October 15 Deadline Nears; Don’t Let Stimulus Payment Pass You by

Issue Number: IR-2008-109

Audio Interview

WASHINGTON — The Oct. 15 deadline to file a 2007 income tax return and to receive an economic stimulus payment this year is fast approaching.

This is the deadline for the estimated 4.3 million retirees and disabled veterans who may be eligible to receive a stimulus payment but who normally don’t file a tax return.

It’s also the deadline for the approximately 10 million people who earlier this year received extensions to file their 2007 income tax return.

“Don’t let the economic stimulus payment pass you by,” said IRS Commissioner Doug Shulman. “If you want the payment this year, you should file by Oct. 15. We recognize that there may be older Americans and disabled veterans who still have not filed for their stimulus payment. If you know of a friend, neighbor or family members who may be in that situation, please give them a hand if they need it.”

The IRS has accounted for nearly 80 percent of the Social Security and Veterans Affairs beneficiaries initially identified as potentially eligible.

The IRS has yet to hear from an estimated 4.2 million people who receive certain Social Security benefits and 178,000 who receive certain Veterans Affairs benefits. The agency twice has sent to this group letters that enclosed a Form 1040A, a sample tax form and instructions for sending the tax return to the IRS. If these instructions have been misplaced, the fastest way to obtain a Package 1040A-3 is to go to IRS.gov or to local IRS offices. There are more than 400 local offices nationwide where people can get assistance in preparing the return as well. A return also can be prepared and submitted for free through Free File which is available at IRS.gov.

People must file a tax return in order to receive an economic stimulus payment even if they normally are not required to file a return.

For eligible individuals, the Economic Stimulus Act of 2008 provided for stimulus payments of up to $600 ($1,200 for married couples) or the amount of the taxpayer’s 2007 net income tax liability, whichever is less. There also is a $300 payment for each qualifying child.

There is an income phase-out, starting at adjusted gross income amounts of $75,000 for single taxpayers and $150,000 for married taxpayers.

For people who have no tax liability and who have no requirement to file a tax return because their income is too low or nontaxable there is a stimulus payment of up to $300 ($600 for married couples) plus the $300 payment for each qualifying child. However, people in this situation must have at least $3,000 in qualifying income from earned income, nontaxable combat pay as well as certain benefits from Social Security, Veterans Affairs and Railroad Retirement.

Qualifying income from Social Security includes retirement, disability and survivor benefits. Supplemental Security Income is not a qualifying income. Qualifying income from Veterans Affairs includes disability compensation, disability pension and survivor benefits. Qualifying Railroad Retirement Board benefits include the social security equivalent portion of Tier I benefits. Also, those who are dependents or eligible to be dependents on another’s tax return are not eligible. People must have a valid Social Security Number unless their spouse is a member of the military.

The IRS has partnered with numerous organizations, including AARP, Center on Budget and Policy Priorities, National Council on Aging, Community Action Partnership, United Way, National League of Cities, National Disability Institute and National Community Tax Coalition. These organizations also are conducting outreach efforts to older Americans and veterans.

Also, each year, there are approximately 10 million taxpayers who request an extension from the April 15 deadline to file their tax return. The extension applies only to filing a return, not to paying any taxes owed. Oct. 15 is a final deadline for these extension taxpayers to avoid any penalties. They, too, may be eligible for the economic stimulus payment but must file a 2007 return by Oct. 15 to receive the payment this year.

By law, the IRS cannot disperse any economic stimulus payments after Dec. 31. However, people who may be eligible for an economic stimulus payment can claim a credit in 2009 by filing a 2008 income tax return.

As of Aug. 29, the IRS has issued $93 billion in economic stimulus payments to 114.8 million individuals and families.

Those who already have filed a 2007 tax return but who have not yet received an economic stimulus payment, can check on the status of your payment by going to “Where’s My Economic Stimulus Payment?” on the IRS.gov Web site.

People also can call 1-866-234-2942 and, after selecting English or Spanish language, should press 2 to check on the status of the stimulus payment. People will need their Social Security Number (the one listed first on the 2007 return), filing status (single, married, etc) and the number of exemptions claimed on the return.

Related Item:
Stimulus Payments - It's Not Too Late

Stimulus Payments — It's Not Too Late

Source: IRS

En Español: Pagos de Estímulo Económico

If you haven't yet filed a tax return to get your stimulus payment, you still have time to do so. But you must file by Oct. 15 to get your payment this year. And if you've already filed to get your payment but have a question or issue, it might be addressed here.

