Residential Energy Efficient Property Credit

There are residential energy effiency tax credits. A credit of 30 percent of the expenditures made by a taxpayer during the taxable year for:

  • qualified solar electric systems;
  • qualified solar water heaters;
  • qualified fuel cell property;
  • qualified small wind energy property; and
  • qualified geothermal heat pumps.

The credit for expenditures made for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property; the amounts of the other qualified expenditures eligible for the credit are not limited. In addition, this credit may be carried over if it exceeds the limitation imposed by section 26(a). The credit is available for property placed in service through Dec. 31, 2016.

The credit for solar electric property and solar water heating property is extended for property placed in service through December 31, 2021, at applicable percentages as described in the statute.

A credit of 10 percent of the cost of qualified energy-efficient improvements. Qualified improvements include adding insulation, energy-efficient exterior windows and doors, and certain roofs. The cost of installing these items is not included in the credit calculation. Additionally, a credit is available, including the costs of installation, for certain high-efficiency heating and air-conditioning systems, as well as high-efficiency water heaters and stoves that burn biomass fuel. There is a lifetime limitation of $500, of which only $200 may be used for windows. Qualifying improvements must have been placed in service in the taxpayer’s principal residence located in the United States through Dec. 31, 2016.

 

Residential Energy Efficient Property Credit

  • This tax credit is 30 percent of the cost of alternative energy equipment installed on or in your home.
  • Qualified equipment includes solar hot water heaters, solar electric equipment and wind turbines.
  • There is no dollar limit on the credit for most types of property. If your credit is more than the tax you owe, you can carry forward the unused portion of this credit to next year’s tax return.
  • The home must be in the U.S. It does not have to be your main home.
  • This credit is available through 2016.

Use Form 5695, Residential Energy Credits, to claim these credits. For more on this topic refer to the form’s instructions. You can get it on IRS.gov or order it by mail by calling 800-TAX-FORM (800-829-3676).

 

Requirements for Non-Business Energy Property Credit

  • This credit is worth 10 percent of the cost of certain qualified energy-saving items you added to your main home last year. This includes items such as insulation, windows, doors and roofs.
  • You may also be able to claim the credit for the actual cost of certain property. This may include items such as water heaters and heating and air conditioning systems. Each type of property has a different dollar limit.
  • This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.
  • Your main home must be located in the U.S. to qualify for the credit.
  • Be sure you have the written certification from the manufacturer that their product qualifies for this tax credit. They usually post it on their website or include it with the product’s packaging. You can rely on it to claim the credit, but do not attach it to your return. Keep it with your tax records.
  • This credit expired at the end of 2013. You may still claim the credit on your 2013 tax return if you didn’t reach the lifetime limit in prior years.

Plug-In Electric Drive Vehicle Credit

Internal Revenue Code Section 30D provides a credit for Qualified Plug-in Electric Drive Motor Vehicles including passenger vehicles and light trucks. You may be eligible for a credit under Section 30D(a), if you purchased a car or truck with at least four wheels and a gross vehicle weight of less than 14,000 pounds that draws energy from a battery with at least 4 kilowatt hours and that may be recharged from an external source. You must have purchased it in or after 2010 and begun driving it in the year in which you claim the credit. The credit ranges between $2,500 and $7,500, depending on the capacity of the battery. The credit begins to phase out for a manufacturer, when that manufacturer sells 200,000 qualified vehicles.

 

What Vehicles will Work for this Credit?

For vehicles acquired after December 31, 2009, the credit is equal to $2,500 plus, for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours. The total amount of the credit allowed for a vehicle is limited to $7,500.

The credit begins to phase out for a manufacturer’s vehicles when at least 200,000 qualifying vehicles have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009). For additional information see Notice 2009-89.

Section 30D originally was enacted in the Energy Improvement and Extension Act of 2008. The American Recovery and Reinvestment Act of 2009 amended section 30D effective for vehicles acquired after December 31, 2009.  Section 30D was also modified by the American Taxpayer Relief Act (ATRA) 2013 for certain 2 or 3 wheeled vehicles acquired after December 31, 2011 and before January 1, 2014.

You may be eligible for a credit under section 30D(g), if you purchased a 2- or 3-wheeled vehicle that draws energy from a battery with at least 2.5 kilowatt hours and may be recharged from an external source. You must have purchased the vehicle in 2012 or 2013 and begun using it in the year in which you claim the credit. The credit is 10% of the purchase price of the vehicle with a maximum credit of $2,500.

