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Four Temporary Tax Reliefs Available in 2011

September 6, 2011 By

When the Bush tax cuts were passed into law, they were passed as a temporary tax code and were set to expire in 2009. These cuts include many of the tax deductions and tax credits that are claimed every year. However, when the Obama administration took over after the Bush administration, they did not remove these temporary tax cuts. Instead, through a negotiation with the Republican side of Congress, these tax cuts were extended so as to expire in 2012. There are therefore, some temporary tax reliefs that you can only take advantage of until 2012, as they will no longer be available after that – unless Congress decides on another extension. Four of these temporary tax reliefs are explained below:

1. Adoption Credit

The Adoption Credit is a tax credit that is available to people who adopt a child or children. The credit is used to help the adopters to recover some of the costs for adopting children. For the tax year 2011, the tax credit cap for adopting a child is $13,170.00. Households with more than one child can claim a credit for each child. What is better for the 2011 tax year is that the Adoption Credit is refundable. This means that if a balance remains after the credit is used up against due taxes, the IRS will provide a tax refund. The credit is only available to taxpayers who have an income of less than $182,520.00. To be entitled for this credit, you will need to file IRS Form 8839, attaching the support documentation of bills related to the adoption process. For children with special needs, the adopter can claim the maximum credit without producing any support documentation.

2. American Opportunity Credit

Under the American Opportunity Credit, taxpayers who have incurred higher education expenses (tuition only) can now claim a tax credit against the expenses with a cap of $2,500.00 annually. The credit is available for taxpayers who have an income of $90,000.00 and below (and for those who file jointly, there is an income cap of $180,000.00).

3. Charity IRA Rollover

The Charity IRA rollover is a tax opportunity available to taxpayers who are 70.5 years and above. The taxpayers can contribute their IRA funds to a qualifying tax-exempt charity up to a cap of $100,000.00 with no tax implications. This tax break is only available until end of 2011 and therefore, those seeking to take advantage can only do so within this time.

4. Health Insurance Deduction

For those in self-employment, the tax code provides a tax savings for the health insurance of you and your whole family. A taxpayer can now deduct the premiums paid for the health insurance policies of him or herself and his or her spouse and children. For the children, the tax relief allows for the deduction of premiums for children aged 27 years and below, even if they are not dependents.

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Top 10 IRS Tax Deductions and Tax Credits in 2011

September 1, 2011 By

The 2012 April tax season that accounts for the 2011 tax year may seem far and most taxpayers may not be overly concerned with their taxes at the moment. However, being conscious of tax matters as the year goes by ensures that you not only have a smooth tax time as you draw close to the next tax season, but also capitalize on the available tax opportunities. The major way in which taxpayers get tax savings from their returns is through tax credits and tax deductions. Below are 10 of the most common tax deductions and credits that you may qualify for in the 2011 tax year.

1. Charity Donations

Donations are the easiest and one of the most common tax deductions. The tax code allows for a tax deduction of donations made to any qualifying tax-exempt organization. In 2011, the IRS released a list of the organizations that had lost their tax exempt status due to non compliance with various regulations. A taxpayer therefore, needs to verify that an organization is qualified as tax exempt to be able to qualify for the tax deduction. For donations above $250.00, you will need an acknowledgment from the organization that you have donated to as support documentation for the tax deduction. For non-cash contributions above $500.00, you will need to file Form 8283, “Non-cash Charitable Contributions Form”. Non-cash items that are above a given threshold will also require a valuation from a qualified appraiser.

2. Child Care Tax Credit

The Child Care Credit is given to parents or guardians who spend money to have their children or qualifying dependents taken care of while they are out working. The credit can be claimed for regular child care or even for a summer day-camp. The amount to claim depends on one’s income and the number of children. The allowed credit ranges from 20% to 35% of one’s income. The credit also has an annual cap of $3,000.00 for a single child and $6,000.00 for more than one child.

3. Mortgage Interest

The mortgage interest tax deduction allows homeowners who are paying for a mortgage to claim a deduction on the mortgage interest paid on their primary residence and qualifying second home. Various rules govern the qualification of primary residence and second home and you will need to ensure that your homes qualify before deducting these expenses. Besides mortgage interest, you can also deduct the real estate taxes paid on non-business property.

4. Medical Expenses

Various medical expenses can be tax deductible for taxpayers who choose to itemize their tax deductions. The qualifying deductions are subject to a threshold of the excess of 7.5% of one’s Adjusted Gross Income. The expenses include travel related to medical care, out-of-pocket medical expenses, and health insurance premiums. For out-of-pocket expenses, there are various items that qualify and you can get a comprehensive list of qualifying medical expenses from the IRS website.