Find the Answer
Still looking for your rebate even though you've already filed a tax return? Or wonder why it's smaller than you were expecting? You may find the answer to your question in our:

• Top five questions people are asking
• Frequently asked questions about eligibility, payment amounts, payment delivery and more

If You've Already Filed a Tax Return
You may have already filed but still have outstanding issues. Find out more if you:

• Haven’t gotten your economic stimulus payment,
• Received one for a different amount than you were expecting,
• Amended your tax return,
• Changed your address, or
• Are in the military, have a spouse or children with ITINs instead of valid SSNs and received a reduced or no stimulus payment

If you still have questions, try:

• Our online tool that tells you if your payment has been scheduled for delivery the upcoming week, Where's My Stimulus Payment?
• The Rebate Hotline at 1-866-234-2942

If You Haven't Yet Filed a Tax Return
If you haven’t filed a federal tax return to claim your economic stimulus payment, you have until Oct. 15 to file to get your payment this year. Find out more if you:

• Receive Social Security retirement or disability benefits
• Receive Veterans Affairs pension, disability or survivor's benefits
• Receive Tier 1 Railroad Retirement benefits
• Are a low-wage worker, or
• Filed for an extension of time to file your return.

Get Basic Information
If you're not sure what the payment is all about, read the basic information.

Find Out if You're Eligible

You are eligible if:

• You or your family has at least $3,000 in qualifying income from, or in combination with, Social Security benefits, Veterans Affairs benefits, Railroad Retirement benefits and earned income. Supplemental Security Income (SSI) does not count as qualifying income for the stimulus payment.
• You and any family members listed on your tax return have valid Social Security numbers.
• You are not a dependent or eligible to be a dependent on someone else’s federal tax return. (The same must be true of any family members claimed on your return.)

Calculate How Much You May Get

• Eligible individuals — between $300 and $600
• Joint filers — between $600 and $1,200
• With eligible children — an additional $300 for each qualifying child

The actual amount depends on the information on your tax return. To find out how much you might be eligible for, use the economic stimulus calculator.

Find Out When You'll Get Your Payment
Whether you've already filed, have yet to file or filed for an extension, find out when you can expect to receive your stimulus payment.

Claim Your Payment

• Complete a federal tax return this year, even if you don’t normally do so. For instructions, a sample Form 1040A and a blank Form 1040A, see our 8-page informational package. Or use the longer Form 1040 and its instructions.

Then

• File electronically. For free free tax preparation software and electronic filing for people submitting a return solely to receive their stimulus payment, use Free File: Economic Stimulus Payment.

Or

• Mail a paper tax return to the IRS based on where you live.

Choose Direct Deposit or Paper Check
You can get your payment electronically as a direct deposit into your checking or savings account by filling in lines 44 b, c and d on Form 1040A or lines 74 b, c and d on Form 1040. Or you can get a paper check by leaving those lines blank.

Get Free Help at Taxpayer Assistance Centers
IRS employees will help prepare Form 1040A returns for low-income workers, retirees, disabled veterans and others. For a list of centers in your state and their hours of operation, Contact My Local Office .

Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years

Issue Number: IR-2008-106

WASHINGTON — First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.

Available for a limited time only, the credit:

• Applies to home purchases after April 8, 2008, and before July 1, 2009.
• Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
• Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.

However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.

Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on IRS.gov, the IRS Web site.

If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.

Q. Which home purchases qualify for the first-time homebuyer credit?

A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.

Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.

If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.

Q. How much is the credit?

A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $75,000 or more. Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.

Q. Are there income limits?

A. Yes. The credit is reduced or eliminated for higher-income taxpayers.

The credit is phased out based on your modified adjusted gross income (MAGI). MAGI is your adjusted gross income plus various amounts excluded from income—for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.

This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.

Q. Who cannot take the credit?

A. If any of the following describe you, you cannot take the credit, even if you buy a main home:

• Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
• You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
• You stop using your home as your main home.
• You sell your home before the end of the year.
• You are a nonresident alien.
• You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
• Your home financing comes from tax-exempt mortgage revenue bonds.
• You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.

Q. How and when is the credit repaid?

A. The first-time homebuyer credit is similar to a 15-year interest-free loan. Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year. For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.

You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.

However, some exceptions apply to the repayment rule. They include:

• If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
• If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
• If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
• If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.
  

Definition of Child for Tax Purposes

Source: ThomsonReuters.com

On September 10, the Senate Finance Committee approved by voice vote the Chairman's Mark as modified to S. 3038, the “Improved Adoption Incentives and Relative Guardianship Support Act.” This measure would clarify the uniform definition of a child for purposes of the dependency exemption, earned income tax credit, dependent care credit, and head of household filing status. Effective for tax years beginning after 2008, the bill would provide that:

• an individual who otherwise satisfies the uniform definition is not treated as a qualifying child unless he is either: (1) younger than the individual claiming him as a qualifying child or (2) permanently and totally disabled;
• an individual who is married and files a joint return (unless the return is filed only as a claim for a refund) is not treated as a qualifying child for child-related tax benefits, including the child tax credit;
• an individual who is married and files a joint return (unless the return is filed only to claim a refund) is not considered a qualifying child for child-related tax benefits, including the child tax credit;
• if a parent may claim a particular qualifying child, no other individual may claim that child; under an exception if no parent claims the qualifying child, another individual may claim the child if that individual (1) is otherwise eligible to claim the child and (2) has a higher adjusted gross income for the tax year than any parent eligible to claim the child

IRS Streamlines Application Process for New Tax-Exempt Organizations

Issue Number: IR-2008-102

WASHINGTON — The Internal Revenue Service and the Treasury Department today issued new regulations that will streamline the approval process for organizations seeking tax-exempt status as publicly supported charities.

