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Free IRS Tax, Rebate Credit and Return Copy Tips
Free tips from the government Internal Revenue Service regarding IRS Recovery Rebate Credit, Tax Law Changes, Earned Income EIC and getting Old Tax Return Copies.
Track Expenses to Itemize Tax Deductions!
IRS Recovery Rebate Credit Tips
In response to errors showing up on early tax filings, the Internal Revenue Service (IRS) urges 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 recovery rebate credit will automatically be calculated and reported properly. If the taxpayer is using the paper method, the recovery rebate 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 www.irs.gov/newsroom/article/0,,id=186065,00.html as well as the rebate questions and answers at www.irs.gov/newsroom/article/0,,id=201641,00.html
Highlights of 2008 Tax Law Changes: Tax Breaks Renewed, Recovery Rebate Credit, Homeowner Relief
AMT exemptions rise; several expiring deductions and credits get a new lease on life; a new standard property tax deduction and a special first-time homebuyer credit are available to some homeowners; and retirement savings incentives expand. These are among the changes taxpayers will find when they fill out their 2008 tax returns. More information about these and other changes, summarized below, can be found on IRS.gov and in various IRS documents, including the Instructions for Form 1040.
Economic Stimulus Payments Tax Free
Economic stimulus payments are not taxable, and they are not reported on 2008 tax returns. However, the stimulus payment does affect whether a taxpayer can claim the Recovery Rebate Credit and how much credit he or she can get. The credit is figured like last year's economic stimulus payment except that the amounts are based on tax year 2008 instead of 2007. A taxpayer may qualify for the Recovery Rebate Credit if, for example, she did not get an economic-stimulus payment or had a child in 2008. See Fact Sheet 2009-3 for details. In most cases, the IRS can figure the credit. The instructions for Forms 1040, 1040A and 1040EZ have more information.
AMT Exemption Increased for One Year
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, up from $66,250 in 2007
- $34,975 for a married person filing separately, up from $33,125 and
- $46,200 for singles and heads of household, up from $44,350
Under current law, these exemption amounts will drop to $45,000, $22,500 and $33,750, respectively, in 2009. Form 6251 and the AMT Calculator provide more information.
Expiring Tax Breaks Renewed
Several popular tax breaks that expired at the end of 2007 were renewed for tax-years 2008 and 2009. As a result, eligible taxpayers can claim:
- The deduction for state and local sales taxes on Form 1040 Schedule A , Line 5
- The educator expense deduction on Form 1040, Line 23 or Form 1040A, Line 16
- The tuition and fees deduction on Form 8917 and
- The District of Columbia first-time homebuyer credit on Form 8859
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. Use Form 5695 to claim the credit.
The non-business energy property credit for insulation, exterior windows, exterior doors, furnaces, water heaters and other energy-saving improvements to a main home is not available in 2008 but will return in 2009.
Standard Deduction Increased for Most Taxpayers
Nearly two out of three taxpayers choose to take the standard deduction rather than itemizing deductions such as mortgage interest and charitable contributions. The basic standard deduction is:
- $10,900 for married couples filing a joint return and qualifying widows and widowers, a $200 increase over 2007
- $5,450 for singles and married individuals filing separate returns, up $100 and
- $8,000 for heads of household, up $150
Higher amounts apply to blind people and senior citizens. The standard deduction is often reduced for a taxpayer who qualifies as someone else’s dependent.
New this year, taxpayers can claim an additional standard deduction, based on the state or local real-estate taxes paid in 2008. Taxes paid on foreign or business property do not count. The maximum deduction is $500, or $1,000 for joint filers.
Also new for 2008, a taxpayer can increase his standard deduction by the net disaster losses suffered from a federally declared disaster. A worksheet is available in the instructions for Forms 1040 and 1040A.
First-Time Homebuyer Credit
Those who bought a main home recently or are considering buying one may qualify for the first-time homebuyer credit. Normally, a taxpayer qualifies if she didn’t own a main home during the prior three years. This unique credit of up to $7,500 works much like a 15-year interest-free loan. It is available for a limited time only –– on homes bought from April 9, 2008, to June 30, 2009. It can be claimed on new Form 5405 and is repaid each year as an additional tax. Income limits and other special rules apply.