 

What are requirements to get Electric Vehicle Tax Credit?

The vehicles must be acquired for use or lease and not for resale. Additionally, the original use of the vehicle must commence with the taxpayer and the vehicle must be used predominantly in the United States. For purposes of the 30D credit, a vehicle is not considered acquired prior to the time when title to the vehicle passes to the taxpayer under state law.

Notice 2009-89 applies to vehicles acquired subsequent to December 31, 2009 and provides procedures that a vehicle manufacturer may use if it chooses to certify that a vehicle meets certain requirements that must be satisfied to claim the Qualified Plug-in Electric Drive Motor Vehicle Credit and the amount of the credit allowable with respect to that vehicle

Qualified Plug-In Electric Drive Motor Vehicle Credit (IRC 30D) Phase Out

The qualified plug-in electric drive motor vehicle credit phases out for a manufacturer’s vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009) (“phase-out period”). Qualifying vehicles manufactured by that manufacturer are eligible for 50 percent of the credit if acquired in the first two quarters of the phase-out period and 25 percent of the credit if acquired in the third or fourth quarter of the phase-out period.  Vehicles manufactured by that manufacturer are not eligible for a credit if acquired after the phase-out period.

2017 Adoption Tax Credit

A nonrefundable tax credit for qualified adoption 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. The credit is reduced if your modified adjusted gross income (MAGI) falls between $201,010 and $241,010; and is zero if your MAGI is above $241,010. In addition, there is an income exclusion for employer-provided adoption assistance.

 

Adoption Tax Credit

Tax benefits for adoption include both a tax credit for qualified adoption expenses paid to adopt an eligible child and an exclusion from income for employer-provided adoption assistance. The credit is nonrefundable, which means it is limited to your tax liability for the year. However, any credit in excess of your tax liability may be carried forward for up to five years. The maximum amount (dollar limit) for 2015 is $13,400 per child.

 

What are Qualified Adoption Expenses?

For both the credit and the exclusion, qualified adoption expenses, defined in section 23(d)(1) of the Code, include:

  • Reasonable and necessary adoption fees,
  • Court costs and attorney fees,
  • Traveling expenses (including amounts spent for meals and lodging while away from home), and
  • Other expenses that are directly related to and for the principal purpose of the legal adoption of an eligible child.

An expense may be a qualified adoption expense even if the expense is paid before an eligible child has been identified. For example, prospective adoptive parents who pay for a home study at the outset of an adoption effort may treat the fees as qualified adoption expenses.

An eligible child is an individual who is under the age of 18, or is physically or mentally incapable of self-care.

Qualified adoption expenses do not include expenses that a taxpayer pays to adopt the child of the taxpayer’s spouse.

Qualified adoption expenses include expenses paid by a registered domestic partner who lives in a state that allows same-sex second parent or co-parent to adopt his or her partner’s child, adoption expenses and that otherwise qualify for the credit.

 

Adoption Tax Credit Examples

Example 1. In 2015, the following events occur: (a) You pay $13,400 of qualified adoption expenses in connection with an adoption of an eligible child; (b) your employer reimburses you for $3,400 of those expenses; and (3) the adoption becomes final. Your MAGI amount for 2015 is less than $201,010. Assuming you meet all other requirements, you can exclude $3,400 from your gross income for 2015. However, the expenses allowable for the adoption credit are limited to $10,000 ($13,400 total expenses paid less $3,400 employer reimbursement).

Example 2. The facts are the same as in Example 1, except that you pay $18,400 of qualified adoption expenses and your employer reimburses you for $5,000 of those expenses. Assuming you meet all other requirements, you can exclude $5,000 from your gross income for 2015 and claim a $13,400 adoption credit ($18,400 total expenses paid less $5,000 employer reimbursement).

Example 3. The facts are the same as in Example 1, except that you pay $30,000 of qualified adoption expenses and your employer reimburses you for $13,400 of those expenses. Assuming you meet all other requirements, you can exclude $13,400 from your gross income for 2015. You can also claim a credit of $13,400. Because of the dollar limitation, the remaining $3,200 of expenses ($30,000 total expenses paid, less $13,400 dollar-limited exclusion, less $13,400 dollar-limited credit), can never be used for either the exclusion or the adoption credit.

