1 VITA/TCE Supplemental Training Tax Relief & Health Care Act of 2006 The “Extender Bill” This Act reinstates retroactively certain tax provisions that expired at the end of 2005.

2 Objectives The Tax Relief & Health Care Act of 2006 extended several tax provisions which may impact VITA & TCE customers: Three key issues include the extended deductibility of –Tuition & Fees –Educator Expenses –Option to deduct State & Local General Sales Taxes Calculate and accurately report these three tax benefits

3 Objectives (Continued) Awareness of Other “Extender” Provisions –Election to include Combat Pay in the EITC calculation extended through 2007 –Certain Tax Incentives for 1 st time home buyers in the District of Columbia extended through 2007 –Credits for purchase of Residential Energy Efficiency Products extended through 2008 –Cutoff date for adding new Archer Medical Savings Account (MSA) participants extended through 2007

4 Effect on Return Processing and Tax Forms E-File Returns: E-filing will not be available for “2006 Extenders” until February 3, 2007 Paper Returns : Key Tax Forms went to print in November 2006 Form 1040 will not be updated Special instructions for claiming extender provisions Processing returns with extender deductions will be delayed until early February

5 Adjustments to Income Educator Expenses extended through 2007 Tuition and Fees Deduction extended through 2007

6 Educator Expenses Who is an eligible educator? Maximum income adjustment is $250 per eligible educator. What are qualified expenses?

7 Educator Expenses (Continued) Example Joe and Mary will file a joint return for Joe is a high school math teacher and incurred $500 in qualified unreimbursed expenses. Mary is a grade school principal and incurred $200 in qualified unreimbursed expenses. Both Joe and Mary meet the definition of eligible educators. They will claim $450 ($250 for Joe and $200 for Mary) on Form 1040.

8 Tuition and Fees Deduction Tuition and related expenses can be taken as an adjustment to income The maximum deduction for 2006 is $4,000 AGI limits apply Not available to taxpayers using the Married Filing Separate filing status No Double Benefit Allowed

9 Tuition and Fees Deduction (Continued) To claim the Tuition and Fees Deduction the taxpayer must: Have incurred qualified expenses For an eligible student To attend an eligible educational institution

10 Itemized Deductions State and Local Income Taxes vs State and Local General Sales Taxes Election extended through 2007

11 TaxWise® Hints Review Worksheets are completed as data is entered on the Form Returns with “extender” adjustments or deductions must use Form 1040 ONLY.

12 Summary Three (3) key tax benefits for individuals “extended” by the Tax Relief & Health Care Act of 2006: - Educator Expenses - Tuition and Fees Deduction - State and Local General Sales Tax Deduction All Extended through December 31, 2007

13 For More Information References IRS.gov Pub 17, Your Federal Income Tax (for Preparing 2005 Returns) Pub 600, State and Local General Sales Taxes Pub 553, Highlights of 2006 Tax Changes Pub 970, Tax Benefits for Education