Special tax relief related to severe storms, tornadoes or flooding, occurring after May 19, 2008, and before Aug. 1, 2008, is available to individuals in portions of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin that were affected by these disasters. Tax benefits include:
- Liberalized rules for certain personal casualty losses and charitable contributions
- An additional exemption amount for persons who provided housing for someone displaced by these disasters
- The option to use 2007 earned income to figure a 2008 earned income tax credit (EITC) and additional child tax credit
- An increased charitable standard mileage rate for use of personal vehicle for volunteer work related to these disasters
- Special rules for withdrawals and loans from IRAs and other qualified retirement plans
Details on these and other relief provisions are in Publication 4492-B .
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 (AGI) between $53,000 and $63,000, compared to $52,000 and $62,000 last year.
For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $85,000 to $105,000, up from $83,000 to $103,000 last year.
Where an IRA contributor who is not covered by a workplace retirement plan is married to someone who is covered, the deduction is phased out if the couple’s income is between $159,000 and $169,000, up from $156,000 and $166,000 in 2007.
The phase-out range remains $0 to $10,000 for a married individual filing a separate return who is covered by a retirement plan at work.
The worksheet in the instructions for Form 1040 Line 32 or Form 1040A Line 17 can help a taxpayer figure the IRA deduction.
For 2008, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b) and most 457 plans remains unchanged at $15,500. This limit rises to $16,500 in 2009. The catch-up contribution limit for those aged 50 to 70-½ remains at $5,000 in 2008 but rises to $5,500 in 2009.
The AGI phase-out range for taxpayers who contribute to a Roth IRA is $159,000 to $169,000 for joint filers and qualifying widows and widowers, compared to $156,000 to $166,000 in 2007. For singles and heads of household, the comparable phase-out range is $101,000 to $116,000, compared to $99,000 to $114,000 in 2007.
Standard Mileage Rates Adjusted for 2008
The standard mileage rate for business use of a car, van, pick-up or panel truck is 50.5 cents per mile from Jan. 1, 2008, to June 30, 2008, up 2 cents from 2007. The rate is 58.5 cents for each mile driven during the rest of 2008.
From Jan. 1, 2008, to June 30, 2008, the standard mileage rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 19 cents per mile, down a penny from 2007. The rate is 27 cents from July 1 to Dec. 31.
The standard mileage rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile. As noted earlier, special rates apply to the Midwest disaster area.
Exemptions Rise
The value of each personal and dependency exemption is $3,500, up $100 from 2007. Most taxpayers can take personal exemptions for themselves and an additional exemption for each eligible dependent. An individual who qualifies as someone else’s dependent cannot claim a personal exemption, and though personal and dependency exemptions are phased out for higher-income taxpayers, the phase-out rate is slower than in past years.
This is one of more than three dozen individual and business tax provisions that are adjusted each year to keep pace with inflation. A complete rundown of these changes can be found in 2008 Inflation Adjustments Widen Tax Brackets, Change Tax Benefits www.irs.gov/newsroom/article/0,,id=174876,00.html
Earned Income Tax Credit Rises
The maximum earned income tax credit (EITC) is:
- $4,824 for people with two or more qualifying children, up from $4,716 in 2007
- $2,917 for those with one child, up from $2,853 last year and
- $438 for people with no children, up from $428 in 2007.
Available to low and moderate income workers and working families, the EITC helps taxpayers whose incomes are below certain income thresholds, which in 2008 rise to:
- $41,646 for those with two or more children
- $36,995 for people with one child and
- $15,880 for those with no children
One in six taxpayers claim the EITC, which, unlike most tax breaks, is refundable, meaning that individuals can get it even if they owe no tax and even if no tax is withheld from their paychecks.
Taxes Lowered for Many Investors
The five-percent tax rate on qualified dividends and net capital gains is reduced to zero. In general, this reduction applies to investors whose taxable income is below:
- $65,100, if married filing jointly or qualifying widow or widower
- $32,550, if single or married filing separately or
- $43,650, if head of household.
Note that taxable income is normally less than total income. The worksheet for Form 1040 Line 44, Form 1040A Line x or Schedule D and its instructions provide details.
Kiddie Tax Revised
The tax on a child's investment income applies if the child has investment income greater than $1,800 and is:
- Under 18 years old
- 18 years of age and had earned income that was equal to or less than half of his or her total support in 2008 or
- Over 18 and under 24, a student and during 2008 had earned income that was equal to or less than half of his or her total support.
Previously, the tax only applied to children under age 18. Form 8615 is used to figure this tax.
