In 2009, numerous new and expanded deductions and credits came into being for a broad cross-section of taxpayers. The following is a summary of these, and other key changes, that may apply to your 2009 federal income tax return.
Tax Credits Increased for Low and Moderate Income Workers. The Earned Income Tax Credit (EITC) is now available for those with three or more qualifying children and married couples. The EITC helps taxpayers whose incomes are below certain income thresholds. 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.
Standard Deduction Increases 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. Eligible taxpayers can further increase their standard deduction by state or local real estate taxes paid in 2009, a net disaster loss reported, and state or local sales or excise taxes on the purchase of a qualifying new motor vehicle.
AMT Exemption Increased for One Year. For tax-year 2009, Congress raised the alternative minimum tax exemption.
Making Work Pay Credit. Many taxpayers will qualify for the maximum credit of $800 for joint return filers ($400 for others). The credit equals 6.2 percent of earned income up to the maximum amount. For most, the credit is based on the taxable wages reported on Form W-2. Self-employed individuals figure the credit using net profit or loss. Additional calculations apply to some taxpayers, including those with net business losses or foreign earned income. Not everyone is eligible, such as those whose income is above certain thresholds, those without valid Social Security numbers, and nonresident aliens. A reduced credit applies to those who received a $250 economic recovery payment made in 2009, and who claim the government retiree credit.
Although all eligible taxpayers must file Schedule M to claim the credit, most got the benefit of this credit through larger paychecks, reflecting reduced federal income tax withholding during 2009. However, since the adjustments to the withholding tables may have caused millions of taxpayers to be underwithheld, IRS will waive the penalty for an under-payment of personal income tax caused by ad-justments made to the income tax withholding tables after enactment of the Making Work Pay Credit.
Government Retiree Credit. This credit is designed to provide a benefit equivalent to the economic recovery payment to those government retirees who did not qualify for these payments. Retired federal, state or local government employees who received pensions in 2009, based on work not covered by Social Security, are eligible to claim this credit. The credit is $250. The credit can’t be claimed by anyone who received the $250 economic recovery payment during 2009.
Other Changes
- Cash For Clunkers: A $3,500 or $4,500 voucher or payment made for such a voucher under the CARS “Cash For Clunk-ers” program is not taxable to the consumer buying or leasing a new car.
- Unemployment Benefits: UC benefits up to $2,400 received in 2009 are tax free for unemployed workers. Every person who receives unemployment benefits can exclude the first $2,400 of these benefits on their return. Unemployment benefit amounts over $2,400 are taxed.
