Department of the Treasury Contents

Internal Revenue Service

Introduction ............................. . 1

Chapter Publication 553

(Rev. June 2009) 1. Tax Changes for Individuals .............. . 2

Cat. No. 15101G 2. Tax Changes for Businesses .............. . 17

3. IRAs and Other Retirement Plans .......... . 25 Highlights of 4. Estate and Gift Taxes .................... . 29

2008 Tax 5. Excise Taxes ........................... . 29

6. Foreign Issues ......................... . 31 Changes 7. How To Get Tax Help .................... . 33

Index ................................... . 36

Introduction

This publication highlights major tax law changes that take

effect in 2008, 2009, and later years, except those covered

in Publication 4492-A, Information for Taxpayers Affected

by the May 4, 2007, Kansas Storms and Tornadoes; and in

Publication 4492-B, Information for Affected Taxpayers in

the Midwestern Disaster Areas. The chapters are divided

into sections based on when the changes take effect.

Tax relief for the Kansas disaster area. Publication

4492-A explains the temporary tax relief provided by the

Food, Conservation, and Energy Act of 2008 for taxpayers

in Kiowa County, Kansas, and the surrounding areas who

were affected by the storms and tornadoes that began on

May 4, 2007.

Special tax relief provisions apply for:

• Casualty and theft losses,

• Net operating losses,

• Replacement period for nonrecognition of gain,

• IRAs and other retirement plans,

• Special depreciation allowance,

• Section 179 expense deduction,

• Demolition and clean-up costs, and

• Employee retention credit.

For more information, see Publication 4492-A.

Tax relief for the Midwestern disaster areas. Publication 4492-B explains the major provisions of the Heartland

Get forms and other information Disaster Tax Relief Act of 2008 that were provided for

taxpayers in Midwestern disaster areas. Midwestern disas- faster and easier by:

ter areas are those areas for which a major disaster was Internet www.irs.gov declared by the President during the period beginning on

May 20, 2008, and ending on July 31, 2008, in the states of

Apr 09, 2010
Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Min- Comments and suggestions. We welcome your comnesota, Missouri, Nebraska, and Wisconsin, as a result of ments about this publication and your suggestions for

severe storms, tornadoes, or flooding that occurred on the future editions.

applicable disaster date. You can write to us at the following address:

Some of the special tax relief provisions are: Internal Revenue Service

• Casualty and theft losses, Business Forms and Publications Branch

SE:W:CAR:MP:T:B • Charitable giving incentives, 1111 Constitution Ave. NW, IR-6526

• Net operating losses, Washington, DC 20224

• Replacement period for nonrecognition of gain,

We respond to many letters by telephone. Therefore, it • IRAs and other retirement plans, would be helpful if you would include your daytime phone • Education credits, number, including the area code, in your correspondence.

• Exclusion of certain cancellations of indebtedness, You can email us at *taxforms@irs.gov. (The asterisk

must be included in the address.) Put “Publications Com- • Demolition and clean-up costs, and ment” on the subject line.

• Employee retention credit. Although we cannot respond individually to each email,

we do appreciate your feedback and will consider your For more information, see Publication 4492-B. comments as we revise our tax products.

The tax information for 2008 and later years is

accurate as of June 30, 2009. Subsequent

CAUTION

changes to the tax law may occur. For more

!

information, go to www.irs.gov/formspubs.

1.

Adjusting your withholding or estimated tax payments

for 2009. If your tax for 2009 will be more or less than your

2008 tax, you may need to adjust your withholding or Tax Changes for estimated tax payments accordingly. If your tax will decrease, you can get the benefit of lower taxes throughout Individuals the year. If you will owe more tax, you can avoid a penalty

when you file your tax return.

See the following table for forms and publications that Note. Some of the changes listed in this section apply to

will help you adjust your withholding or estimated tax both individuals and businesses.

payments. See chapter 7 for information on ordering forms

and publications.

To adjust your... Get Form... And Publication... 2008 Changes

Withholding W-4, Employee’s 919, How Do I

Withholding Adjust My Tax Recovery Rebate Credit Allowance Withholding?

Certificate This credit is figured like last year’s economic stimulus

Estimated tax payment, except that your 2008 tax information is used to 1040-ES, Estimated 505, Tax

payments Tax for Individuals Withholding and figure this credit. Your 2007 tax information was used to

Estimated Tax figure your economic stimulus payment. The maximum

credit is $600 ($1,200 if married filing jointly) plus $300 for

each qualifying child.

You may be able to take this credit only if: Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for • You did not get an economic stimulus payment, or

Missing and Exploited Children. Photographs of missing • Your economic stimulus payment was less than children selected by the Center may appear in this publica- $600 ($1,200 if married filing jointly for 2007), plus tion on pages that would otherwise be blank. You can help $300 for each qualifying child you had for 2008. bring these children home by looking at the photographs

and calling 1-800-THE-LOST (1-800-843-5678) if you rec- For more information, see the instructions for Form 1040,

ognize a child. line 70; Form 1040A, line 42; or Form 1040EZ, line 9.

