Table of Contents
- What's New
- Introduction
- Useful Items - You may want to see:
- Nonrefundable Credits
- Adoption Credit
- Alternative Motor Vehicle Credit
- Alternative Fuel Vehicle Refueling Property Credit
- Credit to Holders of Tax Credit Bonds
- Foreign Tax Credit
- Mortgage Interest Credit
- Nonrefundable Credit for Prior Year Minimum Tax
- Residential Energy Efficient Property Credit
- Retirement Savings Contributions Credit
- Refundable Credits
Adoption credit. The maximum adoption credit increases to $11,650. See Adoption Credit for more information.
Recovery rebate credit. This credit is figured like the economic stimulus payment except that your 2008 tax information is used to figure the credit, instead of your 2007 tax information. The maximum credit is $600 ($1,200 if married filing jointly) plus $300 for each qualifying child. The credit is reduced by any economic stimulus payment you received. See Recovery Rebate Credit for more information.
First-time homebuyer credit. You may be able to claim a credit of up to $7,500 if you are a first-time homebuyer and your modified adjusted gross income is less than $95,000 ($170,000 if married filing jointly). This credit is like a loan to you. You must recapture the amount of your 2008 credit in 15 equal yearly installments starting in 2010 (2 years after claiming the credit). See First-Time Homebuyer Credit for more information.
Nonbusiness energy property credit not allowed for 2008. You cannot claim the nonbusiness energy property credit for property placed in service in 2008. However, you may be able to claim it next year for property placed in service in 2009. Also, you still may be able to claim the residential energy efficient property credit for 2008. See Residential Energy Efficient Property Credit for more information.
Excess withholding of social security tax and railroad retirement tax. Social security tax and tier 1 railroad retirement (RRTA) tax are both withheld at a rate of 6.2% of wages. The maximum wages subject to these taxes increased to $102,000 in 2008. The withholding rate of tier 2 RRTA is 3.9% of wages in 2008. The maximum wages subject to this tax increased to $75,900 in 2008. If you had too much social security or RRTA tax withheld during 2008, you may be entitled to a credit of the excess withholding. For more information about the credit, see Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld under Refundable Credits, later.
This chapter discusses the following nonrefundable credits.
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Adoption credit.
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Alternative motor vehicle credit.
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Alternative fuel vehicle refueling property credit.
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Credit to holders of tax credit bonds.
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Foreign tax credit.
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Mortgage interest credit.
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Nonrefundable credit for prior year minimum tax.
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Residential energy efficient property credit.
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Retirement savings contributions credit.
This chapter also discusses the following refundable credits.
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Credit for tax on undistributed capital gain.
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First-time homebuyer credit.
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Health coverage tax credit.
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Recovery rebate credit.
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Refundable credit for prior year minimum tax.
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Credit for excess social security tax or railroad retirement tax withheld.
Several other credits are discussed in other chapters in this publication.
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Child and dependent care credit (chapter 32).
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Credit for the elderly or the disabled (chapter 33).
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Child tax credit (chapter 34).
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Education credits (chapter 35).
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Earned income credit (chapter 36).
Publication
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502 Medical and Dental Expenses
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514 Foreign Tax Credit for
Individuals -
530 Tax Information for First-Time Homeowners
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535 Business Expenses
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590 Individual Retirement Arrangements (IRAs)
Form (and Instructions)
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1116 Foreign Tax Credit (Individual, Estate, or Trust)
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2439 Notice to Shareholder of Undistributed Long-Term Capital Gains
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5405 First-Time Homebuyer Credit
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5695 Residential Energy Efficient Property Credit
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8396 Mortgage Interest Credit
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8801 Credit For Prior Year Minimum Tax — Individuals, Estates, and Trusts
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8828 Recapture of Federal Mortgage Subsidy
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8839 Qualified Adoption Expenses
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8880 Credit for Qualified Retirement Savings Contributions
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8885 Health Coverage Tax Credit
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8910 Alternative Motor Vehicle Credit
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8911 Alternative Fuel Vehicle Refueling Property Credit
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8912 Credit to Holders of Tax Credit Bonds
The credits discussed in this part of the chapter can reduce your tax. However, if the total of these credits is more than your tax, the excess is not refunded to you.
