Thoughts, Ideas, and Concepts by Sandra Parks

Posts tagged ‘tax credit’

Should you file your taxes???

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.

Check the Individuals section of 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 the IRS this year.

Even if you don’t have to file, here are eight 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, you made estimated tax payments, or had a prior year overpayment applied to this year’s tax.
  2. Making Work Pay Credit You may be able to take this credit if you have earned income from work. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.
  3. Government Retiree Credit You may be eligible for this credit if you received a government pension or annuity payment in 2009. However, the amount of this credit reduces any making work pay credit you receive.
  4. Earned Income Tax Credit You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund.
  5. 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.
  6. Refundable American Opportunity Credit This education tax credit is available for 2009 and 2010. The maximum credit per student is $2,500 and the first four years of postsecondary education qualify.
  7. First-Time Homebuyer Credit The credit is a maximum of $8,000 or $4,000 if your filing status is married filing separately. The credit applies to homes bought anytime in 2009 and on or before April 30, 2010. However, you have until on or before June 30, 2010, if you entered into a written binding contract before May 1, 2010. If you bought a home after November 6, 2009, you may be able to qualify and claim the credit even if you already owned a home. In this case, the maximum credit for long-time residents is $6,500, or $3,250 if your filing status is married filing separately.
  8. Health Coverage Tax Credit Certain individuals, who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit worth 80 percent of monthly health insurance premiums when you file your 2009 tax return.

For more information about filing requirements and your eligibility to receive tax credits, SAP Taxes at 972.569.7938

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Tax credit is coming back to bite millions

WASHINGTON – More than 15 million taxpayers may owe the government $250 or more because of how the IRS last spring set up President Barack Obama’s tax break that was designed to help consumers spend the U.S. economy out of recession.

Individuals with more than one job and married couples in which both spouses work may have to repay the government $400, either through a smaller tax refund or a larger tax bill, according to a report released Monday by the Treasury Department’s inspector general for tax administration. Social Security recipients who also earn taxable wages may have to repay $250.

The tax credit, which is supposed to pay individuals up to $400 and couples up to $800, was Obama’s signature tax break in the massive stimulus package enacted in February. The credit has increased weekly paychecks for 95 percent of working families, giving them cash to help boost consumer spending during the worst economic recession in decades.

Workers concerned about whether they are withholding enough taxes can use a calculator on the IRS Web site to find the appropriate amount that should be withheld.

Taxpayers can adjust their withholding by filing a new W-4 form with their employer. But with only a month and a half remaining in the 2009 tax year, it’s getting late to make adjustments.

Most workers started receiving the credit through small increases in their paychecks in April. The tax credit was made available through new tax withholding tables issued by the Internal Revenue Service.

The withholding tables, however, do not take into account several common categories of taxpayers. And that could force some people to repay what the government gave them.

For example, a worker with two jobs gets a $400 boost in pay at each job, for a total of $800. That worker, however, only is eligible for a maximum credit of $400, so the remaining $400 will have to be paid back at tax time — either through a smaller refund or a payment to the IRS.

The IRS recognized there could be a similar problem for married couples if both spouses work, so it adjusted the withholding tables. The fix, however, was imperfect.

A married couple is eligible for an $800 credit. However, if both spouses work and make more than $13,000, the new withholding tables give them each a $600 boost — for a total of $1,200.

There were 33 million married couples in 2008 in which both spouses worked. That’s 55 percent of all married couples, according to the Census Bureau.

Also, a single student with a part-time job gets a $400 boost in pay. However, if students are claimed as dependents on their parents’ tax returns, they don’t qualify for the credit and would have to repay it when they file their returns.

Some retirees face even bigger headaches.

More than 50 million Social Security recipients received $250 payments in the spring as part of the economic stimulus package. Those lump sum payments were intended to provide a boost for people who didn’t qualify for the tax credit.

However, the payments were sent to many retirees who also received the tax credit. Those retirees will have the $250 payment deducted from their tax credit — but not until they file their tax returns next year, long after the money may have been spent.

“More than 10 percent of all taxpayers who file individual tax returns for 2009 could owe additional taxes,” said J. Russell George, the Treasury inspector general for tax administration.

Sen. Chuck Grassley of Iowa, the senior Republican on the Senate Finance Committee, called problems with the tax credit “another unfortunate example of what can happen when Congress and the White House rush through legislation like the stimulus without thinking through the consequences.”

The tax credit is also available for 2010. George said the problems will continue if workers don’t adjust their withholding for next year.

For many, the new tax tables will simply mean smaller-than-expected tax refunds. The average tax refund this year was about $2,800. A little more than three-fourths of the 143 million taxpayers filing a return last spring received refunds, according to the IRS.

The IRS was aware of the issues when the withholding tables were released last spring and waged a public awareness campaign to get people to check their tax withholding, said Michael Mundaca, acting assistant treasury secretary.

“It’s just technically how withholding works,” Mundaca said. “It’s an approximation and therefore for some people there will be overwithholding and for some people there will be underwithholding.”

Separately, the IRS estimated that about 65,000 taxpayers could face penalties for not withholding enough taxes in 2009 because of the Making Work Pay tax credit. However, those taxpayers will be eligible to have the penalty waived, IRS spokeswoman Michelle Eldridge said.

The credit pays workers 6.2 percent of their earned income, up to a maximum of $400 for individuals and $800 for married couples who file jointly. Individuals making more than $95,000 and couples making more than $190,000 are ineligible.

Sandra Parks 972.569.7938 http://saptaxes.net

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