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To EITC or Not to EITC. That is the Question. Determining your Eligibility for the Earned Income Tax Credit

One of the things I found quite confusing when I moved to the United States was the concept of the Earned Income Tax Credit.  Frankly, I still find the tax credit a little hard to understand.  Thankfully, the IRS has provided some guidelines on how this credit works that really helps with understanding eligibility and the application of the rules.      The IRS markets the Earned Income Tax Credit (EITC) as “a financial boost for working people adversely impacted by hard economic times”.  Given the current economic climate I’m sure you would not want to miss out on a tax break that will leave some extra spending money in your pocket, right?  Thought so.  Well, keep reading because I have provided 10 tips the IRS wants you to know about so that you can take advantage of this credit.   


1.     Just because you didn’t qualify last year, doesn’t mean you won’t this year. As your financial, marital or parental situations change from year-to-year, you should review the EITC eligibility rules to determine whether you qualify.


2.      If you qualify, it could be worth up to $5,657 this year. EITC not only reduces the federal tax you owe, but could result in a refund. The amount of your EITC is based on the amount of your earned income and whether or not there are qualifying children in your household. New EITC provisions mean more money for larger families.


3.     If you qualify, you must file a federal income tax return and specifically claim the credit in order to get it – even if you are not otherwise required to file.


4.     Your filing status cannot be Married Filing Separately.


5.     You must have a valid Social Security Number. You, your spouse – if filing a joint return – and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.


6.     You must have earned income. You have earned income if you work for someone who pays you wages, you are self-employed, you have income from farming, or – in some cases – you receive disability income.


7.     Married couples and single people without kids may qualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.


8.     Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make this election, the combat pay remains nontaxable.


9.     It’s easy to determine whether you qualify. The EITC Assistant, an interactive tool available on IRS.gov, removes the guesswork from eligibility rules. Just answer a few simple questions to find out if you qualify and estimate the amount of your EITC.


10.     Free help is available at volunteer assistance sites and IRS Taxpayer Assistance Centers to help you prepare and claim your EITC. If you are preparing your taxes electronically, the software program you use will figure the credit for you. If you qualify for the credit you may also be eligible for Free File. You can access Free File at IRS.gov.



Marsha Henry

Tax Quarry 2010

Finally, A Little Break for the Unemployed: Government Provides Tax Break for those Receiving Unemployment Benefits

 (Picture taken during the Great Depression)

Some of us may have forgotten, but there was a time when the US did not have a social contract with unemployed citizens.  If you became unemployed, you were on your own.  No social safety net existed for the many men of the Great Depression who lost their jobs when there was a financial market meltdown.   


In 2010, things are very different.  Although countless experts have dubbed the recent financial crisis as the second Great Depression because of the similarities in the scale of unemployment, one important thing exists now that didn’t exist then: unemployment insurance.  By no means will I argue that the amount Americans receive on the unemployment role is anywhere equivalent to what they were capable of earning in a hot job market, but it does keep a great majority of families from starving to death.  It may not help families avoid foreclosure or prevent them from losing a car much needed for a successful job hunt, but it does provide an opportunity to hope for a better day.  Something our Depression brothers and sisters never had. 


Despite this fact, it is no less discouraging for the unemployed masses that are already bleeding money to have to pay a portion of what they receive in taxes.  The US government has recognized this and decided to provide those on the unemployment role with a tax break.  Under the American Recovery and Reinvestment Act of 2009, taxpayers who received unemployment benefits last year are exempted from paying taxes on a portion of this benefit. 


Below are the rules that govern the application of this tax break:      



(1)                            Unemployment compensation generally includes any amounts received under the unemployment compensation laws of the United States or of a specific state. It includes state unemployment insurance benefits, railroad unemployment compensation benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund. It does not include worker's compensation.


(2)                            Normally, unemployment benefits are taxable; however, under the Recovery Act, every person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits when they file their federal tax return.


(3)                            For a married couple, if each spouse received unemployment compensation then each is eligible to exclude the first $2,400 of benefits.


(4)                            You should receive a Form 1099-G, Certain Government Payments, which shows the total unemployment compensation paid to you in 2009 in box 1.


(5)                            You must subtract $2,400 from the amount in box 1 of Form 1099-G to figure how much of your unemployment compensation is taxable and must be reported on your federal tax return. Do not enter less than zero.


For more information, visit irs.gov.


Marsha Henry

Tax Quarry

Bought a New Car Last Year? Make sure to claim the New Vehicle Sales and Excise Tax Deduction on your Return when Filing this Year


I gave up my car two years ago because I was so very frustrated with all the costly repairs that were needed just to keep it on the road.  And, I couldn’t imagine paying the escalating gas prices, which at the time topped $1.08/gallon.  When I relocated and decided to build my life in NY, I was happy, elated even, and intensely ecstatic about the idea of not having the responsibility of maintaining a vehicle.   But now, I’m having seller’s remorse.  I don’t miss the old car per se, I miss the lack of mobility.  I miss not being able to go away for the weekend on the drop of a dime without having to prearrange an expensive NY car rental.  If I could afford it, I would much prefer a new car. This way I could avoid all the costly repairs.


Buying a new car now, however, is not a serious consideration.  In fact, as filthy as the NY subway may be it allows me to remain within budget, avoiding unexpected expenses and the fluctuation in gas prices that can drive any penny pincher crazy.  For those who may not live in NYC or require a car for other reasons and are able to squeeze the expense into their budge, I envy you.  I envy you not only because of the simple luxury of being hidden from the slush and snow as you careen through the state highways and city streets but also because if you happened to purchase your car in 2009 anytime before January 1, 2010 you also may benefit financially when you file your tax return and claim the New Vehicle Sales and Excise Tax Deduction.    