You may be able to take a tax credit of up to $11,650 for qualified expenses paid to adopt an eligible child. The credit may be allowed for the adoption of a child with special needs even if you do not have any qualified expenses.
If your modified adjusted gross income (AGI) is more than $174,730, your credit is reduced. If your modified AGI is $214,730 or more, you cannot take the credit.
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Adoption fees,
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Court costs,
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Attorney fees,
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Travel expenses (including amounts spent for meals and lodging) while away from home, and
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Re-adoption expenses to adopt a foreign child.
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That violate state or federal law,
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For carrying out any surrogate parenting arrangement,
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For the adoption of your spouse's child,
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For which you received funds under any federal, state, or local program,
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Allowed as a credit or deduction under any other federal income tax rule,
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Paid or reimbursed by your employer or any other person or organization, or
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Paid before 1997.
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Under 18 years old, or
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Physically or mentally incapable of caring for himself or herself.
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The child was a citizen or resident of the United States (including U.S. possessions) at the time the adoption process began.
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A state (including the District of Columbia) has determined that the child cannot or should not be returned to his or her parents' home.
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The state has determined that the child will not be adopted unless assistance is provided to the adoptive parents. Factors used by states to make this determination include:
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The child's ethnic background,
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The child's age,
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Whether the child is a member of a minority or sibling group, and
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Whether the child has a medical condition or a physical, mental, or emotional handicap.
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You may be able to take a credit if you place an alternative motor vehicle in service in 2008.
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Qualified hybrid vehicle.
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Advanced lean burn technology vehicle.
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Qualified alternative fuel vehicle.
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Qualified fuel cell vehicle.
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You placed the vehicle in service during the year;
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The original use of the vehicle began with you;
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You acquired the vehicle for your use or to lease to others, and not for resale; and
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You use the vehicle primarily in the United States.
You may be able to take a credit if you place qualified alternative fuel vehicle refueling property in service in 2008.
You may be able to take a credit if you are a holder of a tax credit bond. Tax credit bonds include:
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Clean renewable energy bonds, and
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Gulf tax credit bonds.
The issuers do not pay interest on these types of bonds. Instead of receiving interest, the bondholders qualify to claim a tax credit.
You generally can choose to take income taxes you paid or accrued during the year to a foreign country or U.S. possession as a credit against your U.S. income tax. Or, you can deduct them as an itemized deduction (see chapter 22).
You cannot take a credit (or deduction) for foreign income taxes paid on income that you exclude from U.S. tax under any of the following.
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Foreign earned income exclusion.
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Foreign housing exclusion.
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Income from Puerto Rico exempt from U.S. tax.
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Possession exclusion.
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All of your foreign source gross income was passive income, which generally includes interest and dividends.
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All of your foreign source gross income and the foreign tax paid on it were reported to you on a qualified payee statement, which includes Form 1099-INT and Form 1099-DIV.
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The total of your creditable foreign taxes was not more than $300 ($600 if married filing jointly).
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You elect this procedure for the tax year.
The mortgage interest credit is intended to help lower-income individuals own a home. If you qualify, you can take the credit each year for part of the home mortgage interest you pay.
Certified indebtedness amount on your MCC | ||
Original amount of your mortgage |
The tax laws give special treatment to some kinds of income and allow special deductions and credits for some kinds of expenses. If you benefit from these laws, you may have to pay at least a minimum amount of tax in addition to any other tax on these items. This is called the alternative minimum tax.
The special treatment of some items of income and expenses only allows you to postpone paying tax until a later year. If in prior years you paid alternative minimum tax because of these tax postponement items, you may be able to take a credit for prior year minimum tax against your current year's regular tax.