Page 2 Chapter 1 Tax Changes for Individuals
Federally Declared Disasters the amended return. If you make this choice, you must file

Form 1040X by the later of:

New rules apply to losses of personal use property attribu- • The due date for filing your tax return for the tax year table to federally declared disasters declared in tax years in which you receive the grant (including exten- beginning after 2007 and that occurred before 2010. A sions), or federally declared disaster is any disaster determined by

• July 30, 2009. the President of the United States to warrant assistance by

the Federal Government under the Robert T. Stafford

Disaster Relief and Emergency Assistance Act. A disaster For special filing procedures you must follow and more

area is the area determined to warrant such assistance. information, see Publication 547, Casualties, Disasters,

The new rules discussed here do not and Thefts. apply to losses in the

Midwestern disaster areas.

The new rules are as follows. Alternative Minimum Tax (AMT)

1. The net disaster loss (defined in (3) below) is not The following changes to the AMT went into effect for

subject to the 10% of adjusted gross income (AGI) 2008. For more information, see Form 6251, Alternative

limit. Minimum Tax—Individuals, and its instructions.

2. You can deduct a net disaster loss even if you do not AMT exemption amount increased. The AMT exempitemize your deductions on Schedule A (Form 1040). tion amount has increased to $46,200 ($69,950 if married

You do this by completing Form 4684, Casualties filing jointly or qualifying widow(er); $34,975 if married filing

and Thefts, and entering your net disaster loss on separately).

line 6 of the Standard Deduction Worksheet-Line 40

AMT exemption amount for a child. The AMT exemp- in the Form 1040 Instructions.

tion amount is now limited for certain children under age 3. Your net disaster loss is the excess of— 24. (Before 2008, the limit applied to children under 18.)

The minimum exemption amount for a child has increased a. Your personal casualty losses attributable to a to $6,400. federally declared disaster and occurring in a disaster area, over Tax-exempt interest on certain housing bonds exempt

from AMT. Tax-exempt interest on the following bonds is b. Your personal casualty gains. not an item of tax preference and therefore is not subject to

the AMT if the bonds were issued after July 30, 2008. For more information, see Form 4684.

• An exempt facility bond for which 95% or more of the

Special Rules for Individuals net proceeds are to be used to provide qualified

residential rental projects. Impacted by Hurricanes Katrina, Rita, • A qualified mortgage bond. and Wilma • A qualified veterans’ mortgage bond. If you claimed a casualty or theft loss deduction and in a

later year you received more reimbursement than you This treatment also applies to interest on any refunding

expected, you generally do not recompute the tax for the bond if the bond being refunded (or, in the case of a series

year in which you claimed the deduction. Instead, you must of refunded bonds, the original bond) is one of the bonds

listed above issued after July 30, 2008. include the reimbursement in your income for the year in

which it was received, but only to the extent the original

deduction reduced your tax for the earlier year. However, Special depreciation allowance for qualified disaster

an exception applies if you claimed a casualty or theft loss assistance property allowed against AMT. No AMT addeduction for damage to or destruction of your main home justment is required for depreciation of qualified disaster

caused by Hurricane Katrina, Rita, or Wilma, and in a later assistance property that is eligible for the special depreciayear you received a hurricane relief grant. Under this tion allowance.

exception, you can choose to file an amended income tax Qualified disaster loss. The 90% limit on the alternative return (Form 1040X) for the tax year in which you claimed tax net operating loss deduction (ATNOLD) does not apply the deduction (and for any tax year to which such deduc- to the portion of an ATNOLD attributable to qualified disas- tion was included in a net operating loss carryback or ter losses. carryforward) and reduce (but not below zero) the amount

of the deduction by the amount of the grant. If you choose Increase in standard deduction for net disaster loss

to file an amended return reducing the prior deduction, any allowed for AMT. If you claimed the standard deduction

underpayment of tax resulting from the reduced deduction for the regular tax and it includes a net disaster loss

will not be subject to any penalty or interest as long as the attributable to a federally declared disaster, that net disasadditional tax is paid not later than 1 year after the filing of ter loss is also allowable as a deduction for the AMT.

Chapter 1 Tax Changes for Individuals Page 3
Kansas disaster area. The following benefits for the Kan- A student is a child who during any part of 5 calendar

sas disaster area apply to the AMT. months of the year was enrolled as a full-time student at a

school, or took a full-time, on-farm training course given by • No AMT adjustment is required for depreciation of a school or a state, county, or local government agency. A qualified recovery assistance property that is eligible school includes a technical, trade, or mechanical school. It for the special depreciation allowance. does not include an on-the-job training course, corre-

• The 90% limit on the ATNOLD does not apply to the spondence school, or school offering courses only through

portion of an ATNOLD attributable to qualified recov- the Internet.

ery assistance losses. Form 8615 is used to figure the child’s tax. These rules

also apply to parents who elect on Form 8814 to report

their child’s income on the parents’ return. Midwestern disaster areas. The following benefits for

the Midwestern disaster areas apply to the AMT. Increase in investment income amount. The amount of

taxable investment income these children can have with- • The exemption amount on Form 8914 that is allowa- out it being subject to tax at the parent’s rate has increased ble for the regular tax if you provided housing for a to $1,800 for 2008. person displaced by the Midwestern severe storms,

tornadoes, and flooding is also allowable for the

AMT. Standard Mileage Rate

• The interest on qualified Midwestern disaster area Business-related mileage. For 2008, the standard mile- bonds is not a tax preference item. Do not include it age rate for the cost of operating your car for business use on Form 6251, line 12. is:

• The 90% limit on the ATNOLD does not apply to the • 501

/2 cents per mile for the period January 1 through portion of an ATNOLD attributable to qualified disas- June 30, 2008, and ter recovery assistance losses.

