Obama proposes to continue using the 10% through 28% tax rates and to replace the top two rates with 36% and 39.6% rates.
How income is measured in determining the tax bracket would change. The 36% bracket would begin at $200,000 minus the standard deduction and one personal exemption for single filers, and at $250,000 minus the standard deduction and two personal exemptions for married filers.
How tax rates are determined remains unchanged for the other tax brackets. The beginning of the 39.6% bracket was not explained in the Greenbook; for 2009, the highest tax rate begins at $372,950 for married filers. The new tax rates would begin in 2011.
www.treas.gov/offices/tax-policy/library/grnbk09.pdf
Currently there are six tax brackets: 10%, 15%, 25%, 28%, 33%, and 35%. Those tax brackets were implemented in 2001 and are scheduled to expire at the end of 2010. Obama proposes to continue using the 10% through 28% tax rates and to replace the top two rates with 36% and 39.6% rates.
How income is measured in determining the tax bracket would change. The 36% bracket would begin at $200,000 minus the standard deduction and one personal exemption for single filers, and at $250,000 minus the standard deduction and two personal exemptions for married filers.
How tax rates are determined remains unchanged for the other tax brackets. The beginning of the 39.6% bracket was not explained in the Greenbook; for 2009, the highest tax rate begins at $372,950 for married filers. The new tax rates would begin in 2011.
www.treas.gov/offices/tax-policy/library/grnbk09.pdf
Friday, May 15, 2009
Haven't Filed Your Tax Return Yet? Here's What To Do
Filing a past due return may not be as difficult as you think. Taxpayers should file all tax returns that are due, regardless of whether or not full payment can be made with the return. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. All payment plans require continued compliance with all filing and payment responsibilities after the plan is approved. It is important, however, to know that full payment of taxes saves you money.
Here’s What to Do:
Gather Past Due Return Information
In order for the IRS to assist with preparing a tax return, taxpayers should bring any and all information related to income and deductions for the tax years for which a return is required to be filed.
Prepare and File Forms
You’ll need to get the proper forms and publications. Then sign and date your tax return; and send to the correct address.
Payment Options - Ways to Make a Payment
There are several different ways to make a payment on your taxes. Payments can be made by credit card, electronic funds transfer, check, money order, cashier’s check, or cash.
Payment Options – For Those Who Can’t Pay in Full
Taxpayers unable to pay all taxes due on the bill are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be lessened. Based on the circumstances, a taxpayer could qualify for an extension of time to pay, an Installment Agreement, temporary delay, or Offer in Compromise.
Taxpayers who need more time to pay can find out in just a few minutes whether they qualify for a payment agreement with the IRS. Just click on the Online Payment Agreement link and follow the prompts. By entering some basic information about their tax situation, eligible taxpayers can set up in a matter of minutes either a short-term payment extension or a monthly payment plan.
A short-term extension gives a taxpayer up to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply.
A monthly payment plan or installment agreement gives a taxpayer more time to pay. Penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan. Further, it is important to review all options as the interest rate on a loan or credit card may be lower than the combination of penalties and interest imposed by the Internal Revenue Code. It is best that you pay as much as possible before entering into an installment agreement.
A user fee will also be charged if the installment agreement is approved. The fee, normally $105, is reduced to $52, if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-income taxpayers.
Alternatively, taxpayers can apply for a payment agreement by filling out Form 9465, Installment Agreement Request. This form can be filed along with either an electronically filed return or a paper return. If filing on paper, be sure to attach it to the front of the return.
What Will Happen If You Don’t File Your Past Due Return or Contact the IRS
It’s important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions.
Need help with filing requirements and IRS debt? Check this out http:www.effectur.com
Here’s What to Do:
Gather Past Due Return Information
In order for the IRS to assist with preparing a tax return, taxpayers should bring any and all information related to income and deductions for the tax years for which a return is required to be filed.