 

2017 IRS Income Tax Changes

Besides changing the 2017 Income Tax Brackets and the 2017 Earned Income Credit, the IRS announced other inflation linked changes to amounts in the tax code. These other deduction and credit amounts are important in 2017 and can affect how much taxes are paid. The tax items for tax year 2017 of greatest interest to most taxpayers include the following dollar amounts

 

Restrictions on Itemized Deductions – Pease Limitation

If the Pease limitations apply, the total of all your itemized deductions is reduced by the lesser of:

3% of AGI above the applicable threshold; or 80% of the amount of itemized deductions otherwise allowable for the tax year.

Pease limitations apply to charitable donations, the home mortgage interest deduction, state and local tax deductions and miscellaneous itemized deductions. They do not apply to medical expenses, investment expenses, gambling losses, and certain theft and casualty losses.

Keep in mind that the floor for medical expenses in 2017 is 10% of adjusted gross income (AGI) for all taxpayers. Taxpayers over the age of 65 could use the 7.5% floor through 2016: in 2017, the favored tax rate disappears and all taxpayers are subject to the 10% floor

 

2017 Kiddie Tax

The kiddie tax applies to unearned income for children under the age of 19 and college students under the age of 24. For 2017, the threshold for the kiddie tax – meaning the amount of unearned net income that a child can take home without paying any federal income tax – is $1,050. All unearned income in excess of $2,100 is taxed at the parent’s tax rate.

 

2017 AMT (2017 Alternative Minimum Tax)

The Alternative Minimum Tax exemption amount for tax year 2017 is $54,300 and begins to phase out at $120,700 ($84,500, for married couples filing jointly for whom the exemption begins to phase out at $160,900). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly).  For tax year 2017, the 28 percent tax rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).

2017 Child & Dependent Care Credit Amount

For 2017, the value used to determine the amount of credit that may be refundable is $3,000. Keep in mind that this is the value of the expenses used to determine the credit and not the actual amount of the credit.

 

2017 Transportation Fringe Benefit Limit

For tax year 2017, the monthly limitation for the qualified transportation fringe benefit is $255, as is the monthly limitation for qualified parking,

 

2017 Adoption Credit Amount

The credit allowed for an adoption of a child with special needs is $13,570, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,570. Phaseouts do apply beginning at taxpayers with modified adjusted gross income (MAGI) in excess of $203,540 and completely phased out for taxpayers with MAGI of $243,540 or more.

 

2017 Hope Scholarship Credit Amount

The Hope Scholarship Credit for 2017 will remain an amount equal to 100% of qualified tuition and related expenses not in excess of $2,000 plus 25% of those expenses in excess of $2,000 but not in excess of $4,000. That means that the maximum Hope Scholarship Credit allowable for 2017 is $2,500. As with the Hope Scholarship Credit, income restrictions apply to the Lifetime Learning Credit. For 2017, the adjusted gross income amount used to determine the reduction in the Lifetime Learning Credit is $56,000 ($112,000 for joint filers).

 

2017 Student Loan Interest Deduction.

The maximum amount that you can take as a deduction for interest paid on student loans remains at $2,500. Phaseouts apply for taxpayers with modified adjusted gross income (MAGI) in excess of $65,000 ($135,000 for joint returns) and is completely phased out for taxpayers with modified adjusted gross income (MAGI) of $80,000 or more ($165,000 or more for joint returns).

 

2017 Estate Tax Limits

For 2017, the estate and gift tax exemption is $5.49 million per individual, up from $5.45 million in 2016. That means an individual can leave $5.49 million to heirs and pay no federal estate or gift tax. A married couple will be able to shield just shy of $11 million ($10.98 million) from federal estate and gift taxes. The annual gift exclusion remains at $14,000 for 2017.

 

2017 Health Savings Account Limits

For tax year 2017 participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,250 but not more than $3,350; these amounts remain unchanged from 2016. For self-only coverage the maximum out of pocket expense amount  is $4,500, up $50 from 2016. For tax year 2017 participants with family coverage, the floor for the annual deductible is $4,500, up from $4,450 in 2016, however the deductible cannot be more than $6,750, up $50 from the limit for tax year 2016. For family coverage, the out of pocket expense limit is $8,250 for tax year 2017, an increase of $100 from  tax year 2016.