• 581/2 cents per mile for the period July 1 through

December 31, 2008.

Maximum Tax Rate on Qualified Car expenses and use of the standard mileage rate are Dividends and Net Capital Gain explained in chapter 4 of Publication 463, Travel, EnterReduced tainment, Gift, and Car Expenses.

For tax years beginning after 2007, the 5% maximum tax Medical- and move-related mileage. For 2008, the standard mileage rate for the cost of operating your car for rate on qualified dividends and net capital gain (the excess

of net long-term capital gain over net short-term capital medical reasons or as part of a deductible move is:

loss) is reduced to 0%. This reduction applies for both • 19 cents per mile for the period January 1 through

regular tax and AMT. The 15% maximum tax rate on June 30, 2008, and

qualified dividends and net capital gain has not changed. • 27 cents per mile for the period July 1 through December 31, 2008. Investment Income of Certain

See Transportation under What Medical Expenses Are Children Includable in Publication 502, Medical and Dental Expenses, or Travel by car under Deductible Moving ExIncrease in age of children whose investment income penses in Publication 521, Moving Expenses.

is taxed at parent’s rate. The rules regarding the age of a

child whose investment income may be taxed at the par- Charitable-related mileage. For 2008, the standard mileent’s tax rate have changed for 2008. These rules continue age rate for the cost of operating your car for charitable

to apply to a child under age 18 at the end of the year but, purposes remains 14 cents per mile.

beginning in 2008, will also apply in certain cases to a child

who either: Earned Income Credit (EIC) Amounts

• Was age 18 at the end of 2008 and did not have Increased

earned income that was more than half of the child’s

The following paragraphs explain the changes to the credit support, or for 2008. For details, see Publication 596, Earned Income • Was a full-time student over age 18 and under age Credit (EIC). 24 at the end of 2008 and did not have earned

income that was more than half of the child’s sup- Amount of credit increased. The maximum amount of

port. the credit has increased. The most you can get for 2008 is:

Page 4 Chapter 1 Tax Changes for Individuals
• $2,917 if you have one qualifying child, • $199,950 for heads of households, and

• $4,824 if you have more than one qualifying child, or • $239,950 for married persons filing jointly or qualifying widow(er)s. • $438 if you do not have a qualifying child.

Beginning in 2008, you can lose no more than 1/3 of the

Earned income amount increased. The maximum dollar amount of your exemptions. In other words, each

amount of income you can earn and still get the credit has exemption cannot be reduced to less than $2,333.

increased for 2008. You may be able to take the credit if: If your AGI is more than the amount shown for your filing

status, use the Deduction for Exemptions Worksheet in the • You have more than one qualifying child and you Form 1040 or Form 1040A instructions to figure the earn less than $38,646 ($41,646 if married filing amount you can deduct for exemptions. jointly),

• You have one qualifying child and you earn less than Exemption for individual displaced by Midwestern dis-

$33,995 ($36,995 if married filing jointly), or aster. You may be able to claim a $500 exemption if you

provided housing to a person displaced by a Midwestern • You do not have a qualifying child and you earn less disaster. For more information, see Publication 4492-B. than $12,880 ($15,880 if married filing jointly).

The maximum amount of AGI you can have and still get the Tuition and Fees Deduction

credit also has increased. You may be able to take the

credit if your AGI is less than the amount in the above list Beginning in 2008, the definition of qualified education

that applies to you. expenses for the tuition and fees deduction for students

attending an eligible educational institution in the MidwestInvestment income amount increased. The maximum ern disaster areas in the states of Arkansas, Illinois, Indiamount of investment income you can have and still get ana, Iowa, Missouri, Nebraska, and Wisconsin is

the credit has increased to $2,950 for 2008. expanded. See Table 3-2 near the end of chapter 3 in

Publication 970, Tax Benefits for Education, for a list of

Standard Deduction Increased counties. For more information about the tuition and fees

deduction, see chapter 6 in Publication 970.

The standard deduction for people who do not itemize their

deductions on Schedule A (Form 1040) is, in most cases, Income Limits Increased for Student

higher for 2008 than it was for 2007. In addition to the Loan Interest Deduction annual increase due to inflation adjustments, your 2008

standard deduction is increased by: For 2008, the amount of the student loan interest deduc-

• Any state or local real estate taxes you paid that tion is phased out (gradually reduced) if your filing status is

would be deductible on Schedule A if you were item- married filing jointly and your modified AGI is between

$115,000 and $145,000. You cannot take the deduction if izing deductions, up to $500 ($1,000 if married filing

your modified AGI is $145,000 or more. jointly), and

For all other filing statuses, your student loan interest • Any net disaster loss from a federally declared dis- deduction is phased out if modified AGI is between aster. $55,000 and $70,000. You cannot take a deduction if your

You can figure your 2008 standard deduction by using the modified AGI is $70,000 or more. For more information,

2008 Standard Deduction Worksheet in Publication 501, see chapter 4 in Publication 970.

Exemptions, Standard Deduction, and Filing Information.

