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

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

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

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

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

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)

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)

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?

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

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

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

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

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

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

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

FORM 1098-T

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?

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

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

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

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.

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?

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

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

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)

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

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)

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