 

Energy Incentives for Individual Taxpayers

How has the American Recovery and Reinvestment Act of 2009 affected the tax credits for energy efficient home improvements?

The new law increases the energy tax credit for homeowners who make energy efficient improvements to their existing homes. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010.

 

Tax Credits for Energy Efficient Homes

A similar credit was available for 2007, but was not available in 2008. Homeowners should be aware that the standards in the new law are higher than the standards for the credit that was available in 2007 for products that qualify as “energy efficient” for purposes of this tax credit. The IRS has issued guidance that will allow manufacturers to certify that their products meet these new standards. See Notice 2009-53.

 

What improvements qualify for the enhanced residential energy property credit for homeowners?

In 2009 and 2010, an individual may claim a credit for 30 percent of the cost (subject to the overall credit limit of $1,500) for the installation of the following qualifying products:

  • Energy-efficient exterior windows, doors and skylights
  • Energy-efficient heating and air conditioning systems
  • Insulation
  • Water heaters (natural gas, propane or oil)
  • Roofs (metal and asphalt)
  • Biomass stoves

Who qualifies to claim a residential energy property credit? Are there limitations? 

You may be able to take these credits if you made energy saving improvements to your personal residence. This credit is limited to improvements placed in service during 2009 and 2010 up to a total credit of $1,500 for both tax years combined.

The residential energy property credit is non refundable. A nonrefundable tax credit allows taxpayers to lower their tax liability to zero, but not below zero.

Are there incentives for making your home energy efficient by installing alternative energy equipment — for example, installing a solar hot water heater?

Yes, the residential energy efficiency property credit has been enhanced to remove some of the previously imposed maximum amounts and allows for a credit equal to 30 percent of the cost of qualified property. Qualifying property includes solar water heaters, geothermal heat pumps and small wind turbines, installed in a home.  For more information, see Notice 2009-41, which explains the effects of this change.

 

Is there a limitation on the amount of the residential energy efficiency property credit? 

The American Recovery and Reinvestment Act (ARRA) eliminates the dollar limit on the 30 percent tax credit for alternative energy equipment, such as solar water heaters, geothermal heat pumps and small wind turbines, installed in a home. The cap generally has been eliminated for these improvements beginning in the 2009 tax year.

ARRA provides for a uniform credit of 30 percent of the cost of qualifying improvements up to $1,500, such as adding insulation, energy-efficient exterior windows, doors and skylights, certain water heaters, metal and asphalt roofs, biomass stoves and energy-efficient heating and air conditioning systems.

For tax years beginning in 2009, the law allows a 30 percent tax credit, with no cap, to a homeowner for the cost, including installation costs, of solar electric equipment (photovoltaic). This credit provides a great incentive to homebuilders and homebuyers to install this equipment. For purposes of this tax credit, does the cost to the homebuyer of the installed solar electric equipment include a builder’s normal construction mark-up? 

The homebuyer must make a reasonable allocation of the cost of a home to determine the cost allocable to the solar electric equipment on which a homebuyer computes this credit. The cost of the solar electric equipment may include a reasonable allocation of the homebuilder’s construction mark-up. The homebuilder should provide the buyer with information necessary to make this allocation.

 

What types of credits are available for qualified electric plug-in vehicles?

EESA created a tax credit (plug-in electric drive motor vehicle credit) for vehicles that have at least four wheels and draw propulsion using a rechargeable traction battery with at least four kilowatt hours of capacity. For 2009, the minimum credit is $2,500 and the credit tops out at $7,500 to $15,000, depending on the weight of the vehicle and the capacity of the battery.

ARRA creates a tax credit (plug-in electric vehicle credit) for low-speed or two- or three-wheel electric vehicles, such as motor scooters, purchased after Feb. 17, 2009, and before Jan. 1, 2012. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500. To qualify, a vehicle must be either a low-speed vehicle that is propelled to a significant extent by a rechargeable battery with a capacity of at least 4 kilowatt hours or be a two- or three-wheeled vehicle that is propelled to a significant extent by a rechargeable battery with a capacity of at least 2.5 kilowatt hours.

If the individual qualifies for both the plug-in electric vehicle credit and the plug-in electric drive motor vehicle credit, then the plug-in electric drive motor vehicle credit should be claimed.