First-Time Homebuyer Credit

Personal Exemption Amount If you are a first-time homebuyer, you may be able to claim

a one-time tax credit equal to the lesser of: Increased

• $7,500 ($8,000 if you purchased your home in The amount you can deduct for each exemption has in- 2009), but only half of that amount if married filing creased to $3,500 for 2008. separately, or You lose part of the benefit of your exemptions if your

AGI is above a certain amount. The amount at which the • 10% of the purchase price of your home.

phaseout begins depends on your filing status. For 2008, You may be able to claim the credit if: the phaseout begins at:

• You purchased your main home in the United States • $119,975 for married persons filing separately, after April 8, 2008, and before December 1, 2009,

• $159,950 for single individuals, and

Chapter 1 Tax Changes for Individuals Page 5
• You (and your spouse if married) did not own any 36-month period beginning on the purchase date. This

other main home during the 3-year period ending on includes situations where you sell the home, you convert it

the date of purchase. to business or rental property, or the home is destroyed,

condemned, or disposed of under threat of condemnation.

If you constructed your main home, you are treated as You repay the credit by including it as additional tax on the

having purchased it on the date you first occupied it. return for the year the home ceases to be your main home.

If the home continues to be your main home for at least 36 Who cannot claim the credit. You cannot claim the months beginning on the purchase date, you do not have credit if any of the following apply. to repay any of the credit.

1. Your modified AGI is $95,000 or more ($170,000 or More information. For exceptions to the repayment rule, more if married filing jointly). more information about the credit, and how to claim the

2. You are, or were, eligible to claim the District of credit, see Form 5405, First-Time Homebuyer Credit.

Columbia first-time homebuyer credit for any taxable

year. See Form 8859. This rule does not apply for a Hope and Lifetime Learning Credits home purchased in 2009.

Beginning in 2008, the following changes apply to the 3. Your home financing comes from tax-exempt mort- Hope and lifetime learning (education) credits. For more gage revenue bonds. This rule does not apply for a information, see chapters 2 and 3 in Publication 970. home purchased in 2009.

4. You are a nonresident alien. Income limits for credit reduction increased. For 2008,

the amount of your Hope or lifetime learning credit is 5. Your home is located outside the United States. phased out (gradually reduced) if your modified AGI is

6. You sell the home, or it ceases to be your main between $48,000 and $58,000 ($96,000 and $116,000 if

home, before the end of 2008. you file a joint return). You cannot claim an education

credit if your modified AGI is $58,000 or more ($116,000 or 7. You acquired your home by gift or inheritance. more if you file a joint return).

8. You acquired your home from a related person. A

related person includes: Hope credit. Beginning in 2008, the amount of the Hope

credit (per eligible student) is the sum of:

a. Your spouse, ancestors (parents, grandparents,

etc.), or lineal descendants (children, grandchild- 1. 100% of the first $1,200 ($2,400 if a student in a

Midwestern disaster area) of qualified education ex- ren, etc.).

penses you paid for the eligible student, and b. A corporation in which you directly or indirectly

own more than 50% in value of the outstanding 2. 50% of the next $1,200 ($2,400 if a student in a

stock of the corporation. Midwestern disaster area) of qualified education expenses you paid for that student.

c. A partnership in which you directly or indirectly

own more than 50% of the capital interest or prof- The maximum amount of Hope credit you can claim in

2008 is $1,800 ($3,600 if a student in a Midwestern disas- its interests.

ter area) per student.

Repayment of credit. The following information is a brief Students in Midwestern disaster areas. The following

overview concerning the repayment of the first-time rules apply only to students attending an eligible educahomebuyer credit. tional institution in the Midwestern disaster areas in the

states of Arkansas, Illinois, Indiana, Iowa, Missouri, Ne- Homes purchased in 2008. You generally must repay braska, and Wisconsin. See Table 3-2 near the end of the credit over a 15-year period in 15 equal installments. chapter 3 in Publication 970 for a list of counties. The repayment period begins in 2010 and you must include the first installment as additional tax on your 2010 tax • Hope credit increased. The Hope credit for stureturn. dents in Midwestern disaster areas is 100% of the

If your home ceases to be your main home before the first $2,400 of qualified education expenses and

15-year period is up, you must include all remaining annual 50% of the next $2,400 of qualified education exinstallments as additional tax on the return for the tax year penses for a maximum credit of $3,600 per student.

that happens. This includes situations where you sell the See chapter 2 of Publication 970 for more informahome, you convert it to business or rental property, or the tion.

home is destroyed, condemned, or disposed of under • Lifetime learning credit increased. The lifetime threat of condemnation. learning credit rate for students in Midwestern disasHomes purchased in 2009. You must repay the credit ter areas is 40% of qualified expenses paid, with a

only if the home ceases to be your main home within the maximum credit of $4,000 allowed on your return.