You may be able to take a credit against your regular tax if for 2007 you had:
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An alternative minimum tax liability and adjustments or preferences other than exclusion items,
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A minimum tax credit that you are carrying forward to 2008, or
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An unallowed qualified electric vehicle credit.
You may be able to take this credit if you made energy saving improvements to your home located in the United States in 2008.
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Solar electric property,
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Solar water heating property,
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Fuel cell property,
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Small wind energy property, and
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Geothermal heat pump property.
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$2,000 for qualified solar electric property costs,
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$2,000 for qualified solar water heating property costs,
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$500 for each one-half kilowatt of capacity of qualified fuel cell property for which qualified fuel cell property costs are paid,
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$4,000 for qualified small wind energy property costs, and
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$2,000 for qualified geothermal heat pump property costs.
You may be able to take this credit if you, or your spouse if filing jointly, made:
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Contributions (other than rollover contributions) to a traditional or Roth IRA,
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Elective deferrals to a 401(k) or 403(b) plan (including designated Roth contributions) or to a governmental 457, SEP, or SIMPLE plan,
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Voluntary employee contributions to a qualified retirement plan (including the federal Thrift Savings Plan), or
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Contributions to a 501(c)(18)(D) plan.
However, you cannot take the credit if either of the following applies.
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The amount on Form 1040, line 38, or Form 1040A, line 22, is more than $26,500 ($39,750 if head of household; $53,000 if married filing jointly).
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The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1991, (b) is claimed as a dependent on someone else's 2008 tax return, or (c) was a student (defined next).
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Were enrolled as a full-time student at a school, or
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Took a full-time, on-farm training course given by a school or a state, county, or local government agency.
The credits discussed in this part of the chapter are treated as payments of tax. If the total of these credits, withheld federal income tax, and estimated tax payments is more than your total tax, the excess can be refunded to you.
You must include in your income any amounts that regulated investment companies (commonly called mutual funds) or real estate investment trusts (REITs) allocated to you as capital gain distributions, even if you did not actually receive them. If the mutual fund or REIT paid a tax on the capital gain, you are allowed a credit for the tax since it is considered paid by you. The mutual fund or REIT will send you Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, showing your share of the undistributed capital gains and the tax paid, if any. Take the credit for the tax paid by entering the amount on Form 1040, line 68, and checking box a. Attach Copy B of Form 2439 to your return. See Capital Gain Distributions in chapter 8 for more information on undistributed capital gains.
The first-time homebuyer credit operates much like an interest-free loan. You generally must repay it over a 15-year period. See Recapture of credit later.
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You bought your main home in the United States after April 8, 2008, and before July 1, 2009, and
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You (and your spouse if married) did not own any other main home during the 3-year period ending on the date of purchase.
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Your modified adjusted gross income is $95,000 or more ($170,000 or more if married filing jointly). See Modified adjusted gross income (MAGI) later.
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You are eligible to claim the District of Colombia first-time homebuyer credit for 2008 or any prior year.
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Your home financing comes from tax-exempt mortgage revenue bonds.
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You are a nonresident alien.
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Your home is located outside the United States.
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You sell the home, or it ceases to be your main home, before the end of 2008.
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You acquired your home by gift or inheritance.
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You acquired your home from a related person.
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Your spouse, ancestors (parents, grandparents, etc.), or lineal descendants (children, grandchildren, etc.).
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A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock of the corporation.
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A partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest.
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$7,500 ($3,750 if married filing separately), or
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10% of the purchase price of the home.
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Exclusion of income from Puerto Rico, and
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Amount from Form 2555, line 45 and line 50; Form 2555-EZ, line 18; and Form 4563, line 15.
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If you sell the home to someone who is not related to you, the recapture in the year of sale is limited to the amount of gain on the sale. When figuring the gain, reduce the adjusted basis of the home by the amount of the credit you have not recaptured.
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If the home is destroyed, condemned, or disposed of under threat of condemnation, and you acquire a new main home within 2 years of the event, you continue to recapture the credit over the rest of the 15-year recapture period.