You’re probably wondering how this works, right?  Well, below, I’ve presented a few tips provided by the IRS to help you take advantage of this special tax deduction, if you fit the eligibility criteria.


(1)          State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.


(2)          Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.


(3)          To qualify for the deduction, the new cars, light trucks and motorcycle must weigh 8,500 pounds or less.  New motor homes are not subject to the weigh limit.


(4)          Purchase must occur after February 16, 2009, and before January 1, 2010.


(5)          Purchases made in states without a sales tax (i.e. Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon – may also qualify for the deduction.  Taxpayers in these states may be entitled to deduct other qualifying fees or taxes imposed by the state or local government.  The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee.


(6)          This deduction can be taken regardless of whether the buyers itemize their deductions or choose the standard deduction.  Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return.


(7)          The amount of the deduction is phased out for taxpayers who’s modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.


(8)          Taxpayers who do not itemize must complete Schedule L, Standard Deduction for Certain Filers to claim the deduction.


If you need more information about the New Vehicle Sales and Excise Tax Deduction, please visit the IRS website at www.irs.gov/recovery or search for the instruction video “Vehicle Tax Deduction–Claim It” on YouTube in English and/or Spanish. 



Marsha Henry
February 11, 2010

What you Need to Know about Claiming the First-Time Homebuyer Credit on your US Tax Return


The recent financial crisis has created a very slow housing market.  We have witnessed thousands upon thousands of homeowners who have either lost their homes to foreclosure after losing a job; or lost their homes after their mortgage terms have changed and higher interest rates kicked in.  As a result, people are not as eager to enter into the housing market as they were a few years ago and current homeowners are not finding it easy to sell their homes much less sell at a profit. 


Well, for a lot of people, especially first-time home buyers, this spells opportunity.  The first-time homebuyer group will be lucky enough not to own a home they need to sell before they can move into their new house- something that has handicapped so many other potential purchasers.  This group can also take advantage of the First-Time Homebuyer Tax Credit offered by the government, which was introduced as part of a package of tax incentives expected to stimulate the housing market. The credit, initially put into place by the Bush administration, has been extended and modified by the Obama administration.  One notable change is the ability for not just first time buyers, but long-time residents to claim this credit.    


If you are lucky enough to fit into this category of people and have purchased a home in 2009 (or are planning to purchase a home in early 2010) there are a few things the IRS want you to know about the tax credit before you purchase that home and file your tax return.   



(1)    You must buy – or enter into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you enter into a binding contract by April 30, 2010, you must close on the home on or before June 30, 2010.


(2)    To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.


(3)    To be considered a long-time resident homebuyer you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased. Additionally, your settlement date must be after November 6, 2009.


(4)    The maximum credit for a first-time homebuyer is $8,000. The maximum credit for a long-time resident homebuyer is $6,500.


(5)    You must file a paper return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with additional documents to verify the purchase. Therefore, if you claim the credit you will not be able to file electronically.


(6)    New homebuyers must attach a copy of a properly executed settlement statement used to complete such purchase. Buyers of a newly constructed home, where a settlement statement is not available, must attach a copy of the dated certificate of occupancy. Mobile home purchasers who are unable to get a settlement statement must attach a copy of the retail sales contract.


(7)    If you are a long-time resident claiming the credit, the IRS recommends that you also attach any documentation covering the five-consecutive-year period, including Form 1098, Mortgage Interest Statement or substitute mortgage interest statements, property tax records or homeowner’s insurance records.


For more information about these rules including details about documentation and other eligibility requirements visit IRS.gov/recovery or search for “New Homebuyer Credit – Claim It” on You Tube.



February 10, 2010

Marsha Henry


Changes to be Aware of When Filing your 2009 US Taxes

Information overload is an understatement when describing the wealth of information an average American taxpayer has to review before they truly appreciate and understand the rules governing the filing of a basic tax return.  This year’s return is further complicated by all the changes ushered in with the American Recovery and Reinvestment Act, 2009 and other measures taken by the government to stabilize an evaporating economy. 

In order to present this information in a more digestible form the IRS has provided a list of the top changes that may affect the average taxpayer.  The list below is a general summary only.  If you require more specific information, please contact the IRS of visit the website at www.irs.gov.

1. The American Recovery and Reinvestment Act

ARRA provides several tax provisions that affect tax year 2009 individual tax returns due April 15, 2010. The recovery law provides tax incentives for first-time homebuyers, people who purchased new cars, those that made their homes more energy efficient, parents and students paying for college, and people who received unemployment compensation.

2. IRA Deduction Expanded

You may be able to take an IRA deduction if you were covered by a retirement plan and your 2009 modified adjusted gross income is less than $65,000 or $109,000 if you are married filing a joint return.

3. Standard Deduction Increased for Most Taxpayers

The 2009 basic standard deductions all increased. They are:

                $11,400 for married couples filing a joint return and qualifying widows and widowers

                $5,700 for singles and married individuals filing separate returns

                $8,350 for heads of household

Taxpayers can now claim an additional standard deduction based on the state or local sales or excise taxes paid on the purchase of most new motor vehicles purchased after February 16, 2009. You can also increase your standard deduction by the state or local real estate taxes paid during the year or net disaster losses suffered from a federally declared disaster.

4. 2009 Standard Mileage Rates

The standard mileage rates changed for 2009. The standard mileage rates for business use of a vehicle:

                55 cents per mile

The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:

                24 cents per mile

The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents per mile.

5. Kiddie Tax Change

The amount of taxable investment income a child can have without it being subject to tax at the parent's rate has increased to $1,900 for 2009.


Marsha Henry
February 3, 2010