Page 6 Chapter 1 Tax Changes for Individuals
See chapter 3 of Publication 970 for more informa- definition of qualified military benefit has been expanded to

tion. include payments by a state or a political subdivision

thereof to a member or former member of the uniformed • Definition of qualified expenses expanded. The services of the United States or to a dependent of such a definition of qualified education expenses for the ed- member if the payments are made only because of the ucation credits is expanded for students in Midwest- member’s service in a combat zone. See Publication 3, ern disaster areas. See chapters 2 and 3 of Armed Forces’ Tax Guide, for more information about Publication 970 for more information.

qualified military benefits.

Reduction in Earned Income Needed Exclusion on Sale of Main Home

to Claim Additional Child Tax Credit

Surviving spouse. For sales after 2007, the maximum

For 2008, the amount your earned income must exceed to exclusion on the sale of a main home by an unmarried

claim the additional child tax credit is reduced to $8,500. surviving spouse is $500,000 if the sale occurs no later

than 2 years after the date of the other spouse’s death.

Residential Energy Credits However, this rule applies only if the requirements for joint

filers relating to ownership and use were met immediately

before the date of such death, and during the 2-year period Nonbusiness energy property credit expired. You can- ending on the date of such death, there was no sale or not claim the nonbusiness energy property credit for prop- exchange of a main home by either spouse which qualified erty placed in service in 2008. for the exclusion.

Residential energy efficient property credit expanded. Employees and volunteers of the Peace Corps. If you You can now include costs for qualified small wind energy or your spouse is an employee, enrolled volunteer, or property and geothermal heat pump property in figuring the volunteer leader of the Peace Corps, you may be able to residential energy efficient property credit. exclude from income a gain from selling your main home,

even if you did not live in it for 2 years during the 5-year

Limits Increased for Itemized period ending on the date of sale. Generally, you can elect

Deductions to have the 5-year test period for ownership and use

suspended for up to 10 years during any period you or your

If your AGI is above a certain amount, you may lose part of spouse serve outside the United States (on qualified offiyour itemized deductions. In 2008, this amount is in- cial extended duty if an employee). This provision applies

creased to $159,950 ($79,975 if married filing separately). to a sale of a main home in tax years beginning after 2007.

See the instructions for Schedule A (Form 1040), line 29, Similar benefits already apply to members of the uniformed

for more information on figuring the amount you can de- services or Foreign Service or employees of the intelliduct. gence community. For more information, see Publication

523, Selling Your Home.

Deduction for Credit or Debit Card

Convenience Fees Discharge of Qualified Principal

Residence Indebtedness

If you pay your income tax (including estimated tax payments) by credit or debit card, you can deduct the conve- The Emergency Economic Stabilization Act of 2008 exnience fee you are charged by the card processor to pay tended the exclusion from gross income for the discharge

using your credit or debit card. The deduction is claimed for of qualified principal residence indebtedness by an addithe year in which the fee was charged to your card as a tional 3 years. The exclusion now applies to debt dismiscellaneous itemized deduction on line 23 of Schedule A charged after 2006 and before 2013. See Form 982,

(Form 1040) (and is subject to the 2% of AGI floor). Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), and PublicaDefinition of “Qualified Military tion 4681, Canceled Debts, Foreclosures, Repossessions,

Benefit” Expanded and Abandonments (for Individuals), for more information.

A “qualified military benefit” generally means any excluda- Like-Kind Exchanges

ble allowance or other in-kind benefit (other than personal

use of a vehicle) received by a member or former member Beginning with exchanges completed after May 22, 2008,

of the uniformed services of the United States or the the exchange of stock in a mutual ditch, reservoir, or

dependent of such a member because of the member’s irrigation company may qualify for the nonrecognition of

status or service as a member of such services. The gain or loss under section 1031.

Chapter 1 Tax Changes for Individuals Page 7
The nonrecognition of gain or loss on the exchange may modified AGI is $214,730 or more. See Form 8839, Qualiapply if, at the time of the exchange: fied Adoption Expenses, and its instructions for more information.

1. The company is a section 501(c)(12)(A) organization

(determined without regard to the percentage of in- Income Limits Increased for come collected from members for the purpose of

meeting losses and expenses), and Reduction of Education Savings Bond

2. The shares of stock in the company have been rec- Exclusion

ognized by the highest court in the state in which the For 2008, the amount of your interest exclusion is phased company was organized or by an applicable statute out (gradually reduced) if your filing status is married filing of that state as constituting or representing real prop- jointly or qualifying widow(er) and your modified AGI is erty or an interest in real property. between $100,650 and $130,650. You cannot take the

deduction if your modified AGI is $130,650 or more.

