Presentation on theme: "Non-Refundable Credits (Part 1)"— Presentation transcript:
1Non-Refundable Credits (Part 1) Tax credits that reduce the calculated income tax, but not below zeroForeign Tax CreditChild and Dependent Care CreditEducation Credit (part refundable)Retirement Savings CreditChild Tax CreditCredit for the Elderly
2Pub 4491 Lesson 24 Pub 4012 Tab 5 Form 1040 Line 47 FOREIGN TAX CREDITPub 4491 Lesson 24Pub Tab 5Form 1040 Line 47
3FOREIGN TAX CREDIT 1040 Ln 47, Tab 5 Avoids double taxation on foreign incomeGeneral case is complicated, out-of-scopeSimplified caseIncome from foreign interest and dividendsForeign tax shown on 1099-INT/DIVTotal foreign tax $300 or less ($600 MFJ)Enter total directly on 1040 line 47
4CHILD/DEPENDENT CARE CREDIT Pub 4491 Lesson 22Pub 4012 Tabs G, 1, 5Form 1040 Line 48
5CHILD & DEPENDENT CARE Tab G A nonrefundable tax credit for work-related dependent care expensesFive criteria to qualifyQualifying Person (the dependent) TestEarned Income TestWork-related Expense TestJoint Return TestProvider Identification Test
6Limitations Tab G$3,000 maximum expense for one qualifying child, $6,000 for two or moreYour allowed expenses are reduced by any employer child-care benefitsChild care expenses cannot exceed income earned from employment(Special case if disabled or student)
7CALCULATING THE CREDIT Tabs G, 1, 5 Use Form 2441If employer benefits start on page twoPage one has names and SSN/EIN of providersFinal credit is percentage of allowed expenses based on AGI (20% or better)
8CHILD/DEPENDENT EXAMPLE Joe & Mary have one child, 10, a dependentBoth work and earn about $15K each. AGI is $33K and tax before credits is $1,100Day care center was paid $250 per month for a total of $3,000 for 2011The expenses are necessary so that both Joe and Mary can workCan they claim the credit, if so, how much?
9DEP CARE EXAMPLE ANSWER Tab G YES, credit is availableChild is under 13 and qualifying personAmount of credit is nonrefundable and, based on their AGI, is 25% of $3000 expenses or up to $750 based on tax liability
10Dependent Care and NYSNYS also has a dependent care credit which is based on the Federal creditThe NYS credit is refundableEven 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
12EDUCATION CREDITS Tab G American Opportunity and Lifetime LearningWho can claim the creditWho can claim dependent’s expensesWho cannot claim the creditQualifying expenses expanded for AOC (vs only tuition costs & required fees for LL)No double dipping if tax-free assistance
13EDUCATION 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 portionSee Pub 970 for additional detailsIf 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
14MULTIPLE CREDITSCan claim American Opportunity and Lifetime Credits but NOT for same student.Example:TP has dependent who is college undergraduate – American OpportunityTP takes course at local community college – Lifetime Learning
15CLAIMING 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 expensesTaxpayer should have Form 1098-TShows amount paid school &/or amount billed, scholarships and student statusVerify paid amount with taxpayer
17EDUCATION QUIZ #1 Tab G Jim & May Brown, $28,000 AGI, 2 children Rose, sophomore, in college full-timeJohn, 4th year full-time college seniorBoth children claimed as dependentsBrowns made tuition payments of $6000 in August for 2011 classes and $6000 in December for 2012For what education credits do they qualify?
18EDUCATION QUIZ #1 ANSWER 1 AMERICAN OPPORTUNITY CREDIT for both childrenCan the Browns include the payments they made in December for 2012?18
19EDUCATION QUIZ #1 ANSWER 2 AMERICAN OPPORTUNITY CREDIT for both childrenCan the Browns include the payments they made in December for 2012?YES19
20EDUCATION QUIZ #2If Rose had paid for her own tuition, how would the answer differ?
21EDUCATION 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.
22EDUCATION QUIZ #3 Tab GIf Jim and May had not claimed Rose as a dependent (even though entitled to the exemption), who could claim the credit?
23EDUCATION 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
25CHILD TAX CREDIT 1040 Lns 51 & 65, Tab G Nonrefundable part on Form 1040, Ln 51Up to $1000 per qualifying childReduced if AGI above thresholdUnused credit may qualify for refundable on Ln 65, Additional CT Credit (Form 8812)
27RETIREMENT 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 planRequires knowledge of retirement withdrawals for past three yearsCredit is percentage of net contribution based on AGIExample: MFJ 10% for AGI of $36K to $56K; 0% above $56K (2011 data)
28ELDERLY/DISABLED CREDIT 1040 Ln 53, Tab G Extremely rare due to severe income limitations, including amount of social security benefitsRequires Schedule RIf eligible, need to enter any nontaxable income not entered on the 1040Write-in credit on 1040 line 53