Prepare and File Forms
You’ll need to get the proper forms and publications. Then sign and date your tax return; and send to the correct address.
Payment Options - Ways to Make a Payment
There are several different ways to make a payment on your taxes. Payments can be made by credit card, electronic funds transfer, check, money order, cashier’s check, or cash.
Payment Options – For Those Who Can’t Pay in Full
Taxpayers unable to pay all taxes due on the bill are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be lessened. Based on the circumstances, a taxpayer could qualify for an extension of time to pay, an Installment Agreement, temporary delay, or Offer in Compromise.
Taxpayers who need more time to pay can find out in just a few minutes whether they qualify for a payment agreement with the IRS. Just click on the Online Payment Agreement link and follow the prompts. By entering some basic information about their tax situation, eligible taxpayers can set up in a matter of minutes either a short-term payment extension or a monthly payment plan.
A short-term extension gives a taxpayer up to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply.
A monthly payment plan or installment agreement gives a taxpayer more time to pay. Penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan. Further, it is important to review all options as the interest rate on a loan or credit card may be lower than the combination of penalties and interest imposed by the Internal Revenue Code. It is best that you pay as much as possible before entering into an installment agreement.
A user fee will also be charged if the installment agreement is approved. The fee, normally $105, is reduced to $52, if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-income taxpayers.
Alternatively, taxpayers can apply for a payment agreement by filling out Form 9465, Installment Agreement Request. This form can be filed along with either an electronically filed return or a paper return. If filing on paper, be sure to attach it to the front of the return.
What Will Happen If You Don’t File Your Past Due Return or Contact the IRS
It’s important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions.
Need help with filing requirements and IRS debt? Check this out http:www.effectur.com
Form 1099-A and 1099-C Taxability
By the way, there were over 2 million of these issued in 2008- hence, many clients have this issue related to assessment/tax debt
Read this:
http://www.irs.gov/businesses/small/article/0,,id=207042,00.html
Read this:
http://www.irs.gov/businesses/small/article/0,,id=207042,00.html
Obama Administration "GREENBOOK" Tax Law Changes
From the Obama "Greenbook" of Revenue Proposals for 2010:
Another one of Obama's proposals would make repeated failure to file a tax return a felony. Current law provides that willful failure to file a tax return is a misdemeanor punishable by a term of imprisonment for not more than one year, a fine of not more than $25,000 ($100,000 in the case of a corporation), or both. A taxpayer who fails to file returns for multiple years commits a separate misdemeanor offense for each year.
Under the administration’s proposal, any person who willfully fails to file tax returns in any three years within any five-consecutive-year period, if the aggregated tax liability for such period is at least $50,000, would be subject to a new aggravated failure-to-file criminal penalty. The proposal would classify such a failure as a felony and, upon conviction, impose a fine of not more than $250,000 ($500,000 in the case of a corporation) or imprisonment for not more than five years, or both. The proposal would be effective for returns required to be filed after Dec. 31, 2009.
The administration also proposes to revise the offer-in-compromise application rules to eliminate the requirements that an initial offer-in-compromise include a nonrefundable payment of any portion of the taxpayer’s offer.
Visit Effectur's website for more tax debt help and guidance.
Another one of Obama's proposals would make repeated failure to file a tax return a felony. Current law provides that willful failure to file a tax return is a misdemeanor punishable by a term of imprisonment for not more than one year, a fine of not more than $25,000 ($100,000 in the case of a corporation), or both. A taxpayer who fails to file returns for multiple years commits a separate misdemeanor offense for each year.
Under the administration’s proposal, any person who willfully fails to file tax returns in any three years within any five-consecutive-year period, if the aggregated tax liability for such period is at least $50,000, would be subject to a new aggravated failure-to-file criminal penalty. The proposal would classify such a failure as a felony and, upon conviction, impose a fine of not more than $250,000 ($500,000 in the case of a corporation) or imprisonment for not more than five years, or both. The proposal would be effective for returns required to be filed after Dec. 31, 2009.
