Higher Earned Income Tax
Credit | First Time Home Buyer Tax Credit | Making
Work Pay Tax Credit | Unemployment Benefits
Higher Earned Income Tax Credit (EITC) for a third
child
The maximum credits this year will be:
- $457 - no children
- $3,043 - one child
- $5,028 - two children
- $5,657 - 3 or more children
However, the definition of "qualifying child" has been slightly narrowed. A
"qualifying child":
- must be younger than the taxpayer.
- must not have filed a joint return other than to claim a refund.
Read more about the Earned Income
Tax Credit.
First Time Home Buyer Credit
- Applies only to homes used as a taxpayer’s principal residence.
- Reduces a taxpayer’s tax bill or increases his or her refund, dollar
for dollar.
- Is fully refundable, meaning the credit will be paid out to eligible taxpayers,
even if they owe no tax or the credit is more than the tax owed.
Credit is claimed by using Form 5405 with an original or amended return.
The credit has been changed three times and can be confusing, so here’s
a run-down of the available benefits:
For homes purchased in 2008, the credit (10% of the purchases price with
a maximum $7,500) is similar to a no-interest loan and must be repaid in 15
equal, annual installments. Repayment begins in the 2010 tax year.
The amount of credit was then increased to a maximum of $8,000 for purchases
made in 2009 before December 1. For homes purchased in 2009, the credit doesn’t
have to be paid back unless you stop using the house as your primary residence.
Did you buy a home in 2009? You could have claimed it on a 2008 return (the
return was due April 2009) or you can claim it in 2010 on your 2009 return.
However, you can’t claim the credit before the closing date.
In late 2009, the credit was extended and expanded in the Worker, Homeownership
and Business Assistance Act of 2009. Now, taxpayers who have a binding contract
to buy a home before May 1, 2010 and close before July 1, 2010 are also eligible
for the credit. The credit can be claimed on the 2009 or 2010 return.
The most recent legislation is applies to people who aren’t considered “first-time”
homebuyers. Now, you can buy a replacement principal residence. You have to
have lived in the same principal residence for any five-year consecutive period
of time during the eight year period that ended on the date the replacement
home is purchased. Such taxpayers can qualify for $6,500 ($3,250 for a person
filing a joint return separately).
Income limits also increased with the new legislation, allowing people with
higher income levels to qualify. The credit phases out for taxpayers with
modified adjusted gross income between $125,000 and $145,000 ($225,000 and
$245,000 for joint filers). These increases only apply to purchases made after
November 6, 2009.
Members of the uniformed services, members of the Foreign Service, and employees
of the intelligence community serving outside of the US have an additional
year to buy a principal residence in the US and qualify for the credit. In
many cases, the repayment requirement is waived for these people as well.
The new changes also bring new restrictions.
For homes purchases after November 6, the following restrictions apply:
- Purchasers must attach a properly executed settlement statement to their return.
- No credit is available if the purchase price of the home exceeds $800,000.
- The purchaser must be at least 18 years old on the date of the purchase.
For a married couple, only one spouse must meet this age requirement.
- A dependent is not eligible for the credit.
- The IRS will have broader authority to deny a first-time homebuyer credit without having to first audit a taxpayer's return.
Who can't claim the credit?
- Joint filers with a modified adjusted gross income above $170,000 and other
taxpayers with modified adjusted gross income of $95,000.
- A taxpayer who buys a home from a close relative. This includes a home purchased
from the taxpayer's spouse, parent, grandparent, child or grandchild.
- A taxpayer who owned another main home at any time during the three years
prior to the date of purchase. For a married couple filing a joint return,
this requirement applies to both spouses. For example, if the taxpayer bought
a home on Sept. 1, 2009, the taxpayer cannot take the credit for that home
if he or she owned, or had an ownership interest in, another main home at
any time from Sept. 2, 2006, through Sept. 1, 2009.
- The taxpayer is a nonresident alien.
Read more about the First
Time Homebuyer Credit on the IRS website.
The Making Work Pay Tax Credit
Taxpayers typically pay their taxes throughout the year by having money taken
out of their paychecks. This is called your withholdings. The Making Work Pay Tax Credit changed the withholding
tables so that less money is taken out of a worker’s paycheck. The maximum
amount of credit is $400. This change happened throughout the year of 2009,
so you may have already noticed a small increase in your pay check.
However, because you paid less money throughout the year, you can expect to
get a smaller refund when you file your taxes. In some cases, you may end
up owing money. For instance, if you worked two jobs, each employer would
have taken out less for withholdings even though you can claim only one $400 credit throughout the year. If this has happened to you,
contact our PTLA taxpayer clinic.
If you get Social Security benefits, you should have received a
one-time payment of $250 in 2009 as part of Economic Recovery Payment program.
This program was run by the Social Security Administration. If you did not
receive your payment, you should contact your local
Social Security Administration office.
Read more about Making Work
Pay.
Unemployment benefits
Normally, unemployment benefits are considered taxable income. However, for
unemployment benefits received in 2009, the first $2,400 will be tax free.
Read more about the unemployment
benefits credit on the IRS website.
For information about your refund, see Tax
Tips.
For recent information from the IRS, see 2009 Tax
Law Changes.
