More workers and working families are eligible for the Earned Income Tax Credit. In particular, expanded benefits are now available for those with three or more qualifying children and married couples. The EITC helps taxpayers whose income are below certain income thresholds, which in 2009 rose to:
$48,279 for families with three or more qualifying children
$45,295 for those with two or more children
$40,463 for people with one child
$18,440 for those with no children
One in six taxpayers can claim the EITC, which, unlike most tax breaks, is refundable, meaning that individuals can get it even if they own no tax and even if no tax is withheld from their paychecks.
In addition, the earned income formula for the additional child tax credit is revised for tax years 2009 and 2010. As a result, more low and charitable contributions. The basic standard deduction is:
$11,400 for married couples filing a joint return and qualifying widows and widowers, a $500 increase compared with 2008
$5,700 for singles and married individuals filing separate returns, up $250
$8,350 for heads of household, up $350.
Higher amounts apply to blind people and senior citizens. The standard deduction is often reduced for a taxpayer who qualifies as someone else’s dependent.
In addition, eligible taxpayers can further increase their standard deduction by any of the following three deductions:
State or local real estate taxes paid in 2009
A net disaster loss reported on Form 4684 and
State or local sales or excise taxes on the purchase of a qualifying new motor vehicle.
Other Changes
The standard mileage rate for business use of a car, van, pick-up or panel truck is 55 cents for each mile driven. The standard mileage rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 24 cents per mile. The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.
The value of each personal and dependency exemption is $3,650, up $150 from 2008. Most taxpayers can take personal exemptions for themselves and an additional exemption for each eligible dependent. This is one of more than three dozen individual and business tax provisions that are adjusted each year to keep pace with inflation.
The amount of taxable investments income a child can have without it being taxed at the parent’s rate is $1,900, up $100 from 2008.
There are several modifications to the definition of a qualifying child. For example, the child must be younger than the taxpayer, unless the child is totally and permanently disabled. These changes affect who can claim various tax benefits including the dependency exemption, child tax credit, credit for child and dependent care expenses, head of household filing status and the EITC.
A new rule applies to the noncustodial parent in situations where a couple is divorced or legally separated after 2008. To claim a child as a dependent, the noncustodial parent must attach Form 8332 or a similar statement to his or her tax return. For pre-2009 divorces and separations, the noncustodial spouse still has the option of attaching certain pages from the divorce decree or separation agreement.
Unemployment benefits up to $2,400 received in 2009 are tax free for unemployed workers. Every person who receives unemployment benefits can exclude the first $2,400 of these benefits on their return. Unemployment benefit amounts over $2,400 are taxed.