5. Health Savings Account

Contributions to a Health Savings Account (HSA) are also tax deductible. However, the HSA must be a qualify one for the tax deduction. Interests earned from the account are also not taxable. However, for a HSA to qualify, it must be a high-deductible health plan.

6. Work Related Expenses

There are various work related expenses that are IRS tax deductible. Various training expenses, business travel (excluding travel from home to the office), qualifying work uniforms and work clothing, and qualifying entertainment expenses for potential clients are tax deductible, subject to various IRS rules. These expenses only qualify for deductions if they were not reimbursed by the employer.

7. Home Offices

For people who work from their homes, they can deduct various home expenses that are related to their home office. You will need to determine and apportion the home expenses that are attributed to the home office to deduct the costs. The expenses include rent, insurance, mortgage, repairs and maintenance, other related utilities, and depreciation.

8. Qualifying Retirement Savings

Contributions to various qualifying retirement accounts such as 401(k) accounts and IRAs are also tax deductible. For the 2011 tax year, the cap on the contributions to these retirement accounts is $16,500.00. For senior citizens above the age of 50, the tax exempt limit goes up to $37,500.00.

9. Education Expenses

The tax code also allows for tax deduction of various education-related expenses. For the 2011 tax year, there is a cap of $4,000.00 for tax deductions of tuition-related expenses. You can also claim the American Opportunity Tax Credit if you qualify for it.

10. Student Loans

Interest paid on student loans is also tax deductible subject to an annual cap of $2,500.00. This applies only to the interest and not the principal. However, to qualify for this tax deduction, you must be earning an income of less than $70,000.00 for single taxpayers or $145,000.00 for married taxpayers who file their taxes jointly.

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Americans Getting More in IRS Tax Refunds

August 10, 2011 By

About 75% of people who submitted their tax returns for 2010 are expecting to get a, IRS tax refund. The statistics of the percentage is no different from previous years. However, the average amount of tax refunds that the taxpayer gets has been growing steadily over the years. This has grown from the average in 1999 of $1,698.00 to that in 2009 of $3,003.00. This means that the IRS refunds have grown about 100% in only 10 years. There are several explanations for this growth in refund averages, which are listed below:

Changing Perceptions on Refunds

In the past, the idea of overpaying your taxes and waiting for a tax refund was seen as a bad deal, as it meant that you had basically advanced Uncle Sam with an interest-free loan. People worked to match their withholdings to ensure that they got the least possible tax refund. In fact, a survey carried out on the perception of tax refunds on taxpayers revealed that the older taxpayers, aged 50 years and above, still hold this notion and will always work to adjust their withholding to match actual taxes. However, the younger taxpayers seem to have a different attitude towards their tax refunds. Many of them will intentionally overpay their taxes so as to have a larger tax refund. The refund comes more like a bonus and the funds can be used for a specific thing such as set up an emergency fund, make an asset down-payment, or simply saved up for a vacation. Many young tax payers feel that the burdens of bills are high and saving up within the year turns out to be hard work. However, the IRS does the job in piling the overpayment of withholdings and refunding this in one paycheck, which can feel like a lump bonus to the taxpayer. The receiving of a healthy paycheck from the IRS seems preferable over receiving small funds distributed throughout a given tax year. This new trend of viewing tax refunds may have contributed to the increase in amount of tax refunds made.

Poorer Performing Markets

The stock exchange market and interest rates on various investments have performed dismally between 1999 and 2009. In fact, the stock market dipped in 3 of these 10 years and stagnated for the most part of the remaining years. These reduced returns on investments has worked to defer taxpayers from seeking to manage their tax withholdings better since there is nothing much you lose in terms of investment returns by waiting for a tax refund. Therefore, less people are keen to make withholding adjustments.

Job and Investment Losses

During the same period of 1999 to 2009, there have been more people who have lost returns on investments and lost jobs, especially in the 2001 and 2007 economic recessions. Therefore, the growth in refund averages may reflect the deductions on losses, unemployment benefits, and adjustments on reduced incomes.

New Tax Breaks

During the same period, there have been many tax breaks that have been introduced, such as the Bush tax cuts, among other tax credits (some of which were created in efforts to revamp the economy). These breaks include the home-buyer credits, American Opportunity Education credit, and larger child credits. Many people choose to apply these new tax credits in their returns, which leads to higher refund checks.

