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IRS offers new tax credits, free filing

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IRS Begins Tax Season 2009 with Steps to Help Financially
Distressed Taxpayers; Promotes Credits, e-File Options

The Internal Revenue Service kicks off the 2009 tax filing season this week by announcing a number of new steps the agency is taking to help financially distressed taxpayers. These actions will help taxpayers maximize their refunds and speed tax payments while providing additional help to people struggling to meet their tax obligations.

IRS Commissioner Doug Shulman encourages taxpayers to take advantage of several new tax credits and deductions this filing season. The agency is also announcing a major enhancement to the Free File program that will allow nearly all taxpayers to e-file for free and accelerate their refunds.

With many people facing additional financial difficulties, the IRS is taking several additional steps to help people who owe back taxes.

On a wide range of situations, IRS employees have flexibility to work with struggling taxpayers to assist them with their situation. Depending on the circumstances, taxpayers in hardship situations may be able to adjust payments for back taxes, avoid defaulting on payment agreements or possibly defer collection action.

The IRS reminds taxpayers who are behind on tax payments and need assistance to contact the phone numbers listed on their IRS correspondence. There could be additional help available for these taxpayers facing unusual hardship situations.

Among the areas where the IRS can provide assistance:

" Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in certain hardship cases where taxpayers are unable to pay. This includes instances when the taxpayer has recently lost a job, is relying solely on Social Security or welfare income or is facing devastating illness or significant medical bills. If an individual has recently encountered this type of financial problem, IRS assistors may be able to suspend collection without documentation to minimize burden on the taxpayer.

" Added Flexibility for Missed Payments: The IRS is allowing more flexibility for previously compliant individuals in existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. The IRS may allow a skipped payment or a reduced monthly payment amount without automatically suspending the Installment Agreement. Taxpayers in a difficult financial situation should contact the IRS.

" Additional Review for Offers in Compromise on Home Values: An Offer in Compromise, an agreement between a taxpayer and the IRS that settles the taxpayer's tax debt for less than the full amount owed, may be a viable option for taxpayers experiencing economic difficulties. However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay may not be accurate. So in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new second review of the information to determine if accepting an offer is appropriate.

" Prevention of Offer in Compromise Defaults: Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.

" Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons. Taxpayers seeking expedited releases for levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options. When calling, taxpayers requesting a levy release due to hardship should be prepared to provide the IRS with the fax number of the bank or employer processing the levy.

Taxpayers with financial problems who discover they can't pay when they file their 2008 tax returns also have options available. IRS.gov has a list of "What If?" scenarios that deal with payment and other financial problems. These scenarios, in question-and-answer format, provide information on specific actions taxpayers can take. Taxpayers unable to pay in full can likewise contact the IRS to discuss additional options to pay.

Maximizing Refunds and Speeding Refund Delivery

This filing season, there are several steps taxpayers can take to maximize their refunds and speed the delivery of money from the IRS.

Taxpayers should look into the numerous tax breaks available and take every credit, deduction and exclusion for which they qualify. People who had less income in 2008 could find they qualify for credits for which they previously did not qualify. And there are several new benefits this year:

" First-Time Homebuyer Credit: Those who bought a principal residence recently or are considering buying one should take note. This unique credit of up to $7,500 works much like a 15-year interest-free loan. IRS.gov has more details and answers to common questions.

" The Recovery Rebate Credit: This credit is figured like last year's Economic Stimulus Payment except that Recovery Rebate Credit amounts are based on tax year 2008 instead of 2007. Most people already received their full benefit in the form of the Economic Stimulus Payment. However, a taxpayer may qualify for the Recovery Rebate Credit, if, for example, he or she did not get an Economic Stimulus Payment, had a child in 2008 or had a change in income level. If you receive this credit, it will be included in your refund and will not be issued as a separate payment. See the Form 1040 Instructions, Fact Sheet 2009-3 or the information center on IRS.gov for details.

" Standard Deduction for Real Estate Taxes: Taxpayers can claim an additional standard deduction, based on the state or local real estate taxes paid in 2008. The maximum deduction is $500, or $1,000 for joint filers.

