Economic Recovery Payment
Making Work Pay Credit
Government Retiree Credit
Cash for Clunkers
Portion of Unemployment Compensation Not Taxed
Hope Education Credit Redefined
Deduction for Motor Vehicle Taxes
Standard Deduction Increased
Qualifying Child Definition Updated - Exemption
Earned Income Credit Increased for Those With Three or More Children
Divorce Decree No Longer Sufficient - Exemption
First Time Homebuyer Credit
Additional Child Tax Credit
Exemption Amount Increased
Standard Mileage Rates Updated
Non-business Energy Property Credit
Recovery Rebate Credit
This section highlights important tax law changes during 2009 that might impact you. For additional information related to any of these subjects, contact your local 1040 Tax Services, Inc. representative.
Economy Recovery Payment
Retirees, disabled individuals and SSI recipients who are receiving benefits from the Social Security Administration, disabled veterans receiving benefits from the Department of Veteran Affairs and people receiving benefits from the Railroad Retirement Board should have received a $250 payment in 2009. This payment, though not taxable for federal income purposes, reduces any making work pay credit or government retiree credit.
Making Work Pay Credit
If you have earned income from work, a credit of 6.2% of your earned income may be available to you. The credit is limited to $400 or $800 if married filing jointly. The credit is reduced by several factors. A new form, Schedule M, must be prepared and attached to your 1040 or 1040A to claim this credit.
Government Retiree Credit
If you received a pension or annuity payment during 2009 for services rendered to the US, State or Local government and you did not receive the $250 economic recovery payment, a credit of $250 or $500 (if married filing jointly and your spouse also received a qualifying payment) is available to you. A new form, Schedule M, must be prepared and attached to your 1040 or 1040A to claim this credit.
Cash for Clunkers
If you participated in the Cash for Clunkers program during 2009, the vouchers received for that program are not taxable for federal income tax purposes.
Portion of Unemployment Compensation Not Taxed
No tax is paid on 2009 unemployment compensation for up to $2,400 received. All amounts above $2,400 are taxable to the recipient.
Hope Education Credit Redefined
For 2009 and 2010, the maximum Hope Credit has been increased to $2,500. Additional enhancements include the ability to take the Hope Credit for the first 4 years of post-secondary education as well as 40% of the credit being a refundable credit. The income levels for phase out were also increased.
Deduction for Motor Vehicle Taxes
If, after February 16, 2009, you purchased a new motor vehicle, it is possible that the state or local sales or excise taxes on the purchase can be deducted from your income. You take this deduction on Schedule A if you are itemizing deductions. If you are not itemizing, you could possibly increase your standard deduction (see below).
Standard Deduction Increased
In addition to the raised levels in the standard deduction for each filing status, three other items could increase your standard deduction. These include state or local sales or excise taxes paid on the purchase of a new motor vehicle, state or local real estate taxes paid (up to $500 or $1,000 for married filing joint filers) and net disaster loss from a federally declared disaster area.
Qualifying Child Definition Updated - Exemption
There are several updates to the qualifying child definition. These include the qualifying child must be younger than the taxpayer (unless the person is permanently and totally disabled), the child cannot file a joint return (unless it is only to claim a refund), the parents cannot claim the child or the parents can claim the child but do not and your adjusted gross income is higher than the highest adjusted gross income of any parent who could claim the child, you must be able to claim an exemption for the child to qualify for the child tax credit for the child.
Earned Income Credit Increased for Those With Three or More Children
In years past, only two children could be included for EIC. In 2009, a third child can factor into the calculation and thus offer greater benefits for those qualifying taxpayers.
Divorce Decree No Longer Sufficient - Exemption
A noncustodial parent wanting to claim an exemption for his/her child must now attach a properly completed Form 8332, or a similarly signed statement to the tax return if the divorce decree went into effect after 2008. Until this law, the applicable pages from the divorce decree were sufficient.
First Time Homebuyer Credit
For homes bought after December 31, 2008 and before May 1, 2010, a credit of up to $8,000 ($4,000 if married filing separately) may be claimed if the purchase meets the criteria of a first time homebuyer. The credit for homes purchased in 2009 would be included on the 2009 return for qualifying home purchasers while 2010 qualifying home purchasers can choose to take the credit on the 2009 or 2010 return. There is also a new provision that grants a credit of up to $6,500 for those qualifying home purchasers who buy a new home after having owned and used the same home as a principal or primary residence for at least 5 consecutive years out of the 8-year period ending on the date of the purchase of a new home as a primary residence.
Additional Child Tax Credit
The credit is refundable to the extent of 15% of taxable earned income in excess of $3,000.
Exemption Amount Increased
The amount you can deduct for each exemption has increased from $3,500 in 2008 to $3,650 in 2009. The amount of your exemption begins to phase out at certain adjusted gross income levels.
Standard Mileage Rates Updated
The 2009 standard mileage rate for the cost of operating your car is 55 cents per mile for all business miles driven. For medical and moving miles driven, the rate is 24 cents per mile in 2009. For charitable miles driven, the rate is 14 cents per mile.
Non-business Energy Property Credit
This new law increases the rate to 30% of the cost of all qualifying improvements. It also raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010.
Recovery Rebate Credit
The recovery rebate credit available in 2008 has expired and is not applicable for tax year 2009 returns.
