Economic Recovery Payment
Any economic recovery payment you received is not taxable for federal income tax purposes, but it reduces any making work pay credit or government retiree credit. For example, you receive the Making Work Pay credit, you will not be taxed on the amount you received.
Making Work Pay Credit
If you have earned income form work, you may be able to take this credit. It is 6.2% of your earned income but cannot be more than $400 ($800 married filed jointly). If your federal income tax withholding was reduced during 2009 because of the credit, you must complete Schedule M (Form 1040A or 1040) and claim the credit on your return to benefit from it. You cannot take the credit if your modified adjusted gross income (AGI) is %95,000 ($190,000 if married filed jointly) or more, you are a nonresident alien, or you can be claimed as a dependent on someone else's tax return (ie, students). The credit is reduced if your modified AGI is more than $75,000 ($150,000 married filed jointly) or you take the government retiree credit, or you received $250 economic recovery payment during 2009.
To take this credit, complete Schedule M (Form 1040A or 1040) and attach it to your For 1040 or 1040A. Include your credit on Line 63 on Form 1040 or Form 1040A Line 40. If you are filing 1040 EZ, you can take the credit on line 8 and not have to fill out Schedule M.
Earned Income Credit Eligibility
Many low income families miss out on one very important item on the tax return; that is the Earned Income Credit (EIC). There are a few rules one must meet in order to take this credit:
RULES FOR EVERYONE
* Must have a valid social security number
* Filing status cannot be "married filed separately"
* Must be a U.S. citizen or resident alien all year
* Cannot file Form 2555 or Form 2555-EZ (which relates to foreign earned
income)
* Investment income must be $2,950 or less (ie. interest, capital gains,
etc)
* Cannot be a qualifying child of another person
RULES IF YOU HAVE A QUALIFYING CHILD
* Child must meet the relationship, age, and residency tests
* Qualifying child cannot be used by more than one person to claim the EIC.
NEW DEFINITION OF QUALIFYING CHILD
* To be your qualifying child, a child must be younger than you unless the
child is permanently and totally disabled.
* A child cannot be your qualifying child if he / she files a joint return,
unless the return was filed only as a claim for refund
* If the parents of a child can claim the child as a qualifying child, but
no parent so claims the child, no one else can claim the child as a
qualifying child unless that person's adjusted gross income (AGI) is higher
than the highest AGI of any of the child's parents who can claim the child.
RULES IF YOU DO NOT HAVE A QUALIFYING CHILD
* Must be at least age 25 but under age 65 as of December 31.
* Cannot be the dependent of another person
* Must have lived in the U.S. more than half the year
EARNED INCOME AND AGI LIMITATIONS
Your earned income or adjusted gross income must be less than:
* $43,279 ($48,279 for married filed jointly) if you have three or more
qualifying child
* $40,295 ($45,295 for married filed jointly) if you have two
qualifying child
* $35,463 ($40,463 for married filed jointly) if you have one qualifying
child, or
* $13,440 ($18,440 for married filed jointly) if you do not have a
qualifying child.
Real Estate Taxes More Info
Many people who have no mortgage payments whether they bought their homes with cash or are done making payments have no mortgage interests. The problem with this is that the taxpayers are still paying real estate/property taxes. Those who are in this situation can never take advantage of the deduction because their standard deduction is greater than the Schedule A deduction (Schedule A is used when there are mortgage interest, property taxes, state taxes, etc.).
For 2009, this has changed. Taxpayers can now deduct real estate taxes regardless. If you do not itemize (meaning using Schedule A), you will need to fill out Schedule L The maximum amount for single individuals is $500 ($1,000 for Married Filed Jointly).
New Deduction Amounts For 2009 More Info
Here is a list of tax deduction amounts for 2008:
* Standard Deduction
- Single / Married File Separately = 5,700
- Married File Jointly / Qualifying Widow = 11,400
- Head of Household = 8,350
* Exemptions = 3,650
* Mileage Rates
- Business = 55 cents / mile
- Medical = 24
cents / mile
- Charitable =
44 cents/ mile
* Child Tax Credit
- Maximum per child is still $1,000
- Additional Child Tax Credit earning threshold is now
$3,000 (lower than last year).
