Thursday, March 25, 2010

2009 Tax Year

Each new year brings change. The 2009 Tax Year was no exception. Keep an eye out for the applicability of the following tax benefits to your situation this April.

Workers: The "Making Work Pay Tax Credit" came from the "American Recovery and Reinvestment Act of 2009". Payroll withholding tables were modified mid-year to account for the tax credit. However, to capture the benefit assumed by withholding tables, you must claim the credit on your 2009 Tax Return (line 63 of Form 1040).
Rules: The credit is $400 for Single taxpayers ($800 for Married Joint taxpayers). To claim the full credit, Single taxpayers must have earned income in excess of $6,451 ($12,903 for Married Joint taxpayers). The credit is "refundable" (eligible taxpayers with zero tax liability still receive benefit). The credit is completely phased out for Single taxpayers with Adjusted Gross Income (AGI) greater than $95,000 ($190,000 for Married Joint taxpayers). Keep in mind the difference between a tax credit and a tax deduction. A deduction of $400 saves you from paying tax on $400 (at a 28% tax bracket the savings is $112). A tax credit of $400 saves you $400.

For more information consult "2009 Changes" from the following link:

http://www.irs.gov/publications/p553/ch01.html

Retirees: The "American Recovery and Reinvestment Act of 2009" also contains a few benefits for retirees. The first benefit, is not a credit, but has the same effect. The 2009 "Economic Recovery Payment" was provided to all Social Security recipients. The second benefit, the "Government Retiree Credit", applies to Government Retirees not entitled to Social Security benefits.
Economic Recovery Payment Rules: No action was required to receive this payment. The payment was $250 for each Social Security recipient. If applicable, each recipient should have noticed a one month increase in social security benefit late last year. The payment also applied to SSI, railroad and veterans disability/retirement recipients.
Government Retiree Credit Rules: The Government Retiree Credit was not automatic. The benefit, a true tax credit, must be claimed on your 2009 Tax Return (also on line 63 of Form 1040). The $250 credit is available for each eligible retiree. Government retirees include recipients of Federal, State and Local Government (or instrumentality) pensions. A few people receive a Government Pension and a Social Security Benefit (they paid into both systems during their working years). These retirees would not be entitled to both benefits. Also, for those receiving a retiree benefit above and working, the "making work pay credit" will be reduced by the retiree benefit.

For more information consult "2009 Changes" from the following link:

http://www.irs.gov/publications/p553/ch01.html

Charitable Contributions: There was a late addition to this list. Tax deductible donations to Haiti Disaster Relief efforts may be eligible for acceleration into the 2009 tax year. Eligible donations between January 12th 2010 and February 28th 2010 can be added to your charitable deductions total on Schedule A (Itemized Deductions) of your 2009 Tax Return.

For more information visit the following link:

http://www.irs.gov/newsroom/article/0,,id=218678,00.html

The above explanations are summarized. Please confirm all specifics with your tax professional. Your accountant will probably claim the applicable benefits on your behalf. However, you can review your tax return for confirmation.

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