Self-Employment Tax Changes
For those who receive Social Security Retirement or disability benefits, any Conservation Reserve Program (CRP) payments are now exempt from the 15.3-percent social security self-employment tax. Schedule SE and its instructions and Publication 225, Farmer’s Tax Guide, have the details.
More farmers and self-employed people this year can choose the optional methods for figuring and paying the self-employment tax. These optional methods allow those with net losses or small amounts of business income a way to obtain up to four credits of Social Security coverage. The income thresholds for both the farm optional method and the nonfarm optional method are increased for 2008 and indexed for inflation in future years. Choosing an optional method may increase a taxpayer’s self-employment tax but it may also qualify him for the earned income tax credit, additional child tax credit, child and dependent care credit or self-employed health insurance deduction. Schedule SE and its instructions have details.
EITC Thresholds and Tax Law Updates for 2008
Earned income and adjusted gross income (AGI) must each be less than:
- $38,646 ($41,646 married filing jointly) with two or more qualifying children;
- $33,995 ($36,995 married filing jointly) with one qualifying child;
- $12,880 ($15,880 married filing jointly) with no qualifying children.
Tax Year 2008 maximum credit:
- $4,824 with two or more qualifying children;
- $2,917 with one qualifying child;
- $438 with no qualifying children.
Investment income must be $2,950 or less for the year.
The maximum Advance Earned Income Tax Credit (Advance EITC) for 2008 an employer is allowed to provide to employee's pay is $1,750.
Nontaxable Combat Pay. The provision to include nontaxable combat pay in your income to claim the EITC was made permanent by Congress. See Nontaxable combat pay election in Pub. 3 for more information).
Special tax relief related to severe storms, tornadoes or flooding, occurring after May 19, 2008, and before August 1, 2008, is available to individuals in portions of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin that were affected by these disasters. Tax benefits include the option to use 2007 earned income to figure a 2008 earned income tax credit (EITC) and additional child tax credit. Details on these and other relief provisions are in Publication 4492-B.
2009 Tax Year
Earned Income and adjusted gross income (AGI) must each be less than:
- $40,295 ($43,415 married filing jointly) with two or more qualifying children;
- $35,463 ($38,583 married filing jointly) with one qualifying child;
- $13,440 ($16,560 married filing jointly) with no qualifying children.
Tax Year 2009 maximum credit:
- $5,028 with two or more qualifying children;
- $3,043 with one qualifying child;
- $457 with no qualifying children.
Investment income must be $3,100 or less for the year.
The maximum of Advance EITC workers can receive from their employers is $1,825.
Changes to the Uniform Definition of a Child begin in tax year 2009. The change adds two new rules to the definition of a qualifying child. The child must:
- Be younger than the person claiming the child
- Not have filed a joint return other than to claim a refund
For more information on whether a child qualifies you for the EITC, see Publication 596, Chapter 2, Rules If You Have a Qualifying Child.
Copies of Prior Year Federal Tax Returns and/or a Transcript
Most taxpayers will ask for a copy of their prior year tax return. In many cases, however, a transcript will provide the information they need more quickly. Transcripts provide taxpayers with a computer-created record of their tax return which includes most of the line-items as filed with the IRS, including any accompanying forms and schedules. The transcript does not reflect any changes the taxpayer, his/her representative, or the IRS made after the return was filed.
- To download Form 4506 (Request for Copy of Tax Return) or Form 4506T (Request for Transcript of Return), refer to this IRS.gov page www.irs.gov/individuals/article/0,,id=110571,00.html
- If you were impacted by a federally declared disaster, you may request a transcript by phone at 1-866-562-5227 (Hours of operation are 7 a.m. to 10 p.m., Monday-Friday, your local time - except Alaska and Hawaii which are Pacific time.) You will still need to submit Form 4506 for an actual copy of a return. Send your request to the office indicated on Form 4506. You may fax or mail your request. Write the word 'Disaster' on the top of Form 4506 and your request will be expedited at no charge.
- If the taxpayer used a professional preparer to prepare the prior year's return, he/she can request a copy of the return from the preparer. If they need help locating the preparer, the Electronic Return Originator data base at www.irs.gov/efile/page/0,,id=10162,00.html may help.
- To request copies in person, you may refer taxpayers to the nearest IRS Taxpayer Assistance Center (TAC) www.irs.gov/localcontacts/index.html
- For practitioners only – E-services www.irs.gov/taxpros/article/0,,id=109646,00.html (if enrolled)
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