Cost of Withholding Adjustments

Another reason that could explain the raise in tax refunds is the complex process of calculating and making withholding tax adjustments. You will need to work with 3 worksheets and 2 tax tables on the W-4 to make the correct adjustments on your withholdings. You will then need to forward your W-4 to your employer so as to have them update the changes. Many people find this process a challenge and would rather do nothing about their tax withholdings. However, on the flip side, most tax preparers provide free help in preparing the W-4 to make tax withholding adjustments. You can therefore request the assistance of your tax preparer with your W-4.

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IRS Tax Qualification Guidelines for the EITC

August 8, 2011 By

The Earned Income Tax Credit (EITC) is a tax credit that is available for most low income earning taxpayers. It was introduced into the tax code to promote and encourage people to work and earn income. The credit is refundable in that if a taxpayer has no outstanding taxes or if the taxes due are less than the qualifying credit, the taxpayer receives a refund check from the IRS. This is unlike traditional tax credits, which do not warrant a tax refund check, even if an outstanding credit remains. Though it is one of the most accessible tax credits for taxpayers who earn low incomes, the guidelines of qualifications and the amounts that one is entitled to is not straightforward for the regular taxpayer. However, given that many of the qualifying taxpayers are low income earners and may not be able to afford professional tax help, many are unable to properly claim this credit. For this reason, the IRS has placed on its website, software that assists taxpayers to determine if they qualify for the credit and how much they qualify for. Some of the qualifying guidelines for this tax credit are discussed below:

Income Caps

To qualify for the EITC, there are various income maximums and they are higher for taxpayers with more qualifying children. For taxpayers with no qualifying child, the income cap is $13,460.00 for singles and $18,470.00 for married couples filing jointly. Taxpayers with one qualifying child have an income cap of $35,535.00 and $40,545.00 for those that file jointly. For taxpayers with two qualifying children, the caps are $40,363.00 for singles and $45,373.00 for married couples filing jointly. Finally, for taxpayers with three or more children, the income cap is $43,350.00 for singles and $48,362.00 for couples filing jointly.

Tax Credit Amounts

For the 2010 and 2011 tax years, the qualifying tax credit is a maximum of $457.00 for taxpayers with qualifying no children, $3,050.00 for taxpayers with one qualifying child, a maximum of $5,036.00 for those who have two qualifying children, and a maximum of $5,666.00 for those with three children and above.

Qualifying Children

For children to qualify for consideration under The Earned Income Tax Credit, they have to be 19 years and below. However, taxpayers with full-time-student children can claim the credit against them up to the age of 23. Permanently disabled children qualify, irrespective of their age. The children have to be dependents of the taxpayer who live together with the taxpayer at least for 6 months within the tax year. This especially applies for divorced couples with shared child custody. The children may be natural children, adopted children, foster children, grandchildren, or step-children. Siblings may also qualify under special circumstances.

Applying for the Credit

If you qualify for the EITC, you can claim the credit on your tax returns with Form 1040EZ, 1040A, or 1040, in the tax credits section. There are special rules that affect military personnel who apply for this credit. Further details on the qualification and application of the EITC can be found in IRS Publication 596 – Earned Income Credit. Besides the IRS, 23 U.S. states also provide the EITC to their residents and you will need to check if your particular state provides this tax credit.

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TIGTA IRS Problems Report – The IRS Paid Out $513 Million Erroneously

July 27, 2011 By


A report released by the Treasury Inspector General for Tax Administration (TIGTA) has revealed that over $513 million was erroneously appropriated to taxpayers under the home-buyer tax credit. According to the report, the IRS gave refunds and allowed the credits for the erroneous claims without noticing the errors. This Home Buyer report is among a series of reports being released by the TIGTA following an audit on the IRS carried out for the 2010 tax year. Other reports already released include the Earned Income Tax Credit report and the Additional Child Tax Credit report. The TIGTA is yet to release the American Opportunity Credit report.

About the Home Buyer’s Credit

First time homebuyers who purchased their principal residence in 2008, 2009, and 2010 were entitled to a tax credit of up to $8,000.00. The 2008 First Time Homebuyer Credit was $7,500.00 and the credit was fashioned differently from the other years. For the 2008 credit, it was more of an interest-free loan from the IRS, as the taxpayers who claimed the credit were required to repay it beginning in 2010 in installments of $500.00 for 15 years. However, for 2009 and 2010, the credit was not refundable and the amount was increased to $8,000.00. The credit was even claimable by taxpayers who did not have a tax liability and therefore, they would receive a refund check for the amount. However, after the 2010 tax year, the First Time Homebuyer credit is no longer available for claim except for a few qualifying taxpayers, including military personnel and Federal workers working overseas who purchased their house before June 30, 2010.

