Prepare yourself for another taxing job.
A host of changes — involving cars, houses, unemployment compensation and a whole lot more — will complicate preparing your 2009 federal income tax return.
Tax returns for most taxpayers are due April 15. But experts stress the importance of gathering necessary documents and getting up to speed on tax law changes as soon as possible.
Employees already should have received their W-2 form, which reports wages earned and taxes paid.
The tax law changes generally are tied to three sources:
- The economic turmoil that began in 2008, which led to the federal economic stimulus package of 2009.
- The rise of energy prices a few years ago, and their subsequent fall.
- Tax cuts, phased in over time, that were approved by Congress in 2002.
Tax breaks connected with the stimulus package are particularly important.
“People may qualify for several of these,” said Carrie Resch, an Internal Revenue Service regional spokeswoman in the Twin Cities.
These breaks include the first-time homebuyer credit, the sales tax deduction for vehicle purchases, the ability to deduct some unemployment compensation and the Making Work Pay Tax Credit.
Here’s a look at prominent tax law changes affecting millions of Americans.
Withholding worries?
Most American taxpayers qualified automatically for — and already have benefited from — the Making Work Pay Tax Credit.
The credit changed federal withholding tables to give taxpayers a little more take-home pay each month.
Employers generally began using the updated tables last spring.
The credit allows individual taxpayers to pocket as much as $400 and married couples to keep up to $800.
The tax credit is phased out for single taxpayers with adjusted gross income exceeding $75,000 and married couples filing jointly with adjusted gross income topping $150,000.
Trouble is, some taxpayers have had more money withheld than the law entitles them to keep, the IRS said.
Those taxpayers will need to give back all or part of the additional take-home pay to Uncle Sam in the form of a smaller refund or a higher tax bill this spring.
Among those most likely to be affected are single taxpayers with more than one job and married couples filing jointly when both spouses work.
When the new credit went into effect, the IRS and some employers urged employees to study their W-4 to see if they should adjust the amount of their withholding.
A W-4 is the form you fill out when you’re hired to make sure the right amount of federal income tax is withheld from your paycheck.
Few area taxpayers seem to have looked at their W-4 to ascertain if changes were needed because of the new credit.
“I’d be surprised if many people did it,” said Jim Thompson, a tax partner with the Fargo-based Eide Bailly financial services company.
Karen Witzel, president of the Fargo Moorhead Human Resource Association, said a check of her members found that only a small percentage of employees adjusted their W-4.
The possibility of needing to repay some additional take-home pay this spring isn’t something that many employees seem to be talking about, she said.
In any case, the Making Work Pay Tax Credit also applies in 2010.
So it still makes sense to consider adjusting your W-4 if you’re worried about repaying some of your additional take-home pay next year.
The IRS has an online withholding calculator that helps you do the job.
Go to the IRS Web site www.irs.gov. and click on “withholding calculator” in the “online services” section in the lower left-hand corner.
The IRS Web site has a lot of other helpful stuff, too — everything from information on electronic filing to an explanation of taxpayer rights.
One last thing to keep in mind about the Making Work Pay Credit:
It took affect in April 2009, which meant the credit was applied over nine months.
This year, the credit will be applied over 12 months.
Taxpayers will get the same amount of extra cash this year, but the money will come in smaller installments spread over the entire year.
No place like home
The first-time homebuyer credit provides a tax break of as much as $8,000 for a first-time homebuyer — or someone who hasn’t owned a primary residence during the three years up to the date of purchase.
There’s also a “move-up/repeat” provision for existing homeowners.
This provides a credit of up to $6,500 for homebuyers who owned and lived in their previous home for at least five consecutive years out of the past eight years.
More information: www.federalhousingtaxcredit.com.
Keep in mind that the homebuyer credit remains in effect until April 30.
Driving a deduction
Taxpayers can take a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles.
The deduction — available for vehicles bought from Feb. 17, 2009, through Dec. 31, 2009 — is limited to the taxes and fees paid on up to $49,500 of a vehicle’s purchase price.
IRS Publication 919, How Do I Adjust My Withholding, can help taxpayers estimate the size of their deduction.
Earned income credit
Changes to the earned income tax credit can mean more money for larger families.
The credit is designed to help low- and moderate-income families, especially those with children.
Now, married taxpayers filing jointly may qualify for the credit if they earned less than $48,279 and have qualifying children or if they earned less than $18,440 and don’t have a qualifying child.
Taxpayers who lost their jobs and worked part time may be eligible for the credit, said Resch, the IRS spokeswoman. This year’s maximum earned income tax credit is $5,657.
New mileage rates
Standard 2009 mileage rates have changed for most categories, reflecting lower fuel prices.
- The rate for business miles is 55 cents per mile.
- The rate for medical or moving purposes is 24 cents per mile.
- The rate for miles driven in service of charitable organizations is 14 cents per mile.
AMT provisions
Several revisions have been made to the alternative minimum tax, which uses its own tax rate and definition of income that differs from the regular income tax.
The AMT originally was designed to stop wealthy people from using special tax breaks to pay little or no tax.
But as the cost of living and incomes have risen, the AMT applies to more and more Americans who don’t make a lot of money or use special tax breaks.
The newest revisions in the AMT seek to minimize the number of Americans affected by the tax.
Hope, opportunity
The education tax credit formerly known as the Hope Credit now is called the American Opportunity Tax Credit.
The credit has been expanded so that people qualify longer and get a larger credit.
A taxpayer is eligible for a credit of up to $2,500 — $700 more than the previous Hope credit — of the cost of tuition and expenses, including books, supplies and equipment.
There are income restrictions.
More information: IRS Publication 970, Tax Benefits for Education.
$2,400 exemption
The first $2,400 of unemployment benefits an individual received in 2009 are tax free.
For a married couple, the break applies to each spouse, separately.
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