Health Savings Accounts (HSAs) For all other filing statuses, your interest exclusion is

phased out if your modified AGI is between $67,100 and

$82,100. You cannot take a deduction if your modified AGI High deductible health plan (HDHP). For HSA pur- is $82,100 or more. For more information, see chapter 9 in poses, the minimum annual deductible of an HDHP re- Publication 970.

mains at $1,100 ($2,200 for family coverage) and the

maximum annual deductible and other out-of-pocket ex- Increase in Deductible Limit for penses limit increased to $5,600 ($11,200 for family coverage). Long-Term Care Premiums

Limit on contributions. The maximum HSA contribution For 2008, the maximum amount of qualified long-term care

premiums you can include as medical expenses has in- increases to $2,900 ($5,800 for family coverage). The

maximum contribution for individuals age 55 or older in- creased. You can include qualified long-term care premiums, up to the amounts shown below, as medical creased to $900.

expenses on Schedule A (Form 1040).

Health Flexible Spending • Age 40 or under – $310.

Arrangements (FSAs) • Age 41 to 50 – $580.

A special rule allows amounts in a health FSA to be • Age 51 to 60 – $1,150.

distributed to reservists ordered or called to active duty. • Age 61 to 70 – $3,080.

This rule applies to distributions after June 17, 2008, if the • Age 71 or over – $3,850. plan has been amended to allow these distributions. A

qualified reservist distribution is allowed if:

1. The individual was, by reason of being a member of Note. The limit is for each person.

a reserve component, ordered or called to active

duty for a period in excess of 179 days or for an Increase in Limit on Long-Term Care indefinite period, and and Accelerated Death Benefits

2. The distribution is made during the period beginning Exclusion on the date of such order or call and ending on the

last date that reimbursements could be made for the The limit on the exclusion for payments made on a per

plan year which includes the date of such order or diem or other periodic basis under a long-term care insurcall. ance contract increases for 2008 to $270 per day. The limit

applies to the total of these payments and any accelerated For more information, see Publication 969, Health Sav- death benefits made on a per diem or other periodic basis ings Accounts and Other Tax-Favored Health Plans. under a life insurance contract because the insured is

chronically ill. Adoption Benefits Increased Under this limit, the excludable amount for any period is

figured by subtracting any reimbursement received For 2008, the maximum adoption credit has increased to (through insurance or otherwise) for the cost of qualified $11,650. Also, the maximum exclusion from income for long-term care services during the period from the larger of benefits under your employer’s adoption assistance pro- the following amounts. gram has increased to $11,650. These amounts are

phased out if your modified AGI is between $174,730 and • The cost of qualified long-term care services during

$214,730. You cannot claim the credit or exclusion if your the period.

Page 8 Chapter 1 Tax Changes for Individuals
• The dollar amount for the period ($270 per day for Tax Extenders and Alternative Minimum Tax Relief Act of

any period in 2008). 2008.

See section C of Form 8853, Archer MSAs and Foreign Earned Income Tax Worksheet revised. The

Long-Term Care Insurance Contracts, and its instructions Foreign Earned Income Tax Worksheet on page 2 of the

for more information. Instructions for Form 8801 has been revised to reflect

changes made by the Tax Technical Corrections Act of

Archer Medical Savings Accounts 2007.

(MSAs) Exclusion of Income for Volunteer

Expiration of Archer MSAs. After 2007, you cannot be Firefighters and Emergency Medical

treated as an eligible individual for Archer MSA purposes Responders unless:

For tax years beginning after 2007 and before 2011, gross • You were an active participant for any taxable year income does not include: ending before 2008, or

• Rebates or reductions of property or income taxes • You became an active participant for a tax year provided by a state or local government for providing ending after 2007 by reason of coverage under a services as a member of a qualified emergency re- high deductible health plan of an Archer MSA partici- sponse organization (defined below). Any such re- pating employer. bate or reduction reduces the amount of the income

tax deduction for such taxes.

Limits increased. For Archer MSA purposes, the mini- • Qualified payments made by a state or local govern- mum annual deductible of a high deductible health plan ment for providing services as a member of a quali- increased to $1,950 ($3,850 for family coverage). The fied emergency response organization. The maximum annual deductible of a high deductible health exclusion is limited to $30 multiplied by the number plan increased to $2,900 ($5,800 for family coverage). The of months the member performs such services. A maximum out-of-pocket expenses limit increased to charitable deduction for expenses paid by the mem- $3,850 ($7,050 for family coverage). ber in connection with performing such services

must be reduced by any payment excluded from

Credit for Prior Year Minimum Tax income.

The following changes to the credit for prior year minimum A qualified volunteer emergency response organization is

any volunteer organization organized and operated to pro- tax went into effect for 2008. For more information, see

Form 8801, Credit for Prior Year Minimum Tax— vide firefighting or emergency medical services for per- Individuals, Estates, and Trusts, and its instructions. sons in a state or local jurisdiction and required by written

agreement with that state or local jurisdiction to furnish

Decrease in credit for abatement of alternative mini- such services.

mum tax (AMT) related to incentive stock options

(ISOs). If you owed AMT for 2007 or any prior year due to Exclusion from wages. You can exclude any qualified

the AMT adjustment for the exercise of ISOs (Form 6251, state or local tax benefit and any qualified reimbursement

line 13, for 2007), the amount of any such tax that you still payment from the employee’s wages. The excluded wages

owed as of October 3, 2008, has been abated. This means are not subject to federal income tax withholding, social

that your debt has been forgiven and you no longer owe security and Medicare taxes, and federal unemployment

this tax. However, you must reduce the amount of your tax.

credit for prior year minimum tax.

