1. Non-Refundable Credits (Part 1)
Tax credits that reduce the calculated income tax, but not below zero
Foreign Tax Credit
Child and Dependent Care Credit
Education Credit (part refundable)
Retirement Savings Credit
Child Tax Credit
Credit for the Elderly

2. Pub 4491 Lesson 24 Pub 4012 Tab 5 Form 1040 Line 47
FOREIGN TAX CREDIT
Pub 4491 Lesson 24
Pub Tab 5
Form 1040 Line 47

3. FOREIGN TAX CREDIT 1040 Ln 47, Tab 5
Avoids double taxation on foreign income
General case is complicated, out-of-scope
Simplified case
Income from foreign interest and dividends
Foreign tax shown on 1099-INT/DIV
Total foreign tax $300 or less ($600 MFJ)
Enter total directly on 1040 line 47

4. CHILD/DEPENDENT CARE CREDIT
Pub 4491 Lesson 22
Pub 4012 Tabs G, 1, 5
Form 1040 Line 48

5. CHILD & DEPENDENT CARE Tab G
A nonrefundable tax credit for work-related dependent care expenses
Five criteria to qualify
Qualifying Person (the dependent) Test
Earned Income Test
Work-related Expense Test
Joint Return Test
Provider Identification Test

6. Limitations Tab G
$3,000 maximum expense for one qualifying child, $6,000 for two or more
Your allowed expenses are reduced by any employer child-care benefits
Child care expenses cannot exceed income earned from employment
(Special case if disabled or student)

7. CALCULATING THE CREDIT Tabs G, 1, 5
Use Form 2441
If employer benefits start on page two
Page one has names and SSN/EIN of providers
Final credit is percentage of allowed expenses based on AGI (20% or better)

8. CHILD/DEPENDENT EXAMPLE
Joe & Mary have one child, 10, a dependent
Both work and earn about $15K each. AGI is $33K and tax before credits is $1,100
Day care center was paid $250 per month for a total of $3,000 for 2011
The expenses are necessary so that both Joe and Mary can work
Can they claim the credit, if so, how much?

9. DEP CARE EXAMPLE ANSWER Tab G
YES, credit is available
Child is under 13 and qualifying person
Amount of credit is nonrefundable and, based on their AGI, is 25% of $3000 expenses or up to $750 based on tax liability

10. Dependent Care and NYS
NYS also has a dependent care credit which is based on the Federal credit
The NYS credit is refundable
Even if the federal credit does you no good because you owe no federal tax, calculate the 2441 anyway so you can get money from NYS

11. Pub 4491 Lesson 23 Pub 4012 Tabs G, 5 Form 1040 Lines 49, 66
EDUCATION CREDIT
Pub 4491 Lesson 23
Pub 4012 Tabs G, 5
Form 1040 Lines 49, 66

12. EDUCATION CREDITS Tab G
American Opportunity and Lifetime Learning
Who can claim the credit
Who can claim dependent’s expenses
Who cannot claim the credit
Qualifying expenses expanded for AOC (vs only tuition costs & required fees for LL)
No double dipping if tax-free assistance

13. EDUCATION CREDIT CAUTIONS Tab G
Refundable American Opportunity Credit on Form 8863 (revised form for 2012) – only certain taxpayers under age 24 are eligible for refundable portion
See Pub 970 for additional details
If scholarships are in excess of tuition and other allowable expenses, there is no credit and excess is income to be added to wages on line 7

14. MULTIPLE CREDITS
Can claim American Opportunity and Lifetime Credits but NOT for same student.
Example:
TP has dependent who is college undergraduate – American Opportunity
TP takes course at local community college – Lifetime Learning

15. CLAIMING THE CREDIT 1040 Lns 49 & 66; Tab 5
Complete Form 8863, one page 2 for each student. Summarize on page one.
Review notes regarding eligible taxpayers and expenses
Taxpayer should have Form 1098-T
Shows amount paid school &/or amount billed, scholarships and student status
Verify paid amount with taxpayer

16. FORM 1098-T

17. EDUCATION QUIZ #1 Tab G Jim & May Brown, $28,000 AGI, 2 children
Rose, sophomore, in college full-time
John, 4th year full-time college senior
Both children claimed as dependents
Browns made tuition payments of $6000 in August for 2011 classes and $6000 in December for 2012
For what education credits do they qualify?

18. EDUCATION QUIZ #1 ANSWER 1
AMERICAN OPPORTUNITY CREDIT for both children
Can the Browns include the payments they made in December for 2012? 18

19. EDUCATION QUIZ #1 ANSWER 2
AMERICAN OPPORTUNITY CREDIT for both children
Can the Browns include the payments they made in December for 2012?
YES 19

20. EDUCATION QUIZ #2
If Rose had paid for her own tuition, how would the answer differ?

21. EDUCATION QUIZ #2 ANSWER
If Rose had paid for her own tuition, how would the answer differ?
NOT AT ALL, unless Rose not claimed as a dependent. If Rose claimed as a dependent, Jim and May can claim the education credit no matter who paid the expenses.

22. EDUCATION QUIZ #3 Tab G
If Jim and May had not claimed Rose as a dependent (even though entitled to the exemption), who could claim the credit?

23. EDUCATION QUIZ #3 ANSWER Tab G
If Jim and May had not claimed Rose as a dependent (even though entitled to the exemption), who could claim the credit?
ROSE could claim the nonrefundable portion, but not the refundable portionG-3 (can’t claim personal exemption either)
Jim and May could not claim the credit. 23

24. Pub 4491 Lesson 25 Pub 4012 Tab G Form 1040 Lines 51, 65
CHILD TAX CREDIT
Pub 4491 Lesson 25
Pub 4012 Tab G
Form 1040 Lines 51, 65

25. CHILD TAX CREDIT 1040 Lns 51 & 65, Tab G
Nonrefundable part on Form 1040, Ln 51
Up to $1000 per qualifying child
Reduced if AGI above threshold
Unused credit may qualify for refundable on Ln 65, Additional CT Credit (Form 8812)

26. MISCELLANEOUS CREDITS
Pub 4491 Lesson 26
Pub 4012 Tabs G, 5
Form 1040 Lines 50, 52, 53

27. RETIREMENT SAVINGS CREDIT Form 8880 1040 Ln 50, Tabs G & 5
Credit available to low to moderate income taxpayers who contribute to a retirement plan and leave the money in the plan
Requires knowledge of retirement withdrawals for past three years
Credit is percentage of net contribution based on AGI
Example: MFJ 10% for AGI of $36K to $56K; 0% above $56K (2011 data)

28. ELDERLY/DISABLED CREDIT 1040 Ln 53, Tab G
Extremely rare due to severe income limitations, including amount of social security benefits
Requires Schedule R
If eligible, need to enter any nontaxable income not entered on the 1040
Write-in credit on 1040 line 53