Special Edition Tax Tip 2009-12
Well not the post I was hoping to get out next, but when you have days. . . . Below is a copy of an e-news release. I am busy trying to get the blog rolls up and complete today or at least for another hour or so. I hope to work on the Quotes tomorrow.
Seven Facts about the Non-business Energy Property Credit
Taxpayers who take energy saving steps this year may get bigger tax savings next year. The Nonbusiness Energy Property Credit, a tax credit for making energy efficient improvements to homes has been increased as part of the American Recovery and Reinvestment Act of 2009.
Here are seven things the IRS wants you to know about the Non-business Energy Property Credit:
- The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 claimed for 2009 and 2010 combined.
- The credit applies to improvements such as adding insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.
- To qualify as “energy efficient” for purposes of this tax credit, products generally must meet higher standards than the standards for the credit that was available in 2007.
- Manufacturers must certify that their products meet new standards and they must provide a written statement to the taxpayer such as with the packaging of the product or in a printable format on the manufacturers’ Website.
- Qualifying improvements must be placed into service after December 31, 2008, and before January 1, 2011.
- The improvements must be made to the taxpayer’s principal residence located in the United States.
- To claim the credit, attach Form 5695, Residential Energy Credits to either the 2009 or 2010 tax return. Taxpayers must claim the credit on the tax return for the year that the improvements are made.
Homeowners who have been considering some energy efficient home improvements may find these tax credits will get them bigger tax savings next year.
For more information on this and other key tax provisions of the Recovery Act, visit the official IRS Website at IRS.gov/recovery.
Links:
- Energy Incentives for Individuals in the American Recovery and Reinvestment Act
- IR-2009-98, Expanded Recovery Act Tax Credits Help Homeowners Winterize their Homes, Save Energy; Check Tax Credit Certification Before You Buy, IRS Advises
- YouTube Video: Home Energy Credits: English | Spanish | ASL
Unexpectedly out of the office
Due to an unexpected need to be away from my office I am forced to just put this repost up. I’ll be back by Sunday.
April 1st was implementation day for the Making Work Pay tax credit, and it wasn’t an April Fool’s joke. The American Recovery and Reinvestment Act of 2009 (ARRA), Congress’ most recent effort to “stimulate” our economy, contains this new tax credit, which will affect everyone when filing your individual return. You may be able to take advantage of an income tax credit of as much as $400 ($800 for a married couple) on your personal tax return for the next two years.
The Making Work Pay tax credit served as centerpiece of the tax reduction provisions of the ARRA. President Obama strongly pursued its inclusion in the legislation because it would put money back into the pockets of working people. The annual tax credit (available in 2009 and 2010) is equal to 6.2% of earned income, to a maximum credit of $400 for an individual ($800 for a married couple filing jointly). The Key is “a maximum credit of $400 per working individual”. Dependants have no bearing on this.
Technically, taxpayers will receive the tax credit when they prepare and file their tax returns a year from now for 2009 (and then for 2010 the next year). However, practically speaking, taxpayers that receive wages from employment in 2009 will receive the tax credit in small increments throughout the year. How? The IRS in late February issued a new set of withholding tables structured to informally pay the amount of the tax credit over the course of the year by reducing required withholding amounts on payroll.
The Issue
The new withholding are designed to save employees roughly $10 per week for the rest of the year (40 weeks x $10 = a $400 tax credit). This isn’t working out for a lot of people. Several of my clients have called me because they are having more taken out then the ten dollars, some are even getting as much as forty-three dollars more a week.
This is a problem and will affect refunds and or amount due/s. Why, because you aren’t having as much withheld, and tax tables on your income haven’t changed. Withholdings went down, not income tax on your earnings.
The IRS produced new withholding tables in February and asked employers to implement them by April 1. But, withholding tables are a blunt instrument, unable to precisely assess taxes for everyone’s unique situations. Employers who use the tables don’t know workers’ complete situation, such as whether an employee has a second job or is married to someone who also works. That means some workers will end up with more cash than they’re eligible for under the new credit.
Adjustments may have to be made by individuals to make sure they’re not over- or under-withheld.
Again, the lower withholding may cause some unwanted results for taxpayers with more than one job, two-earner married couples, and high-income taxpayers.
The Fix
The IRS is aware of this issue and warns taxpayers that they (individual taxpayers) are responsible for making sure their withholdings are correct. This means that you are ultimately responsible for making sure you have enough withheld from your checks using your form W-4.
The first thing you can do is make sure your employer has these new tables. The new tables and instructions are found in IRS Publication 15-T. The next thing to do would be to Contact your tax professional and discuss this with them.