During 2009, low-speed, four-wheeled vehicles manufactured primarily for use on public streets, roads and highways (neighborhood electric vehicles) may qualify both for the plug-in electric drive motor vehicle credit and, if purchased after Feb. 17, 2009, for the plug-in electric vehicle credit. A taxpayer may not claim both credits for the same vehicle. Vehicles manufactured primarily for off-road use, such as for use on a golf course, do not qualify for either credit.

Notice 2009-54 provides certification procedures for the plug-in electric drive motor vehicle credit for vehicles purchased in 2009. The IRS is working on guidance regarding certification procedures for the plug-in electric drive motor vehicle credit for vehicles purchased after 2009. Notice 2009-58 provides certification procedures for the plug-in electric vehicle credit.

What are the qualifying requirements for a plug-in electric drive vehicle purchased after Dec. 31, 2009?

ARRA modifies the plug-in electric drive motor vehicle credit for vehicles purchased after Dec. 31, 2009. To qualify, vehicles must be newly purchased, have four or more wheels, have a gross vehicle weight rating of less than 14,000 pounds, and draw propulsion using a battery with at least four kilowatt hours that can be recharged from an external source of electricity. The minimum amount of the credit for qualified plug-in electric drive motor vehicles is $2,500 and the credit tops out at $7,500 depending on the battery capacity of the vehicle. The credit will begin to phase out with respect to a manufacturer’s vehicles after the manufacturer has sold at least 200,000 vehicles.

After Dec. 31, 2009 a vehicle cannot qualify for both the plug-in electric vehicle credit and the plug-in electric drive motor vehicle credit.

 

Can a taxpayer claim a credit for installing an electric drive conversion kit?

Yes. ARRA provides a tax credit for plug-in electric drive conversion kits. The credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle and placed in service after Feb. 17, 2009. The maximum amount of the credit is $4,000. The credit does not apply to conversions made after Dec. 31, 2011. A taxpayer may claim this credit even if the taxpayer claimed a hybrid vehicle credit for the same vehicle in an earlier year.

 

Does the Alternative Minimum Tax (AMT) impact the alternative motor vehicle credit?

Starting in 2009, the new law allows the alternative motor vehicle credit, including the tax credit for purchasing hybrid vehicles, to be applied against the alternative minimum tax. Prior to the new law, the alternative motor vehicle credit could not be used to offset the AMT.

Energy Tax Credits for Home Use

You can reduce your taxes and save on your energy bills with certain home improvements. Here are some key facts you should know about tax credits for home energy. Remember that, the Energy Property Credit is not for Business

 

Overview of Residential Energy Credits

• Part of this credit is worth 10 percent of the cost of certain qualifying energy saving items you added to your main home last year. This may include items such as insulation, windows, doors and ceilings.

• The other part of the credit is not a percentage of the cost. This part of the credit goes to the actual cost of a property. This may include items such as water heaters and heating systems and air conditioning. The amount of credit for each property type has a different limit money.

• This loan has a maximum lifetime limit of $ 500. You can only use $ 200 of this limit for windows.

What do you need to do to claim an energy tax credit?

• Your main home must be located in the United States to qualify for any type of resident energy tax credit.

• Make sure you have the manufacturer’s written certification that the product meets the requirements for this energy tax credit. Generally, the publish on its website or included with the product packaging. You can rely on it to claim the credit, but do not attach to your return. Keep it with your tax records.

• This credit expired at the end of 2013. The Act Tax Increase Prevention extended it to be applied for one year, until December 31, 2014. You can still claim the credit on their 2014 tax return if has not reached the limit in previous years.

 

Credit Residential Energy Efficient Property

• This tax credit is 30 percent of the cost of alternative energy equipment installed in your home.

• The qualified team includes solar hot water heaters, solar electric equipment, wind turbines and fuel cell property.

• There is no dollar limit on credit for most property types. If your credit is more than the tax you owe, you can carry forward the unused portion of the credit to the tax return next year.

• The home must be in the US There must be your principal residence unless the team is alternative energy fuel cell property qualify.

• This credit is available until 2016.

Use Form 5695 , Residential Energy Credits, to claim these credits. For more on this, see the instructions on the form.

NQPEDMV credit for Electric Cars

There are tax benefits connected with a purchase of a “plug-in electric vehicle” (a vehicle propelled to at least a significant extent by an electric motor propelled by a battery capable of being recharged from an external source of electricity). Can you get this tax credit with Tesla or a Nissan Lead?