Social Security and Medicare Taxes Increase in credit for interest and penalties related to

ISO adjustments. If you paid interest and penalties on The maximum amount of wages subject to the social AMT for 2007 or any prior year due to the AMT adjustment security tax for 2008 is $102,000. There is no limit on the for the exercise of ISOs, the amount of your prior year amount of wages subject to the Medicare tax. minimum tax that is eligible for the credit is increased for

the first 2 years beginning after 2007 by 50% of the total of

any such interest and penalties you paid before October 3, Wage Threshold for Household

2008. Employees

Refundable credit for prior year minimum tax. The The social security and Medicare wage threshold for

calculation of the tentative refundable credit (Form 8801, household employees is $1,600 for 2008. This means that

Part IV) has been revised to reflect changes made by the if you pay a household employee cash wages of less than

Chapter 1 Tax Changes for Individuals Page 9
$1,600 in 2008, you do not have to report and pay social spouse or a close relative who was such a plaintiff from

security and Medicare taxes on that employee’s 2008 whom you acquired the right to receive qualified settlement

wages. For more information, see Social security and income. See the Instructions for Schedule J (Form 1040).

Medicare wages in Publication 926, Household Em- New rules for averaging farming and fishing income. ployer’s Tax Guide. The four items discussed below are effective for tax years

beginning after July 22, 2008. However, you may apply Special Limitation Period for any of these provisions to tax years beginning after 2003

Retroactively Excluding Military and before July 23, 2008, if those provisions are consistRetirement Pay ently applied in each tax year. For more information, see

Treasury Decision 9417, 2008-37 I.R.B. 693, available at 

www.irs.gov/irb/2008-37_IRB/ar07.html. If you retire from the armed services based on years of

service and are later given a retroactive service-connected Farming and fishing business. If you operate both a disability rating by the VA, your retirement pay for the farming and fishing business, you combine the income, retroactive period is excluded from income up to the gains, deductions, and losses from both businesses to amount of VA disability benefits you would have been figure the amount of income eligible for income averaging. entitled to receive. You can claim a refund of any tax paid Lessors of fishing boats. You are treated as being in a on the excludable amount (subject to the statute of limita- fishing business if you lease a boat and your lease pay- tions) by filing an amended return on Form 1040X for each ments are based on a share of the catch (or a share of the previous year during the retroactive period. proceeds from the sale of the catch) from the lessee’s use Generally, under the statute of limitations a claim for of the boat, but only if this manner of payment is deter- credit or refund must be filed within 3 years from the time a mined under a written lease agreement entered into before return was filed or 2 years from the time the tax was paid, the lessee begins significant fishing activities resulting in whichever period expires later. However, if you receive a the catch. retroactive service-connected disability rating determination, the statute of limitations is extended for 1 year begin- Crew members on fishing boats. Crew members on a

ning on the date of the determination. The extension commercial fishing vessel are engaged in the fishing busiapplies to claims for credit or refund filed after June 17, ness for purposes of income averaging if their compensa2008, and does not apply to any tax year that began more tion is based on a share of the boat’s catch or a share of the

than 5 years before the date of the determination. proceeds from the sale of the catch. The compensation of

such a crew member is treated as income from a fishing Example. You retired in 2003 and receive a pension business, whether or not he or she is treated as an em- based on your years of service. On August 6, 2008, you ployee for employment tax purposes. receive a determination of service-connected disability retroactive to 2003. Generally, you could claim a refund for Merchant Marine Capital Construction Fund (CCF)

the taxes paid on your pension for 2005, 2006, and 2007. deposits. If you reduced your taxable income on Form

However, under the special limitation period, you can also 1040, line 43, or Form 1040NR, line 40, by any amount

file a claim for 2004 as long as you file the claim by August deposited into a CCF account, take into account the CCF

5, 2009. You cannot file a claim for 2003 because that tax reduction in figuring taxable income for income averaging

year began on January 1, 2003, which is more than 5 years purposes. Also, the CCF reduction is generally treated as a

before date of the determination. deduction attributable to your fishing business in figuring

elected farm income. However, if any taxable income Transition rules. If you received a retroactive serv- (without regard to the carryback of any net operating or net ice-connected disability rating determination after 2000 capital loss) from the operation of agreement vessels in the and before June 18, 2008, you have until June 17, 2009, to fisheries of the United States or in the foreign or domestic file your claims. You cannot make any claims for tax years commerce of the United States is not attributable to your that began before 2001. fishing business, that amount does not reduce elected

farm income. Income Averaging for Farmers and

Fishermen Failure To File Income Tax Return

Penalty Increased Exxon Valdez litigation. If you received qualified settlement income made up of interest and punitive damages in If you do not file your return by the due date (including

connection with the civil action In re Exxon Valdez, No. extensions) you may have to pay a failure-to-file penalty.