If that isn’t a viable option you can contact me I will be glad to help.
Beware, though, because the credit is phased out as your adjusted gross income exceeds $75,000 for individuals ($150,000 for married couples filing jointly). If your income exceeds $95,000 ($190,000 for married couples filing jointly), then you will not be able to receive any benefit from the Making Work Pay tax credit.
Timing is everything, especially with taxes … and tax information.
The IRS has an online calculator that reflects the new stimulus act withholding tables to help you get your amount just right. Armed with your most recent tax return and paycheck stub, you can in 10 minutes or so fill in the required information and get instructions on filling out a new W-4. You should use the calculator now. Then again, later in the year to ensure your assumptions are on track (around the end of October). You can always make a tweak or adjustment with your very final paychecks for the year so you don’t have any penalty or big surprise.
If you don’t have the time to run through the calculator — it involves entering various tax-related figures, including expected credits and the like — there’s another way: Submit a new W-4 filled out the same way as your old form but with one exception: On line 6, add the extra dollar amount to be withheld from each paycheck. See Form W-4 on IRS site (PDF).
The easiest way might be to leave the number of allowances alone, see how much they’re reducing your withholding by and then on line 6 write in that you want them to withhold an extra amount.
But remember: That W-4 stays in effect until you file a new one. If you don’t want the same additional amount to be withheld starting in January, file a new W-4.
There’s a third option: Don’t worry about the credit now, and just wait until you file in 2010 to pay the bill. This is not recommended by me unless your checks are exactly $10.00 more per week.
American Recovery and Reinvestment Act Provisions that Could Affect 2009 Tax Returns
{One more time taken from the IRS website. Wednesday my post is going to be what to do if you come into a huge amount of money (like winning the lottery). Does one take the yearly payouts, or lump sum? Should a person incorporate… form a foundation… create a trust?}
The bulk of tax provisions in the American Recovery and Reinvestment Act affect tax year 2009 — individual tax returns due April 15, 2010 — and tax year 2010 — individual tax returns due April 15, 2011.
Deduction for taxes paid on new vehicle purchase.
Taxpayers who buy a car, light truck, motor home or motorcycle in 2009 may be able to deduct the state and local sales and excise taxes they paid on their 2009 income tax returns. This deduction is limited to taxes paid on the first $49,500 of the purchase price.
Credit for higher education expenses.
The new American Opportunity Credit modifies the existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student –– $500 more than the previous maximum credit.
Section 529 plans cover computers.
Funds from section 529 college savings plans can be used to pay for a computer bought in 2009 or 2010, if the computer is used for college work.
Some unemployment benefits tax exempt in 2009.
Normally, unemployment compensation is taxable. But up to $2,400 in unemployment compensation received in 2009 will be exempt from taxes.
Health insurance continuation (COBRA) subsidy.
Workers who have lost their jobs may qualify for a 65 percent subsidy from their former employers for COBRA continuation premiums for themselves and their families for up to nine months. Eligible workers will have to pay the remaining 35 percent of the premium to their former employers. To qualify, a worker must have been involuntarily terminated between Sept. 1, 2008, and Dec. 31, 2009, and the former employer must still be in business and offer health benefit coverage.
Workers who lost their jobs between Sept. 1, 2008, and Feb. 16, 2009, but did not initially choose COBRA coverage or initially chose COBRA coverage and dropped it before Feb. 17, 2009, get an additional 60 days to elect COBRA and receive the subsidy.
The subsidy starts to phase out for individual taxpayers with adjusted gross income in excess of $125,000 for individuals or $250,000 for married couples filing jointly.
Reduced Income Tax Withholding.
For 2009 and 2010, the Making Work Pay provision of ARRA provides a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns.
For people who receive a paycheck and are subject to income tax withholding, the credit will typically be received through an automated reduction of income tax withholding by the employer beginning in early spring 2009. These changes may result in an increase in take-home pay.
This tax credit starts to phase out for individual taxpayers with adjusted gross income in excess of $75,000, or $150,000 in the case of married couples filing jointly.
A taxpayer who does not have taxes withheld by an employer during the year can claim the credit on his or her tax return.
It is not necessary to submit 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 decide to submit a revised W-4 to ensure enough withholding is held to cover tax on the combined incomes. Publication 919 provides additional guidance for adjusting your tax withholding. IRS also has a withholding calculator that could be helpful.
Additional Child Tax Credit.