" Mortgage Workouts and Foreclosures: For most homeowners, these are now tax-free. Eligible homeowners can exclude debt forgiven on their principal residence if the balance of the loan was less than $2 million. The limit is $1 million for a married person filing a separate return. See Form 982 and its instructions for details.

IRS.gov, the official IRS Web site, has more information on these and other popular credits, such as the child tax credit, the Earned Income Tax Credit and alternative fuel vehicle credit.

E-File, E-Pay and Direct Deposit

This year, electronic filing options will speed the payment of refunds to millions of taxpayers. Taxpayers who e-file and choose direct deposit for their refunds, for example, will get their refunds in as few as 10 days. That compares to approximately six weeks for people who file a paper return and get a traditional paper check.

This year, taxpayers can begin filing electronically on Jan. 16.

The IRS in 2009 is again offering free tax preparation and filing through the Free File program. Anyone with an adjusted gross income up to $56,000 can use the standard Free File options this year "" that is approximately 98 million Americans. The program also has usability improvements, including a standardized set of electronic forms that are most frequently used by Free File-eligible taxpayers.

This year the IRS and its partners are offering a new option, Free File Fillable Tax Forms, that opens up Free File to virtually everyone, even those whose incomes exceed $56,000.

Free File Fillable Tax Forms allows taxpayers to fill out and file their tax forms electronically, just as they would on paper. This option does not include an "interview" process like the other Free File offerings, but it does allow taxpayers to enter their tax data, perform basic math calculations, sign electronically, print their returns for recordkeeping and e-file their returns. It may be just right for those who are comfortable with the tax law or those who use electronic software to prepare their returns but file using paper forms.

Both the fillable-forms option and the previously available Free File offerings are available only through the IRS.gov Web site. More information will be available in mid-January.

1040 Central and Taxpayer-Friendly Features

When they visit the IRS.gov Web site this filing season, taxpayers may notice the new "rotating spotlight" feature on the homepage. The spotlights, which change every few seconds, give the taxpaying public direct access to more of the IRS Web site's vast amount of content.

Also on the homepage, taxpayers can click on 1040 Central to find help preparing and filing their tax returns. Like last year, this popular section of IRS.gov has a wide range of offerings that address taxpayer needs.

Finally, the IRS is producing a number of podcasts this filing season that will be available on IRS.gov. In addition to Tax Tips, Fact Sheets and News Releases, these short audio interviews cover a wide range of topics and are a way for the IRS to reach out to a new generation of taxpayers.

IRS Presents: Top Ten Tax Time Tips
IRS TAX TIP 2009-01

1. Gather your recordsnow! It's never too early to start getting together any documents or forms you'll need when filing your taxes: receipts, canceled checks, and other documents that support an item of income or a deduction you're taking on your return. Also, be on the lookout for W-2s and 1099s, coming soon from your employer.

2. Find your forms. Whether you file a 1040 or 1040-EZ, you can download all IRS forms and publications on our Web site, IRS.gov.

3. Do a little research. Check out Publication 17 on IRS.gov. It's a comprehensive collection of information for taxpayers highlighting everything you'll need to know when filing your return. Review Pub 17 to ensure you're taking all credits and deductions for which you're eligible.

4. Think ahead to how you'll file. Will you prepare your return yourself or go to a preparer? Do you qualify to file at no cost using Free File on IRS.gov? Are you eligible for free help at an IRS office or volunteer site? Will you purchase tax preparation software or file online? There are many things to consider. So, give yourself time to weigh them all and find the option that best suits your needs.

5. Take your time. Rushing to get your return filed increase the chance you will make a mistake and not catch it.

6. Double-check your return. Mistakes will slow down the processing of your return. In particular, make sure all the Social Security Numbers and math calculations are correct as these are the most common errors made by taxpayers.

7. Consider e-file. When you file electronically, the computer will handle the math calculations for you, and you will get your refund in about half the time it takes when you file a paper return.

8. Think about Direct Deposit. If you elect to have your refund directly deposited into your bank account, you'll receive it faster than waiting for a check by mail.

9. Visit IRS.gov often. The official IRS Web site is a great place to find everything you'll need to file your tax return: forms, tips, FAQs and updates on tax law changes.