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If, as part of a divorce settlement, the home is transferred to a spouse or former spouse, the spouse who receives the home is responsible for recapturing the remaining credit.
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If you die, the rest of the credit does not have to be recaptured.
You may be able to take this credit for any month in which all the following statements were true on the first day of the month.
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You were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient (defined later).
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You were covered by a qualified health insurance plan for which you paid the premiums, or your portion of the premiums, directly to your health plan.
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You were not entitled to Medicare Part A or enrolled in Medicare Part B.
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You were not enrolled in Medicaid or the State Children's Health Insurance Program (SCHIP).
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You were not enrolled in the Federal Employees Health Benefits program (FEHBP) or eligible to receive benefits under the U.S. military health system (CHAMPUS/TRICARE).
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You were not covered by, or eligible for coverage under, any employer-sponsored health insurance plan (including any employer-sponsored health insurance plan of your spouse).
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You were not imprisoned under federal, state, or local authority.
But, you cannot take the credit if you can be claimed as a dependent on someone else's 2008 tax return. If you meet all of these conditions, you may be able to take a credit of up to 65% of the amount you paid for qualified health insurance coverage for you and any qualifying family members. You cannot take the credit for insurance premiums on coverage that was partially paid for with a National Emergency Grant. The amount you paid for qualified health insurance coverage must be reduced by any Archer MSA and health savings account distributions used to pay for the coverage.
You can take this credit on your tax return or have it paid on your behalf in advance to your insurance company. If the credit is paid on your behalf in advance, that amount will reduce the amount of the credit you can take on your tax return.
For definitions and special rules, including those relating to qualified health insurance plans, qualifying family members, and employer-sponsored health insurance plans, see Publication 502 and the instructions for Form 8885.
You were an eligible TAA recipient on the first day of the month if, for any day in that month or the prior month, you:
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Received a trade readjustment allowance, or
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Would have been entitled to receive such an allowance except that you had not exhausted all rights to any unemployment insurance (except additional compensation that is funded by a state and is not reimbursed from any federal funds) to which you were entitled (or would be entitled if you applied).
You were an eligible alternative TAA recipient on the first day of the month if, for that month or the prior month, you received benefits under an alternative trade adjustment assistance program for older workers established by the Department of Labor.
You were an eligible PBGC pension recipient on the first day of the month, if both of the following apply.
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You were age 55 or older on the first day of the month.
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You received a benefit for that month that was paid by the PBGC under title IV of the Employee Retirement Income Security Act of 1974 (ERISA).
If you received a lump-sum payment from the PBGC after August 5, 2002, you meet item (2) above for any month that you would have received a PBGC benefit if you had not received the lump-sum payment.
This credit is figured like the economic stimulus payment you may have received in 2008 except that your 2008 tax information is used to figure this credit. Your 2007 tax information was used to figure your economic stimulus payment.
You may be able to take this credit only if:
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You did not get an economic stimulus payment, or
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Your economic stimulus payment was less than $600 ($1,200 if married filing jointly for 2007) plus $300 for each qualifying child you had for 2008.
However, you do not qualify for this credit if all of the following apply.
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You received an economic stimulus payment of $300 ($600 if married filing jointly for 2007) before any offset (see Offset against debts in chapter 1),
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Your 2008 tax on Form 1040, line 46 (Form 1040A, line 28, or Form 1040EZ, line 11), is $300 or less ($600 or less if married filing jointly for 2008),
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Your 2008 filing status is the same as your 2007 filing status, and
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You do not have any qualifying children.
Generally, the credit cannot be more than your 2008 net income tax liability (your regular tax liability plus any alternative minimum tax (AMT), minus any nonrefundable credits you claimed other than the child tax credit). However, your credit will be at least $300 ($600 if married filing jointly) if you meet either of the following two conditions:
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The total of your earned income, social security benefits (including social security disability payments), tier 1 railroad retirement benefits, certain veterans benefits, and nontaxable combat pay is at least $3,000, or
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Your total income is more than $8,950 if your filing status is single or married filing separately ($11,500 if head of household; $14,400 if qualifying widow(er); $17,900 if married filing jointly), and your net income tax liability is more than zero.