 

What is the NQPEDMV tax credit for Electric Vehicles?

There is available a tax credit called the “new qualified plug-in electric drive motor vehicle” credit (NQPEDMV credit). Two-wheeled or three-wheeled vehicles aren’t eligible for the NQPEDMV credit, but, for those vehicles, acquired before Jan. 1, 2014, there is available a separate credit for qualified 2- or 3-wheeled plug-in electric vehicles.

A vehicle eligible for the NQPEDMV credit must have battery capacity of at least four kilowatt hours, and the base amount of the NQPEDMV credit is $2,500 per vehicle. The allowable credit increases to $5,000 per vehicle based on a formula which increases the credit by $417 for every kilowatt hour of battery capacity in excess of five. Many of the newer electric cars are eligible for this tax credit.

 

Info about the NQPEDMV credit:

  • The credit is allowed in the year you place the vehicle in service.
  • The original use of an eligible vehicle must begin with you, the purchaser, i.e. the vehicle must be new.
  • An eligible vehicle must be used predominantly in the U.S., and have a gross weight of less than 14,000 pounds.
  • The credit is allowed if you buy a vehicle for lease to another, but, generally, not allowed if you buy a vehicle for resale.
  • The tax benefits otherwise available for an eligible vehicle are reduced unless you make an election not to apply the credit to the eligible vehicle.

 

Getting Tax Credit For Electric Cars

Rules that might limit the application of the credit against regular and alternative minimum taxes are different for the portion (if any) of the credit attributable to personal use and the portion (if any) attributable for business or other for-profit use.

Information that is not Reported to the IRS

Information like wages and interested in reported to the IRS automatically. However, there are many things that are not reported to the IRS. The IRS relies on taxpayers to accurately report the following items listed below:

 

Information not reported to the IRS

  • Your filing status (Single, Married Filing Joint, Married Filing Separate, Head of Household)
  • Who your dependents are
  • Alimony received
  • Business and / or Farming expenses, cost of goods sold, and inventory.
  • Business and / or Farming income not reported on an information return like Form 1099-MISC
  • Educator expenses
  • Moving Expenses
  • Alimony paid
  • Charitable contributions of cash or goods
  • Property taxes paid
  • State income taxes paid
  • Union Dues
  • Qualified medical expenses paid
  • tax preparation fees paid
  • Unreimbursed employee expenses paid
  • Credit for foreign taxes paid
  • Expenses associated with the Residential Energy credit
  • Expenses associated with the Child and Dependent Care Credit
  • Expenses associated with the Adoption Tax Credit
  • The Individual Shared Responsibility Payment
  • Qualifying children for the Earned Income Credit
  • The Premium Tax Credit

Welfare and the Earned Income Tax Credit EITC

During the 2015 tax year, the IRS is stepping up its enforcement efforts to prevent improper payments of the Earned Income Tax Credit and the Additional Child Tax Credit, according to a new government report. The Internal Revenue Service paid out $14.5 billion in erroneous Earned Income Tax Credit payments and between $5.9 billion and $7.1 billion in improper Additional Child Tax Credit payments in Fiscal Year 2013, according to a new government watchdog report.

Welfare and the Earned Income Tax Credit EITC

The Earned Income Tax Credit (EITC) and Welfare programs increase the ability of workers in low-paying jobs to support themselves and their families. Democrats and Republicans are working to expand the program and it is very important that it has received cross party support that is vital to its future. For example,  in prior tax years, the average EITC payment to a family with children was $2,905, according to the Center for Budget and Policy Priorities.

 

Receiving Earned Income Credit (EITC) when on Welfare

Generally, the EITC has no effect on welfare benefits. In most cases, EITC payments are not used to determine eligibility for Medicaid, Supplemental Security Income (SSI), supplemental nutrition assistance program (food stamps), low-income housing or most Temporary Assistance for Needy Families (TANF) payments. Though unemployment benefits are not earned income, they are taxable income and may affect the amount of EITC.

 

Using VITA for Claiming the Earned Income Credit (EITC)

It is important for individuals who might qualify to double check their status. One way is to use free government programs that help individuals file taxes. Take advantage of a Volunteer Income Tax Assistance (VITA) program. VITA programs offer free tax help to those who generally make $53,000 or less, persons with disabilities, the elderly, and limited English speakers. Qualified individuals can receive basic income tax return preparation assistance from IRS-certified volunteers.  Publication 596, also tells taxpayers how to file the earned income credit,  however it is 39 pages long. Making the EITC simpler would both reduce error rates among honest tax filers, and help the IRS in enforcement against unscrupulous fraudsters.