The administration also proposes to revise the offer-in-compromise application rules to eliminate the requirements that an initial offer-in-compromise include a nonrefundable payment of any portion of the taxpayer’s offer.
Visit Effectur's website for more tax debt help and guidance.
Friday, May 8, 2009
Freelancers' Charitable Giving
William Perez, writer for About.com had a great article for freelancers on charitable giving write-offs.
Can Freelancers Write off the Value of Time for Charity?
Friday May 1, 2009
Freelance professionals often have non-profits and charities as clients. Oftentimes the freelancer will agree to work for free because they believe in the work the non-profit is doing and want to cut them a break on their fees. So the question naturally arises, "Is freelance work done for charity deductible?" (This interesting question was sent to me by a reader via twitter.)
The short answer is no. The IRS explains in Publication 526 that "You cannot deduct the value of your time or services, including... [t]he value of income lost while you work as an unpaid volunteer for a qualified organization."
However, there's an alternative strategy that freelancers might consider. The freelancer could charge the non-profit for their services, and then turn around and make a tax-deductible contribution for the same amount. This strategy has multiple tax consequences, so let's see how the math would work out in one scenario.
Let's assume, for our example, that an freelancer is filing a Schedule C to report her income, and she also itemizes her deductions, and she is in the 25% tax bracket. She charges the non-profit $1,000 for some web design work, and then separately she donates $1,000 to the charity. In this scenario, our freelancer has increased her self-employment income by $1,000, and so this extra income will increase her self-employment tax by roughly $141. This transaction would increase her deduction for half of the self-employment tax by roughly $70, and would increase her charitable deductions by $1,000. Now her income has increased $1,000, but this will be offset by the charity deduction. So overall, her taxable income is reduced only by the extra $70 deduction for self-employment tax, which would lower her income tax by about $17. Her tax impact: she pays an extra $141 of self-employment tax, but pays $17 less in income taxes, leaving her with $124 in higher taxes overall.
In this scenario, the freelancer does not come out ahead. The charity effectively pays nothing for the services, but the freelancer generates a tax hike for herself because the increase in her self-employment taxes is larger than the tax savings. The freelancer would be better off volunteering her services for free rather than charging a fee, and then turning around and donating the same amount.
However, this scenario may not fit your exact situation. So it would make sense to run your own numbers to see how it would work on your tax return.
Can Freelancers Write off the Value of Time for Charity?
Friday May 1, 2009
Freelance professionals often have non-profits and charities as clients. Oftentimes the freelancer will agree to work for free because they believe in the work the non-profit is doing and want to cut them a break on their fees. So the question naturally arises, "Is freelance work done for charity deductible?" (This interesting question was sent to me by a reader via twitter.)
The short answer is no. The IRS explains in Publication 526 that "You cannot deduct the value of your time or services, including... [t]he value of income lost while you work as an unpaid volunteer for a qualified organization."
However, there's an alternative strategy that freelancers might consider. The freelancer could charge the non-profit for their services, and then turn around and make a tax-deductible contribution for the same amount. This strategy has multiple tax consequences, so let's see how the math would work out in one scenario.
Let's assume, for our example, that an freelancer is filing a Schedule C to report her income, and she also itemizes her deductions, and she is in the 25% tax bracket. She charges the non-profit $1,000 for some web design work, and then separately she donates $1,000 to the charity. In this scenario, our freelancer has increased her self-employment income by $1,000, and so this extra income will increase her self-employment tax by roughly $141. This transaction would increase her deduction for half of the self-employment tax by roughly $70, and would increase her charitable deductions by $1,000. Now her income has increased $1,000, but this will be offset by the charity deduction. So overall, her taxable income is reduced only by the extra $70 deduction for self-employment tax, which would lower her income tax by about $17. Her tax impact: she pays an extra $141 of self-employment tax, but pays $17 less in income taxes, leaving her with $124 in higher taxes overall.