10. Relax. There's no need to panic. If you run into a problem, remember the IRS is here to help. Try IRS.gov or call our customer service number at 800-829-1040.

First Time Homebuyer Credit
IRS TAX TIP 2009-02
First-time homebuyers should begin planning now to take advantage of a new tax credit. Available for a limited time, 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.
The credit operates much like an interest-free loan because it must be repaid in equal installments over a 15-year period. Taxpayers will claim the credit on new IRS Form 5405, First-Time Homebuyer Credit.

Only the purchase of a main home located in the United States qualifies. Vacation homes and rental property are not eligible. 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. If you make an eligible purchase in 2009, you can choose to claim the credit on either your original or amended 2008 return, or on your 2009 return.

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 maximum credit will be available for homes costing $75,000 or more. The credit normally must be repaid over a 15-year period starting the second year after the year the credit is claimed.

The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on your modified adjusted gross income. In general, for a married couple filing a joint return the phase-out begins at $150,000 and is completely phased out at $170,000. For other taxpayers, the phase-out range is between $75,000 and $95,000.

Not everyone will qualify for the credit. There are other rules that may impact your eligibility and decision to claim the First-Time Homebuyer Credit. Get all the information at IRS.gov.

The Five Filing Status Possibilities
IRS TAX TIP 2009-03


Everyone who files a federal tax return must determine which filing status applies to them. It's important you choose your correct filing status as it determines your standard deduction, the amount of tax you owe and ultimately, any refund owed to you.

There are two things to consider when determining your filing status:
First, your marital status on the last day of the year determines your filing status for the entire year. Secondly, if more than one filing status applies to you, choose the one that gives you the lowest tax obligation.

Here are the five filing status options:
1. Single. This will generally apply to anyone who is unmarried, divorced or legally separated according to your state law.

2. Married Filing Jointly. A married couple may file a joint return together. If your spouse died during the year, you may still file a joint return with that spouse for the year of death.

3. Married Filing Separately. A married couple may elect to file their returns separately.

4. Head of Household. This generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.

5. Qualifying Widow(er) with Dependent Child. You may be able to choose this filing status if your spouse died during 2006 or 2007, you have a dependent child and you meet certain other conditions.

There's much more information about determining your filing status in Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Top Five Facts about Dependents and Exemptions
IRS TAX TIP 2009-04

1. Dependents may be required to file their own tax return. Even though you are a dependent on someone else's tax return, you may still have to file your own tax return. Whether or not you must file a return depends on several factors, including: the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Credit payments you received.

2. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,500 on your 2008 tax return. Exemptions amounts are reduced for taxpayers whose adjusted gross income is above certain levels, which is determined by your filing status.

3. Dependents may not claim an exemption. If you claim someone as a dependent, such as your child, that dependent may not claim a personal exemption on their own tax return.

4. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you're filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return and were not the dependent of another taxpayer.

5. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children.

For more information on dependents and exemptions, including whether or not you or your dependent needs to file a tax return, see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

Choose the Tax Form that Best Fits Your Needs
IRS TAX TIP 2009-05


When you file your 2008 individual tax return, you will use one of three IRS tax forms. Be sure to use the simplest form you can, which will help you avoid costly errors or processing delays so you won't have to wait to receive your refund. Each of these forms can be filed electronically, which speeds up the processing of your return.

Use the 1040EZ if:
Your taxable income is below $100,000
Your filing status is Single or Married Filing Jointly
You (and spouse) are under age 65 and not blind
You are not claiming any dependents
Your interest income is $1,500 or less

Use the 1040A if:
Your taxable income is below $100,000
You have capital gain distributions
You claim certain tax credits
You claim deductions for IRA contributions, student loan interest, educator expenses or higher education tuition and fees

If you cannot use the 1040EZ or the 1040A, you'll probably need to file using the 1040. You must use the 1040 if:
Your taxable income is $100,000 or more
You claim itemized deductions
You are reporting self-employment income
You are reporting income from sale of property

When preparing your return, be sure to carefully check the instructions for the appropriate form. All IRS forms and instructions can be found on our Web site, www.irs.gov.