The child tax credit has been amended to increase eligibility for the refundable portion of the child tax credit for 2009 and 2010. For both years, the refundable portion of the child tax credit is calculated based on 15 percent of the taxpayer’s earned income in excess of $3,000. In contrast, for 2008, the refundable portion of the child tax credit is calculated based on 15 percent of the taxpayer’s earned income in excess of $8,500.
Earned Income Tax Credit.
ARRA provides a temporary increase in the Earned Income Credit for a taxpayer with three or more qualifying children, and provides additional marriage penalty relief for 2009 and 2010 tax returns.
Economic Recovery Payment.
A one-time payment of $250 will be made in 2009 to:
• Retirees, disabled individuals and Supplemental Security Income (SSI) recipients receiving benefits from the Social Security Administration
• Disabled veterans receiving benefits from the U.S. Department of Veterans Affairs
• Railroad Retirement beneficiaries
Unlike last year under the economic stimulus program, recipients of the economic recovery payment will not receive it from the IRS. Individuals who may qualify for this year’s economic recovery payment do not need to file a return to receive the payment and should contact their respective agency for more information.
The Social Security Administration Web site has a special section on the Economic Recovery Payment.
The Economic Recovery Payment will reduce any Making Work Pay credit for which the recipient qualifies.
Qualified Transportation Fringe Benefits.
The monthly tax exclusion for employer-provided commuter highway vehicle transportation and transit pass benefits increased to $230, effective from March through December 2009.
Employees may exclude from income $230 per month in transit benefits and $230 per month in parking benefits –– up to a maximum of $460 per month. Employees may receive benefits for commuter transportation and transit passes and benefits for parking during the same month; they are not mutually exclusive.
These qualified transportation fringe benefits are excluded from an employee’s gross income for income tax purposes and from an employee’s wages for payroll tax purposes.
For more information IRS Information Related to the American Recovery and Reinvestment Act
IRS Reminds Taxpayers to Take Advantage of Recovery Act Benefits
This post is straight from the IRS Newswire, an IRS e-mail service. – subscribe. No I didn’t write any of this, you can get this information sent to you directly. I copied it here for you to see.
WASHINGTON — With 2009 now half over, the Internal Revenue Service reminds taxpayers to take advantage of the numerous tax breaks made available earlier this year in the American Recovery and Reinvestment Act (ARRA).The recovery law provides tax incentives for first-time homebuyers, people purchasing new cars, those interested in making their homes more energy efficient and parents and students paying for college. But all of these incentives have expiration dates so taxpayers should take advantage of them while they can.
First-Time Homebuyer Credit
The Recovery Act extended and expanded the first-time homebuyer tax credit for 2009. Taxpayers who didn’t own a principal residence during the past three years and purchase a home this year before Dec. 1 can receive a credit of up to $8,000 on either an original or amended 2008 tax return, or a 2009 return. But the purchase must close before Dec. 1, 2009, and an eligible taxpayer cannot claim the credit until after the closing date. This credit phases out at higher income levels, and different rules apply to home purchases made in 2008.
New Vehicle Purchase Incentive
ARRA also provides a tax break to taxpayers who make qualified new vehicle purchases after Feb. 16, 2009, and before Jan. 1, 2010. Qualifying taxpayers can deduct the state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. There is no limit on the number of vehicles that may be purchased, and you may claim the deduction for taxes paid on multiple purchases. But the deduction per vehicle is limited to the tax on up to $49,500 of the purchase price of each qualifying vehicle and phases out for taxpayers at higher income levels. This deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A.
Energy-Efficient Home Improvements
The Recovery Act also encourages homeowners to make their homes more energy efficient. The credit for nonbusiness energy property is increased for homeowners who make qualified energy-efficient improvements to existing homes. The law increases the rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to a total of $1,500 for improvements placed in service in 2009 and 2010. Qualifying improvements include the addition of insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.
Tax Credit for First Four Years of College
The American opportunity credit is designed to help parents and students pay part of the cost of the first four years of college. The new credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. Tuition, related fees, books and other required course materials generally qualify. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
Certain Computer Technology Purchases Allowed for 529 Plans
ARRA adds computer technology to the list of college expenses (tuition, books, etc.) that can be paid for by a qualified tuition program (QTP), commonly referred to as a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services to be used by the designated beneficiary of the QTP while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature.
Making Work Pay and Withholding
The Making Work Pay Credit lowered tax withholding rates this year for 120 million American households. However, particular taxpayers who fall into any of the following groups should review their tax withholding rates to ensure enough tax is withheld, including multiple job holders, families in which both spouses work, workers who can be claimed as dependents by other taxpayers and pensioners. Failure to adjust your withholding could result in potentially smaller refunds or in limited instances may cause you to owe tax rather than receive a refund next year. So far in 2009, the average refund amount is $2,675, and 79 percent of all returns received a refund.