In this scenario, the freelancer does not come out ahead. The charity effectively pays nothing for the services, but the freelancer generates a tax hike for herself because the increase in her self-employment taxes is larger than the tax savings. The freelancer would be better off volunteering her services for free rather than charging a fee, and then turning around and donating the same amount.
However, this scenario may not fit your exact situation. So it would make sense to run your own numbers to see how it would work on your tax return.
2009 Tax Changes for Education
Education tax credits were significantly enhanced under the American Recovery and Reinvestment Act of 2009. It is important to review your situation under the new guidelines as you may now be eligible for the credits.
Education tax credits can help offset the costs of higher education for yourself or a dependent.
The Hope Credit and the Lifetime Learning Credit are two education credits available which may benefit you. You may be able to subtract them in full from your federal income tax, rather than just deducting from your taxable income.
The Hope Credit
In 2009, the Hope Credit applies to all four years of post-secondary education, such as college or vocational school. It does not apply to graduate and professional-level programs.
It can be worth up to $2,500 per eligible student in 2009.
You're allowed 100% of the first $2,000 of qualified tuition and related fees paid during the tax year, plus 25% of the next $2,000.
Qualified expenses, include tuition and fees required for enrollment or attendance at an eligible education institution and course materials. They do not include room and board, student activities, athletics (other than courses that are part of a degree program), insurance, equipment, transportation, or any personal, living, or family expenses.
Each student must be enrolled at least half-time for at least one academic period which began during the year.
The Lifetime Learning Credit
Applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills.
If you qualify, your credit equals 20% of the first $10,000 of post-secondary tuition and fees you pay during the year, for a maximum credit of $2,000 per tax return.
You cannot claim both the Hope and Lifetime Learning Credits for the same student in the same year.
To qualify for either credit, you must pay post-secondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.
These credits are phased out for Modified Adjusted Gross Income over $80,000 ($160,000 for married filing jointly) and eliminated completely for Modified AGI of $90,000 or more ($180,000 for married filing jointly). If the taxpayer is married, the credit may be claimed only on a joint return.
Education tax credits can help offset the costs of higher education for yourself or a dependent.
The Hope Credit and the Lifetime Learning Credit are two education credits available which may benefit you. You may be able to subtract them in full from your federal income tax, rather than just deducting from your taxable income.
The Hope Credit
In 2009, the Hope Credit applies to all four years of post-secondary education, such as college or vocational school. It does not apply to graduate and professional-level programs.
It can be worth up to $2,500 per eligible student in 2009.
You're allowed 100% of the first $2,000 of qualified tuition and related fees paid during the tax year, plus 25% of the next $2,000.
Qualified expenses, include tuition and fees required for enrollment or attendance at an eligible education institution and course materials. They do not include room and board, student activities, athletics (other than courses that are part of a degree program), insurance, equipment, transportation, or any personal, living, or family expenses.
Each student must be enrolled at least half-time for at least one academic period which began during the year.
The Lifetime Learning Credit
Applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills.
If you qualify, your credit equals 20% of the first $10,000 of post-secondary tuition and fees you pay during the year, for a maximum credit of $2,000 per tax return.
You cannot claim both the Hope and Lifetime Learning Credits for the same student in the same year.
To qualify for either credit, you must pay post-secondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.
These credits are phased out for Modified Adjusted Gross Income over $80,000 ($160,000 for married filing jointly) and eliminated completely for Modified AGI of $90,000 or more ($180,000 for married filing jointly). If the taxpayer is married, the credit may be claimed only on a joint return.
New Tax Relief for Individuals
Most of you have heard that under the Obama Administration's American Recovery and Reinvestment Act you will be receiving a "Making Work Pay" tax credit. But what does this actually mean to you? When can you expect to receive the money?
