Feature Articles: Taxes
2009 Tax Tips for Low-Income Families
Brenda Procter, M.S., state specialist & instructor, Personal Financial Planning, College of Human Environmental Sciences, University of Missouri Extension
Cash for Clunkers
Did you trade in your car earlier this year in the Cash for Clunkers program? A $3,500 or $4,500 voucher or payment made for such a voucher under the CARS or Cash for Clunkers program to buy or lease a new, more fuel efficient automobile is not taxable for federal income tax purposes.
Unemployment compensation
Good news! You do not have to pay tax on unemployment compensation up to $2,400 per person for the year. (The additional compensation is still taxable.) When you receive a form 1099G, subtract $2,400 from the total unemployment compensation amount to determine how much is taxable. This amount goes on Form 1040 line 19, Form 1040A line 13 or 1040EZ line 3. If you come to a Volunteer Income Tax Assistance (VITA) site, volunteer tax preparers will figure that for you.
Education credits
The level of income at which you can claim an education credit has risen.
- American Opportunity Credit - This is a new education tax credit (modified Hope Credit). The maximum credit is $2,500. The American Opportunity credit is available for the first four years of postsecondary education. Now, 40 percent of the credit is refundable for more taxpayers, which means it comes to you whether you owe taxes or not. The threshold for the American Opportunity credit is phased out between a modified adjusted gross income of $80,000 to $90,000 ($160,000 to $180,000 if married, filing jointly).
- Hope Credit - You can only qualify for a Hope Credit if you have an eligible student attending an eligible education institution in a Midwestern Disaster area and you do not claim an American Opportunity credit for any other student the same year. Hope Credits can be used by graduate students, while the American Opportunity Credit cannot.
Additional Child Tax Credit
The additional child tax credit is also a refundable tax credit and this year it has increased for some people.
- The definition of a qualifying child changed in 2009. In order to claim the non-refundable Child Tax Credit and this refundable Additional Child Tax Credit, you must also claim a dependency exemption for the child in question on your 2009 tax return.
- The minimum income needed to claim this credit must now be $3,000 or more, a lower threshold than in prior tax years.
- To claim the credit you must file form 1040 or 1040A. You cannot claim this credit using form 1040EZ.
Health Coverage Tax Credit
The Health Coverage Tax Credit is increased to 80 percent of your premium for qualified health insurance for eligible coverage months after April 30, 2009 and before 2011. The increase also applies to the advance payment of credit for health insurance costs under the advance payment program. You cannot claim both the Health Coverage Tax Credit and the COBRA Subsidy.
COBRA Subsidy*
If you involuntarily lost your job from September 1, 2008 through February 28, 2010, you may qualify for a 65 percent reduction in COBRA premiums for up to 15 months. The premium reduction is not included in your gross income. You cannot claim the Health Coverage Tax Credit for any month that you receive this subsidy.
*The eligibility requirements for this credit are complicated. Go online to http://www.irs.gov/ for more details.
Beware of Refund Anticipation Loans or instant refunds
Many tax preparation companies offer Refund Anticipation Loans (RALs). These are high-interest, short-term loans — much like a payday loan — and can cost you money in the long run. A recent study showed that most people who take out RALs think they are getting their refund early. This is not true and if your refund comes back lower than you expected, you still have to pay off the entire loan. Instead of getting a RAL, try going to a VITA site or filing your taxes online. It only takes about seven days to receive a refund if you file through VITA or online!
Be careful with loaded debit cards
Some commercial tax preparers offer debit cards loaded with tax refund money. These cards look just like a credit card or bank debit card and often can be reloaded, but there is usually a cost — sometimes quite high. Beware of other hidden fees that could be attached. Some cards are more reasonable, but only you can decide if the convenience is worth the fees. Ask for a full disclosure of fees before agreeing to get your refund on a debit card. We recommend that if you need assistance in your tax preparation, you seek out a Volunteer Income Tax Assistance (VITA) site to receive free tax preparation and electronic filing services.
Volunteer Income Tax Assistance (VITA)
If you need help with your taxes, there are sites set up all over the state to provide you free tax preparation assistance. Go online to http://extension.missouri.edu/hes/taxed/vitasites.htm to find a site near you. This service is provided free of charge and the IRS-certified trained tax preparers can help you make sure you get all the tax benefits and credits you have earned.
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Last update: Monday, February 15, 2010