Who Were the Recipients of the Erroneous Refunds?

According to the TIGTA report, various taxpayers were awarded unqualified credits due to errors that the IRS did not catch. The report indicated that 41 of the questionable returns with erroneous First Time Homebuyers Credit belonged to IRS employees. Others in the report included prisoners, taxpayers under the age of 18, taxpayers whose physical addresses remained the same as that of previous tax returns (showing that they had not moved their residence to a new home), taxpayers who indicated having bought houses from close relatives, and taxpayers who indicated a post office box address as opposed to the required physical address.

Some Taxpayers Under-Claimed

On the other hand, the report also indicated that there were 23,437 taxpayers who had claimed the 2008 IRS tax credit amount of $7,500.00 as opposed to the amended credit of $8,000.00. This means that they were possibly owed more by the IRS and could claim a further $500.00. Following the report, the IRS has sent notifications to these taxpayers to alert them of this error. The total amount of erroneous refunds from those who had understated their credit amount was $11.7 million.

IRS Reactions

The IRS has been increasing its guard against erroneous credit claims since the TIGTA Homebuyer Credit reports were released in 2008. Congress has also passed legislation to require homebuyers to provide support documentation with their returns when claiming the credit. Moving forward, the IRS says that it had learned its lessons from the First Time Homebuyer Credit and that they will seriously consider the TIGTA’s recommendations to improve on its controls and audits in future.

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The One-Week IRS Tax Preparation Guide

July 12, 2011 By

Tax preparations can be a very chaotic and hectic process and for this very reason, many taxpayers dread the tax season. Collecting all of the necessary paper work to ensuring you do not make errors on the forms can be such a hassle. However, with proper planning, the preparation for your taxes does not need to be a terrible experience. Here is a simple one-week guide to preparing your taxes:

Monday – Gather All Tax Documentation

The best way of having an easier time with your tax returns is to continually file all your tax records as you receive or generate them. However, if you are busy, you can have a box or folder where you deposit all the receipts and documentation (you can sort them out during the tax period). On the first day of your tax preparation, you will need to sort these records in terms of qualifying expenses, credits, deductions, and incomes. Ensure that you have included all the W-2 records for wages, all the 1099 forms received throughout the year from investment companies, stockbrokers, clients, banks, and various other sources, bank statements, sales documentation for assets, distributions records, gambling records, qualifying expense receipts, withheld tax records, unemployment benefits, and any other tax-related records.

Tuesday – List Your Qualifying Exemptions, Credits, and Deductions

Once you have gathered and sorted out the records on the first day, you can then proceed on the second day to listing and confirming the various tax entry categories.

  • Exemptions – Exemptions will typically include you, your spouse, and your dependents but it may also be extended to a parent that you are caring for. You need to indicate the Social Security numbers of each of these individuals that you are claiming exemptions for the claim to qualify. Next, you can list any other above the line adjustments including moving expenses, student loan interests, alimony payments, and IRA contributions.
  • Deductions – You need to determine whether you want to use standard deductions or itemized deductions. Standard deductions are preferred because they are straightforward and you will not need to bother with calculating individual deductions. However, if you have charitable donations and/or qualifying medical expenses among other write-offs, you may want to itemize, as it will enable you maximize on the deductions and get more tax relief.
  • Credits – Tax credits are the best tax relief because they reduce your tax liability directly. For taxpayers who earned low to medium incomes, they could qualify for the Earned Income Tax Credit (EITC). There are more credits that you may qualify for and you can learn more about and confirm the credit guidelines on the IRS website.

Wednesday – Get the Relevant Tax Forms

You then need to get the 1040 tax return form. This form comes in three variations; 1040EZ, 1040A and 1040. There are other tax forms that you may need to attach to your 1040 form, depending on the various credits and deductions that you are claiming. Some credits such as the adoption credit will also require you to attach support documentation to the 1040 Form.

Thursday – Fill Out Your Form

If you are using a tax software program, the software will guide you step-by-step in filling in the various sections of the tax forms. For those who choose to file manually, the process is also simple, as you have listed all the information to fill in the form. For those filing manually, you may get extra help from the “Instruction Book” for your tax returns. This will help you take full advantage of all tax breaks that you could qualify for.