In 2009 and 2010, the "Making Work Pay" provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.
Note: This tax credit is calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.
For people who receive a paycheck and are subject to withholding, the credit is typically handled by their employers through automated withholding changes. These changes needed to begin by April 1, 2009 and may result in an increase in take-home pay. The amount of the credit will be computed on the employee's 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.
It is not necessary to submit a Form W-4 to get the automatic withholding change. However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may choose to submit a revised W-4 to ensure enough withholding is held to cover the tax for his or her combined income.
If you have questions about the Making Work Pay provision, these questions and answers might help.
Making Work Pay Questions and Answers: General Issues
Q. What is the Making Work Pay Credit?
A. In tax years 2009 and 2010, the Making Work Pay provision will provide a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns.
Q. How will taxpayers get this credit?
A. For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes to be made in early spring 2009. These changes may result in an increase in the amount of take-home pay. The amount of the credit will be reported on the 2009 income tax return. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return filed in 2010.
Q. How will the self-employed (those who do not receive Social Security, Veterans Affairs or Railroad Retirement Board income) claim this credit?
A. Self-employed taxpayers can claim the Making Work Pay credit on their 2009 return filed in 2010. Self-employed individuals should evaluate their expected income tax liability and determine whether they want to make any adjustments in their estimated tax payments.
Q. Can private pensioners (those who do not receive Social Security, Veterans Affairs or Railroad Retirement Board income) claim this credit?
A. Private pension recipients are not eligible for the Making Work Pay credit unless they have earned income. However, because the new withholding tables reduce the taxes withheld from all taxpayers, pension recipients may not have enough tax withheld from their pension benefits to cover their tax liability on those payments. The IRS recommends that pension recipients evaluate their expected tax liability for the year and consider whether they need to make estimated tax payments or adjust their withholding on Form W-4P, Withholding Certificate for Pension or Annuity Payments.
Q5. Are employees required to have a valid Social Security number (SSN) to be eligible for the Making Work Pay tax credit?
A. Yes, eligibility for this credit is conditioned upon providing a valid SSN.
Q6. If a taxpayer is eligible for more of a credit, how can it be claimed?
A. The modified tables take the anticipated credit into account through reduced withholding. However, the Making Work Pay credit will be reported on all filed 2009 income tax returns, along with the taxpayer’s withheld income tax. Taxpayers receiving less than the full amount of the anticipated credit through reduced withholding will still be entitled to the full credit on their return.
Making Work Pay Questions and Answers: Form W-4
Q1. Do I need to change my W-4?
A. Generally, for people who receive a paycheck, the credit will typically be handled by their employers through automated withholding changes. A Form W-4, Employee Withholding Allowance Certificate, will not need to be submitted for the automatic withholding change. An employee with multiple jobs or married couples whose combined income place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his/her combined income. IRS Publication 919, How Do I Adjust My Tax Withholding?, provides additional guidance for tax withholding.
Q2. Should employees who are nonresident aliens or who can be claimed as a dependent on someone else's return ask for additional withholding on line 6 of the Form W-4?
A. Because nonresident aliens and those who can be claimed as dependents on someone else’s income tax return are not eligible for the Making Work Pay Credit, the new withholding tables may cause them to be underwithheld. These taxpayers need to evaluate their expected tax liability for the year and determine if they need to either make appropriate estimated tax payments or adjust their withholding on Form W-4. However, Publication 15-T, New Wage Withholding and Advanced Earned Income Credit Payment Tables (for wages paid through December 2009), does include additional amounts to be added to the pay of nonresident aliens to figure their income tax withholding.
Q3. Will employers be required to determine if employees received the maximum credit and discontinue any further related withholding tax reductions?
A. Employers are not required to make determinations with regard to an employee’s eligibility for the Making Work Pay credit. Withholding should be made consistent with the employee's filed W-4 and the newly modified withholding tables.
http://www.astps.org/newsletter.shtml#1
In 2009 and 2010, the "Making Work Pay" provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.