The new regulations do away with the so-called advance rulings that granted public charity status for an initial five-year period but required exempt organizations to demonstrate, after the initial period, that they in fact received a substantial part of their support from public sources to receive a final determination letter.

The IRS was able to eliminate the advance rulings process because of the recent redesign of the Form 990, the tax return filed by organizations exempt from federal income tax.

“The revised Form 990 enhances transparency for exempt organizations and makes it easier for them to show that they are ‘publicly supported’ charities, rather than private foundations,” said IRS Commissioner Doug Shulman.

Private foundations under federal law are subject to more restrictions on the way they operate than publicly supported charities. To apply for exempt status either as a private foundation or as a publicly supported charity, an organization must file a Form 1023, the application for recognition of tax exemption.

Over the years, approximately 95 percent of exempt organizations that received advance rulings were later recognized as publicly supported charities at the end of the five-year period.

“Given the high ‘recognition’ rate and the redesigned Form 990, it makes sense to eliminate the burdensome advance ruling process” said Lois G. Lerner, Director of the IRS Exempt Organizations division. “Not only will the streamlined process aid exempt organizations, but it will also allow the IRS to redirect staffing to other program areas without compromising compliance.”

The IRS will use the new Form 990 and other traditional techniques to continue to ensure organizations are complying with the rules for publicly supported charity status on an ongoing basis.

Organizations that have already received an advance ruling under the old regime, but are still in their first five years of existence, can use their advance ruling letter as their final determination letter. In addition to the streamlined approval process, the new regulations include other modifications necessary to implement the redesigned Form 990. Organizations will begin filing the new Form 990 for their 2008 tax year.

Itemizers Can Deduct Certain Taxes

Issue Number: TT-2008-51

Did you know that you may be able to deduct certain taxes on your federal income tax return? You can take these deductions if you file Form 1040 and itemize deductions on Schedule A. Deductions decrease the amount of income subject to taxation.

There are several types of deductible non-business taxes:

State and local taxes: You can choose to claim a state and local tax deduction for either income taxes or sales taxes on your return. You can deduct any state and local income taxes withheld from your salary in 2007, estimated taxes paid to state or local governments and any prior year's state or local income tax as long as they were paid during the tax year. If deducting general sales taxes instead, you may deduct actual expenses or use the optional tables provided by the IRS to determine your deduction amount, relieving you of the need to save receipts. Sales taxes paid on certain items such as motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate.

Real estate taxes: Deductible real estate taxes are usually any state, local or foreign taxes on real property. If a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account, you can deduct only the amount actually paid during the year to the taxing authorities. Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information.

Personal property taxes: Personal property taxes are deductible when they are based only on the value of personal property, such as a boat or car. To be deductible, the tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year.

Foreign income taxes: Generally, you can take either a deduction or a tax credit for foreign income taxes, but not for taxes paid on income that is excluded from U.S. tax.

For detailed information about the sales tax deduction, consult the instructions for Form 1040, Schedule A, Itemized Deductions, and the interactive State and Local Sales Tax Calculator found on IRS.gov. More information about each of these topics is available at IRS.gov. IRS forms and publications can be downloaded from the Web site or obtained by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• Schedules A&B, Itemized Deductions and Interest & Dividend Income (PDF 116K)
• Publication 17, Your Federal Income Tax (PDF 2074K)
• State and Local Sales Tax Calculator

Saver’s Credit for Retirement Savings Contributions

Issue Number: TT-2008-49

If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be able to take a tax credit.

The Savers Credit formally known as the Retirement Savings Contributions Credit applies to individuals with a filing status and income of:

• Single with income up to $26,000
• Head of Household with income up to $39,000
• Married Filing Jointly, with incomes up to $52,000

To be eligible for the credit you must be at least age 18, not a full-time student, and cannot be claimed as a dependent on another person’s return.

You may be able to take a credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans.

The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.

When figuring this credit, you generally must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies for distributions starting two years before the year the credit is claimed and ending with the filing deadline for that tax return.

The Retirement Savings Contributions Credit is in addition to other tax benefits which may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.

For more information, review IRS Publication 590, Individual Retirement Arrangements and Form 8880, Credit for Qualified Retirement Savings Contributions. The publication and form can be downloaded at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• Publication 590, Individual Retirement Arrangements (PDF 1401.9K)
  Form 8880, Credit for Qualified Retirement Savings Contributions (PDF 273.8K)