Friday – Cross-check the Entries Made

The fourth day may have been hectic as you ensured that you filled all sections of the tax forms accurately. Therefore, it is always advisable to counter check your entries on the next day for errors that may have been made carelessly or in the bustle of things. Therefore, on the fifth day, ensure that you go through the entries again to ensure that the correct amounts were indicated. If you are filing manually, you will also need to confirm the additions of different sections of the form (make sure to get your math right). Once you have confirmed the entries, the form is ready for filing. If you are doing this electronically, you can go ahead and sign it electronically and submit the form. For those filing manually, you have one more day of posting the returns to the IRS.

Saturday – Signed, Sealed, and Delivered

The sixth day is for those filing manually. You will sign and seal the forms for mailing. It is advisable to make a copy of the forms (and supporting documents) before posting them for future reference. Ensure the correct address is indicated before you mail out your tax returns.

Sunday – Reflection

After diligently and hopefully, successfully working on your taxes for six days and filing your taxes in time, a rest on the seventh day is worthwhile. You can also take this time to reflect on the taxes that you have filed, specifically noting how you can improve on your methods for future tax preparation and tax planning.

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Delays in IRS Tax Refunds for the Adoption Tax Credit

July 5, 2011 By

Taxpayers that have adopted a child or children are entitled to a tax credit (the Adoption Tax Credit). The maximum tax credit for the 2010 tax year is $13,170.00 a child, which is higher than the cap of $12,150.00 in 2009. Besides the increase in the cap, the tax credit for 2010 is also refundable and therefore, a taxpayer will receive a tax refund check for the credit. In previous years, the credit was not refundable and taxpayers could only use the credit against future tax liabilities. This refundable tax credit has come as a pleasant relief for individuals and couples who have adopted children, as they can now receive cash for supporting them. The Adoption Tax Credit was provided help taxpayers cushion against the significant fees that go with adopting a child. On average, a private adoption can cost an individual of about $30,000.00. The IRS tax credit is therefore, given to ease the steep costs incurred when adopting. Furthermore, individuals and couples who adopt special needs children can claim the maximum amount of credit without providing proof of expenditure.

In spite of the guarantee of the receipt of a refund check for the credit, most of those that have applied for the credit refund have yet to receive their checks. The delay in the distribution of refund checks for the adopted children credit has lead to untold frustrations and inconveniences, as households and individuals had already planned their finances in anticipation of the funds. Some parents who have adopted 5 children and above are expecting refund checks of over $60,000.00 from the Adoption Tax Credit, and many of these taxpayers have financial commitments that heavily rely on the checks.

An example is a case of a couple that is expecting a refund of $65,000.00 and are looking to use the refund check towards a down payment for a foreclosed house. The couple laments that they could be losing out on a good deal to purchase a big house and provide better accommodations for their adopted kids if the check does not arrive in good time. This is just one of many cases of taxpayers who have been inconvenienced by the delays on the credits. Furthermore, taxpayers who had claimed other refundable credits received the refunds only for the other credits, but not the Adoption Tax Credit, which is where the bulk of their refunds may come from.

What is the reason behind the hold up? The IRS is taking their time with these refunds, owing to the high value in refunds that is characteristic of the adoption credit. The IRS is applying extra caution before releasing these costly checks. A report from the Treasury Inspector for Tax Administration showed that in the 2010 tax year, 72,656 taxpayers had tax returns with a claim for the Adoption Tax Credit, which totaled to the staggering amount of $897 million. The IRS has isolated about 58% of these tax returns for further scrutiny (these taxpayers have yet to receive their refunds). The IRS is also checking to confirm that the expenses being claimed are genuine and properly submitted. The IRS has blamed the delay on extensive erroneous applications of the credit and the lack of support documentation from many claimers. However, the IRS has acknowledged and apologized for the delay but unfortunately, it has not provided a timeline for completion of the review processes. Therefore, the sufferers of the delay are left with no other option but to wait and keep checking their mailboxes in hopeful (or excruciating) anticipation. However, they can also choose to voice their frustrations and share their grievances on a website, “Adoption.com,” that has a forum that enables them to vent out their opinions on the situation.

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Incorrect Name and ID Number Could Cause You IRS Tax Problems

June 29, 2011 By

The best thing that could happen to you if your name and ID number do not match on your taxes is that it could slow down your refund. The worst thing that could happen is an unforeseen rise in your tax bill. In the long run, incorrect information of your name and identification number could also stop your wages from being recorded correctly in your Social Security files. This means that you could miss out on all the retirement benefits that you qualify for.