Note: This tax credit is calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.
For people who receive a paycheck and are subject to withholding, the credit is typically handled by their employers through automated withholding changes. These changes needed to begin by April 1, 2009 and may result in an increase in take-home pay. The amount of the credit will be computed on the employee's 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.
It is not necessary to submit a Form W-4 to get the automatic withholding change. However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may choose to submit a revised W-4 to ensure enough withholding is held to cover the tax for his or her combined income.
If you have questions about the Making Work Pay provision, these questions and answers might help.
Making Work Pay Questions and Answers: General Issues
Q. What is the Making Work Pay Credit?
A. In tax years 2009 and 2010, the Making Work Pay provision will provide a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns.
Q. How will taxpayers get this credit?
A. For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes to be made in early spring 2009. These changes may result in an increase in the amount of take-home pay. The amount of the credit will be reported on the 2009 income tax return. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return filed in 2010.
Q. How will the self-employed (those who do not receive Social Security, Veterans Affairs or Railroad Retirement Board income) claim this credit?
A. Self-employed taxpayers can claim the Making Work Pay credit on their 2009 return filed in 2010. Self-employed individuals should evaluate their expected income tax liability and determine whether they want to make any adjustments in their estimated tax payments.
Q. Can private pensioners (those who do not receive Social Security, Veterans Affairs or Railroad Retirement Board income) claim this credit?
A. Private pension recipients are not eligible for the Making Work Pay credit unless they have earned income. However, because the new withholding tables reduce the taxes withheld from all taxpayers, pension recipients may not have enough tax withheld from their pension benefits to cover their tax liability on those payments. The IRS recommends that pension recipients evaluate their expected tax liability for the year and consider whether they need to make estimated tax payments or adjust their withholding on Form W-4P, Withholding Certificate for Pension or Annuity Payments.
Q5. Are employees required to have a valid Social Security number (SSN) to be eligible for the Making Work Pay tax credit?
A. Yes, eligibility for this credit is conditioned upon providing a valid SSN.
Q6. If a taxpayer is eligible for more of a credit, how can it be claimed?
A. The modified tables take the anticipated credit into account through reduced withholding. However, the Making Work Pay credit will be reported on all filed 2009 income tax returns, along with the taxpayer’s withheld income tax. Taxpayers receiving less than the full amount of the anticipated credit through reduced withholding will still be entitled to the full credit on their return.
Making Work Pay Questions and Answers: Form W-4
Q1. Do I need to change my W-4?
A. Generally, for people who receive a paycheck, the credit will typically be handled by their employers through automated withholding changes. A Form W-4, Employee Withholding Allowance Certificate, will not need to be submitted for the automatic withholding change. An employee with multiple jobs or married couples whose combined income place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his/her combined income. IRS Publication 919, How Do I Adjust My Tax Withholding?, provides additional guidance for tax withholding.
Q2. Should employees who are nonresident aliens or who can be claimed as a dependent on someone else's return ask for additional withholding on line 6 of the Form W-4?
A. Because nonresident aliens and those who can be claimed as dependents on someone else’s income tax return are not eligible for the Making Work Pay Credit, the new withholding tables may cause them to be underwithheld. These taxpayers need to evaluate their expected tax liability for the year and determine if they need to either make appropriate estimated tax payments or adjust their withholding on Form W-4. However, Publication 15-T, New Wage Withholding and Advanced Earned Income Credit Payment Tables (for wages paid through December 2009), does include additional amounts to be added to the pay of nonresident aliens to figure their income tax withholding.
Q3. Will employers be required to determine if employees received the maximum credit and discontinue any further related withholding tax reductions?
A. Employers are not required to make determinations with regard to an employee’s eligibility for the Making Work Pay credit. Withholding should be made consistent with the employee's filed W-4 and the newly modified withholding tables.
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