USU Extension financial committee representative reviews federal tax credits
A number of tax breaks related to the American Recovery and Reinvest Act have the potential to benefit local residents.
A review of the provisions will help determine which tax breaks are applicable, explained Dean Miner, Utah State University Extension financial education committee representative. It is important to note that most of the credits are phased out when income levels exceed $80,000 for individuals or $160,000 for married couples.
â¢The most widely applicable break comes from the making work pay tax credit, indicated Miner. The provision allows for as much as a $400 credit for working individuals and $800 for married couples.
For wage earners, the credit has already brought about higher paychecks due to reduced federal tax withholding.
Self-employed workers will be able to claim the credit when they file taxes next year.
People who can be claimed as dependents are not eligible for the credit, even though their withholding has also been reduced, advised Miner.
Social Security recipients will receive a $250 economic recovery payment through the United States Social Security Administration.
â¢The American opportunity credit provision expands the hope credit available to college students.
The two main changes are that the credit is extended to the first four years of post-secondary education and the inclusion of "qualified course materials" along with tuition as part of qualified expenses, said Miner. This means the cost of books, supplies and equipment needed for a course of study can be included, so it is important for students to save their bookstore receipts.
Previously, these expenses were only allowable if they were purchased from the educational institution and were a condition of enrollment or attendance.
â¢ Many taxpayers may now find themselves eligible for the earned income and additional child credits when they haven't qualified in the past.
The income eligibility ceilings for the EIC have been increased and earned income levels for the child tax credit have been relaxed, indicated Miner.
At the same time, many families have experienced reductions in income due to job loss, furloughs or fewer work hours and may qualify.
According to the U.S. Internal Revenue Service, the EIC credit begins to phase out at $21,420 for married taxpayers filing a joint return with children and completely phases out at $40,463 for one child, $45,295 for two children and $48,279 for three or more children, added Miner.
For married taxpayers filing a joint return with no children, the credit begins to phase out at $12,470 and completely phases out at $18,440. The EIC is refundable, so it pays for taxpayers to complete the forms to see if they qualify.
â¢The first-time home buyer credit is likely the most publicized tax benefit available, noted Miner.
The credit, which can be as much as $8,000, ends on Dec. 1 and is limited to eligible first-time home buyers only.
â¢ The recovery act contains two sections that provide energy-related tax credits.
The first section increases the related tax credit for homeowners who make energy-efficient improvements to existing homes, pointed out Miner.
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 for improvements made in 2009 and 2010. The credit applies to improvements such as adding insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems. Check with vendors to make sure their products meet the requirements.
The second energy section doesn't have quite the same regular neighborhood appeal, noted Miner. The section provides a non-refundable energy credit that will help individual taxpayers pay for qualified residential alternative energy equipment such as solar hot water heaters, geothermal heat pumps and wind turbines.
â¢Although not part of the recovery act, the car allowance rebate system or Cash for Clunkers program is receiving considerable attention, pointed out Miner. But the program involves a substantial amount of red tape and has limited application.
However, the recovery act offers a much broader tax break for new motor vehicle buyers.
Purchasers of new cars, light trucks, motorcycles and motor homes will be able to deduct the associated sales tax amount even if they do not itemize deductions.
The maximum deductible amount is the tax on up to $49,500 of the vehicle purchase price. The credit phases out at higher income levels. For Carbon County residents in the market for a new vehicle, the tax break will sweeten the deal, concluded Miner.
For additional information, Carbon County residents may visit www.irs.gov/recovery or consult a tax professional. Local taxpayers with a household income of less than $49,000 can schedule free tax preparation next spring by calling 2-1-1 in Utah.