Using IRS data, TIGTA estimated the potential ACTC improper payment rate for fiscal year 2013 is between 25.2 percent and 30.5 percent, with potential ACTC improper payments totaling between $5.9 billion and $7.1 billion. In addition, IRS enforcement data show the root causes of improper ACTC payments are similar to those of the EITC.

 

IRS EITC Compliance Process

Significant changes in IRS compliance processes would be necessary to make any significant reduction in improper payments, TIGTA pointed out. Expanded authority to allow the IRS to make corrections to tax returns when data obtained from the Department of Health and Human Services indicate the taxpayer’s refundable credit claims are not valid would help reduce improper payments. TIGTA estimates such authority could have potentially allowed the IRS to prevent more than $1.7 billion in questionable EITC payments in tax year 2012.

 

State EITC Programs

State EITCs might give certain residents of different states a much-needed economic boost by building on the successful federal EITC, a tax credit that has been instrumental in lifting families out of poverty and helping them make ends meet. A state EITC structured as a simple add-on to the federal credit would primarily benefit families with children.

The income ranges change each year, but those eligible in 2014 include individuals earning less than $14,590 or $20,020 for those married filing jointly with no qualifying children.

 

More Information about 2015 and 2016 Earned Income Tax credit (2015 EIC)

 

2015 EITC Income Limits and Maximum Credit

The Internal Revenue Service announced annual inflation adjustments for a number of provisions for the year 2015, including tax rate schedules, tax tables and cost-of-living adjustments for certain tax items. Congress made substantial progress in recent years in “making work pay” for low-income families with children by strengthening the Earned Income Tax Credit (2015 EITC) and Child Tax Credit

 

2015 EITC Income Limits and Maximum Credit

Specifically, the IRS established 2015 Earned Income Tax Credit EITC Income Limits. The following information will be applicable below for the 2015 EITC tax year. You may claim the EIC if you were between ages 25 and 64 at the end of 2014 and meet other criteria. A tax credit usually means more money in your pocket. It reduces the amount of tax you owe. Each year the amount of the earned income credit will changes. This information is valid for the 2015 earned income tax credit. It is vital to ensure that you are using amounts for the right year when claiming the EITC.

 

2015 Tax Year Earned Income and adjusted gross income (AGI) must each be less than:

  • $47,747 ($53,267 married filing jointly) with three or more qualifying children
  • $44,454 ($49,974 married filing jointly) with two qualifying children
  • $39,131 ($44,651 married filing jointly) with one qualifying child
  • $14,820 ($20,330 married filing jointly) with no qualifying children

 

 

Children and the 2015 EIC

For the EIC, children must be under 19 at the end of 2014. (Full-time students can be under 24; children who are permanently and totally disabled can be any age.)All childless workers under age 25 are ineligible for the EITC, so young people just starting out —including low-income young men, who have disturbingly low labor-force participation rates — receive none of the EITC’s proven benefits.

2015 EITC Maximum Credits

  • $6,242 with three or more qualifying children
  • $5,548 with two qualifying children $3,359 with one qualifying child
  • $503 with no qualifying children

To receive the EITC in 2015, there is a limitation that investment income must be $3,400 or less for the 2015 tax year.

 

Claiming the 2015 EITC

REMEMBER: These numbers are valid for the tax year 2015, which is effective January 1, 2015. These are not the correct numbers to prepare your 2014 tax returns in 2015. These numbers for the earned income tax credit will be used to prepare a tax year 2015 tax return when it is due April 15, 2016.

Taxpayers may also be eligible for certain state run programs that are similar to the federal EITC which is run by the IRS.

 

IRS Recognizes Legal Same-Sex Marriages

In June 2015, the United States Supreme Court held that all states must allow same-sex couples to marry on the same terms and conditions as opposite-sex couples, and that all states must recognize lawful same-sex marriages performed in other states.

The U.S. Department of the Treasury and the Internal Revenue Service ruled in 2013 that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.

2015 EITC For Same-Sex Marriage

Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.  Read more here.

 

More Information about 2015 and 2016 Earned Income Tax credit (2015 EIC)