Related Information
For more on the Recovery provisions that may apply to individual taxpayers see the ARRA page on IRS.gov.
Audio Files for Podcast
Tax Breaks for 2009 & 2010: In English and in Spanish
Videos
First-Time Home Buyer Tax Credit
Making Work Pay tax credit
April 1st was implementation day for the Making Work Pay tax credit, and it wasn’t an April Fool’s joke. The American Recovery and Reinvestment Act of 2009 (ARRA), Congress’ most recent effort to “stimulate” our economy, contains this new tax credit, which will affect everyone when filing your individual return. You may be able to take advantage of an income tax credit of as much as $400 ($800 for a married couple) on your personal tax return for the next two years.
The Making Work Pay tax credit served as centerpiece of the tax reduction provisions of the ARRA. President Obama strongly pursued its inclusion in the legislation because it would put money back into the pockets of working people. The annual tax credit (available in 2009 and 2010) is equal to 6.2% of earned income, to a maximum credit of $400 for an individual ($800 for a married couple filing jointly). The Key is “a maximum credit of $400 per working individual”. Dependants have no bearing on this.
Technically, taxpayers will receive the tax credit when they prepare and file their tax returns a year from now for 2009 (and then for 2010 the next year). However, practically speaking, taxpayers that receive wages from employment in 2009 will receive the tax credit in small increments throughout the year. How? The IRS in late February issued a new set of withholding tables structured to informally pay the amount of the tax credit over the course of the year by reducing required withholding amounts on payroll.
The Issue
The new withholding are designed to save employees roughly $10 per week for the rest of the year (40 weeks x $10 = a $400 tax credit). This isn’t working out for a lot of people. Several of my clients have called me because they are having more taken out then the ten dollars, some are even getting as much as forty-three dollars more a week.
This is a problem and will affect refunds and or amount due/s. Why, because you aren’t having as much withheld, and tax tables on your income haven’t changed. Withholdings went down, not income tax on your earnings.
The IRS produced new withholding tables in February and asked employers to implement them by April 1. But, withholding tables are a blunt instrument, unable to precisely assess taxes for everyone’s unique situations. Employers who use the tables don’t know workers’ complete situation, such as whether an employee has a second job or is married to someone who also works. That means some workers will end up with more cash than they’re eligible for under the new credit.
Adjustments may have to be made by individuals to make sure they’re not over- or under-withheld.
Again, the lower withholding may cause some unwanted results for taxpayers with more than one job, two-earner married couples, and high-income taxpayers.
The Fix
The IRS is aware of this issue and warns taxpayers that they (individual taxpayers) are responsible for making sure their withholdings are correct. This means that you are ultimately responsible for making sure you have enough withheld from your checks using your form W-4.
The first thing you can do is make sure your employer has these new tables. The new tables and instructions are found in IRS Publication 15-T. The next thing to do would be to Contact your tax professional and discuss this with them.
If that isn’t a viable option you can contact me I will be glad to help.
Beware, though, because the credit is phased out as your adjusted gross income exceeds $75,000 for individuals ($150,000 for married couples filing jointly). If your income exceeds $95,000 ($190,000 for married couples filing jointly), then you will not be able to receive any benefit from the Making Work Pay tax credit.
Timing is everything, especially with taxes … and tax information.
The IRS has an online calculator that reflects the new stimulus act withholding tables to help you get your amount just right. Armed with your most recent tax return and paycheck stub, you can in 10 minutes or so fill in the required information and get instructions on filling out a new W-4. You should use the calculator now. Then again, later in the year to ensure your assumptions are on track (around the end of October). You can always make a tweak or adjustment with your very final paychecks for the year so you don’t have any penalty or big surprise.
If you don’t have the time to run through the calculator — it involves entering various tax-related figures, including expected credits and the like — there’s another way: Submit a new W-4 filled out the same way as your old form but with one exception: On line 6, add the extra dollar amount to be withheld from each paycheck. See Form W-4 on IRS site (PDF).
The easiest way might be to leave the number of allowances alone, see how much they’re reducing your withholding by and then on line 6 write in that you want them to withhold an extra amount.
But remember: That W-4 stays in effect until you file a new one. If you don’t want the same additional amount to be withheld starting in January, file a new W-4.
There’s a third option: Don’t worry about the credit now, and just wait until you file in 2010 to pay the bill. Not recommended by me unless your checks are exactly $10.00 more per week.
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