If you meet either of these conditions, you can also get an additional $300 for each of your children who is a qualifying child for the child tax credit.
To be eligible, you and your spouse each must have a valid social security number. To get the additional $300 credit for a child, the child must have a valid social security number. However, a valid social security number is not required for you, your spouse, or any qualifying child if you file a joint return and either you or your spouse was a member of the U. S. Armed Forces at any time in 2008. You are not eligible for the credit if you can be claimed as a dependent of another taxpayer, or if you file Form 1040NR, 1040NR-EZ, 1040-PR, or 1040-SS.
If your adjusted gross income (AGI) is more than $75,000 ($150,000 if married filing jointly), your credit will be reduced by 5% of your AGI in excess of that amount.
If you paid the alternative minimum tax for 2007 or you had a minimum tax credit carryforward to 2008, you may be able to take a credit for prior year minimum tax. For information about the nonrefundable credit for prior year minimum tax you may be able to take, see Nonrefundable Credit for Prior Year Minimum Tax, earlier. However, for 2008, you may qualify for a refundable credit for prior year minimum tax if you have any unused minimum tax credit carryforward from 2005 or earlier years, even if the total amount of your current year credit is more than your total tax liability. To figure the amount of any 2008 refundable credit, complete Part IV of Form 8801. Include any refundable credit on Form 1040, line 68, and check box c. You can carry forward any unused credit for prior year minimum tax to later years.
Most employers must withhold social security tax from your wages. If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax.
If you worked for two or more employers in 2008, you may have had too much social security or tier 1 RRTA tax withheld from your pay. You can claim the excess social security or tier 1 RRTA tax as a credit against your income tax. The following table shows the maximum amount of wages subject to tax and the maximum amount of tax that should have been withheld for 2008.
Type of tax | Maximum wages subject to tax |
Maximum tax that should have been withheld |
Social security or RRTA tier 1 |
$102,000 | $6,324.00 |
RRTA tier 2 | $75,900 | $2,960.10 |
All wages are subject to Medicare tax withholding.
Use Form 843, Claim for Refund and Request for Abatement, to claim a refund of excess tier 2 RRTA tax. Be sure to attach a copy of all of your W-2 forms. See the worksheet in Publication 505, Tax Withholding and Estimated Tax, to help you figure the excess amount.
1. | Add all social security tax withheld (but not more than $6,324.00 for each employer). Enter the total here |
|
2. | Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 61 | |
3. | Add lines 1 and 2. If $6,324.00 or less, stop here. You cannot take the credit |
|
4. | Social security tax limit | 6,324.00 |
5. | Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 65 (or Form 1040A, line 43) |
Example.
You are married and file a joint return with your spouse who had no gross income in 2008. During 2008, you worked for the Brown Shoe Company and earned $60,000 in wages. Social security tax of $3,720 was withheld. You also worked for another employer in 2008 and earned $51,000 in wages. $3,162 of social security tax was withheld from these wages. Because you worked for more than one employer and your total wages were more than $102,000, you can take a credit of $558.00 for the excess social security tax withheld.
1. | Add all social security tax withheld (but not more than $6,324.00 for each employer). Enter the total here |
$6,882.00 |
2. | Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 61 | -0- |
3. | Add lines 1 and 2. If $6,324.00 or less, stop here. You cannot take the credit | 6,882.00 |
4. | Social security tax limit | 6,324.00 |
5. | Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 65 (or Form 1040A, line 43) | $558.00 |
1. | Add all social security and tier 1 RRTA tax withheld (but not more than $6,324.00 for each employer). Enter the total here | |
2. | Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance included in the total on Form 1040, line 61 | |
3. | Add lines 1 and 2. If $6,324.00 or less, stop here. You cannot take the credit |
|
4. | Social security and tier 1 RRTA tax limit |
6,324.00 |
5. | Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 65 (or Form 1040A, line 43) |
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