These are the very justifiable reasons why it is absolutely critical for you to have a Social Security number for each and every person who is listed on your IRS tax return and that you enter these critical numbers accurately and legibly if you are filing them on paper.

Before identity theft became such a nuisance and treacherous issue, the Social Security numbers of taxpayers were printed on the tax mail that the IRS sent out to taxpayers every year. However, this practice came to a halt a long time ago and justifiably so. The privacy and security improvements on the other hand, gave birth to even bigger problems; it was established that by omitting the personal information from these mailed documents, some taxpayers failed to remember to accurately fill in their Identification Numbers when filing their tax returns.

Therefore, it is all up to you to accurately write your Social Security number and any other information that is necessary when filing your returns:

Marital Mismatches: These numbers are especially crucial for those who have only just gotten married or divorced. Newlyweds are advised to inform their Social Security Administration about the changes in their names. This is because if the couple files a joint tax return if one or both spouses have a new name, the IRS systems will not match the new name with the Social Security number until the Social Security Administration has been informed and updated of the change.

The same goes to women who change back to their maiden names after a divorce. They need to inform the Social Security workers of the change.

Nine Important Digits: There are numerous types of transactions that are connected to your Social Security number, which is why it is a great concern. The nine digits are also critical when the IRS decides to check for any tax credits that you may file for, such as child, dependent care, or educational tax credits.

If your children do not have Social Security numbers, be sure to get them as soon as possible. If you need to inform the agency of name changes and file Form SS-5. It only takes 14 days to get the change processed.

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Help with IRS Tax Benefits for Disabled Taxpayers

May 18, 2011 By

If you or one of your dependents has a disability, you may be due an IRS tax credit or another benefit when you file this year.

Some medical expenses are deductible if you itemize using Form 1040, Schedule A. For specific details on deductible medical expenses, see IRS Publication 502, Medical and Dental Expenses. Also, taxpayers who are legally blind may be able to claim a higher standard deduction than the typical standard deduction.

If you receive benefits such as Veterans Administration disability benefits and Supplemental Security Income, it may be excluded from your gross income. Also, certain taxpayers with disabilities which impair their ability to work may be able to claim some work-related expenses if those expenses are necessary for the taxpayer to work. The popular Earned Income Tax Credit is available to disabled taxpayers and the parents of children with a disability. If the children of a taxpayer are disabled, the age limit is waived. The EITC is refundable, as well, and the refunded money will not be considered income for determining eligibility for Supplemental Security Income, Medicaid, and other benefit programs.

Furthermore, if you retired on disability, taxable benefits you receive under your employer’s disability retirement plan may make you eligible for the EITC because they are considered earned income. People who are elderly or disabled may also be due a credit if they are over 65 or retired on permanent and total disability.

You can also claim a credit if you pay someone to take care of a dependent spouse. There is no age limit if the spouse is disabled. Publication 3966, Living and Working with Disabilities or Publication 907, Tax Highlights for Persons with Disabilities provides further information on taxes for people with disabilities. The publication is available on the IRS website at http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

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The Making Work Pay Credit and Your IRS Debt

May 13, 2011 By

Most people saw the effects of the Making Work Pay tax credit in their paychecks in 2010. The credit was designed to reduce federal withholding so that people had more cash during the year. Single taxpayers brought home up to $400, while married taxpayers brought home up to $800.

However, even if you got the full credit already, you will still feel the effects of it when you file your income tax return this year and calculate your taxes. You do not have to pay it back, but you do have to claim it on Schedule M and use a long Form 1040 or 1040A. Taxpayers who are able to use Form 1040EZ can claim the credit on the back. These calculations are worth the extra effort, though, because they may prove that you are due more money if you have not already received the full benefit of the credit. When you file, the credit is added as if it were additional withholding that you added to your paychecks and may increase your return amount or at least reduce your IRS debt.

Some people will not be able to claim some or all of the credit. Retirees do not have to include it. Nonresident alien workers and those who can be claimed as dependents are not eligible for the credit. High income taxpayers may have some issues when filing because the credit amount changes. Joint filers whose modified adjusted gross income (MAGI) is between $150,000 and $190,000 and single filers whose MAGI is between $75,000 and $95,000 will not receive the full credit. Those with income higher than the maximum amounts receive none of the credit. When taxpayers fill out Schedule M, it will be clear how much or how little of the credit applies.

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