89-095-CV (HRH) (Consolidated) (D. Alaska), you may For income tax returns required to be filed after 2008, the

treat this settlement payment as income from a fishing failure-to-file penalty for returns filed more than 60 days

business for the purpose of income averaging. You are after the due date (including extensions) is increased. In

eligible to make this election only if you are a plaintiff in the this situation, the minimum penalty is the smaller of $135

civil action or you were a beneficiary of the estate of your or 100% of the unpaid tax.

Page 10 Chapter 1 Tax Changes for Individuals
Government retiree credit. You can take this credit if you

2009 Changes receive a pension or annuity payment in 2009 for service

performed for the U.S. Government or any U.S. state or

local government (or any instrumentality of one or more of

these) and the service was not covered by social security. Economic Recovery Payment The credit is $250 ($500 if married filing jointly and both

Any economic recovery payment you receive during 2009 you and your spouse receive a qualifying pension or annuity). However, you cannot take the credit if you receive a is not taxable. These $250 payments are being made to

most people who: $250 economic recovery payment during 2009. If you file a

joint return, both you and your spouse receive a qualifying • Receive social security benefits, supplemental se- pension or annuity, and both of you receive an economic curity income (SSI), railroad retirement benefits, or recovery payment, no government retiree credit is allowed; veterans disability compensation or pension bene- if only one of you receives an economic recovery payment, fits, and the credit is $250.

• Live in a U.S. state, the District of Columbia, Puerto Social security number. To take either credit, you must Rico, Guam, the U.S. Virgin Islands, American Sa- include your social security number (if filing a joint return, moa, or the Northern Mariana Islands. the number of either you or your spouse) on your return. A

If you are married and you and your spouse both meet social security number does not include an identification

these requirements, each of you may get a $250 payment. number issued by the IRS.

If you are entitled to a payment, you will get it automati- Schedule M. Generally, you will use new Schedule M cally. You do not need to apply for it. (Form 1040A or 1040) to figure both the making work pay

credit and the government retiree credit. Both credits are

Making Work Pay and Government refundable, which means they are treated like payments

Retiree Credits you made and may give you a refund even if you had no tax

withheld from your pay or your pension. If you are filing

Two new credits you may be able to take for 2009 are the: Form 1040EZ, you can take the making work pay credit on

that form and do not have to file Schedule M. • Making work pay credit, and

More information. If you want to figure now the amount • Government retiree credit.

you can expect from these credits, see Worksheet 2-9 in

Publication 505.

Making work pay credit. You may be able to take this

credit if you have earned income from work. Even if your Hope Credit Expanded federal income tax withholding is reduced during 2009

because of the credit, you must claim the credit on your For tax years 2009 and 2010, the following changes have return to benefit from it. been made to the Hope credit. The modified credit is also You cannot take the credit if: referred to as the American opportunity tax credit.

• Your modified AGI is $95,000 ($190,000 if married • The maximum amount of the Hope credit increases filing jointly) or more, to $2,500 per student. The credit is phased out

• You are a nonresident alien, or (gradually reduced) if your modified AGI is between

$80,000 and $90,000 ($160,000 and $180,000 if you • You can be claimed as a dependent on someone file a joint return). Exception. For 2009, if you claim else’s return. a Hope credit for a student who attended a school in

a Midwestern disaster area, you can choose to fig- The credit is 6.2% of your earned income but cannot be ure the amount of the credit using the previous rules. more than $400 ($800 if married filing jointly). The credit However, you must use the previous rules in figuring will be reduced if: the credit for all students for which you claim the

• You receive a $250 economic recovery payment credit.

(described earlier) during 2009, • The Hope credit can now be claimed for the first four

• Your modified AGI is more than $75,000 ($150,000 if years of post-secondary education. Previously the

married filing jointly), or credit could be claimed for only the first two years of

post-secondary education. • You take the government retiree credit discussed

next. • Generally, 40% of the Hope credit is now a refundable credit, which means that you can receive up to

$1,000 even if you owe no taxes. However, none of

the credit is refundable if the taxpayer claiming the

Chapter 1 Tax Changes for Individuals Page 11
credit is a child (a) who is under age 18 (or a student Qualified Transportation Fringe who is at least age 18 and under age 24 and whose Benefits earned income does not exceed one-half of his or

her own support), (b) who has at least one living Beginning January 1, 2009, the monthly exclusion for com- parent, and (c) who does not file a joint return. muter highway vehicle transportation and transit passes

increased to $120 and the monthly exclusion for qualified • The term “qualified tuition and related expenses” has parking increased to $230. Beginning March 1, 2009, the been expanded to include expenditures for “course monthly exclusion for commuter highway vehicle transpor- materials.” For this purpose, the term “course materi- tation and transit passes increased to $230. als” means books, supplies, and equipment needed Beginning January 1, 2009, you may be reimbursed for for a course of study whether or not the materials reasonable expenses of qualified bicycle commuting. Rea- are purchased from the educational institution as a sonable expenses include the purchase of a bicycle and condition of enrollment or attendance. bicycle improvements, repair, and storage. The exclusion

for a calendar year is $20 multiplied by the number of For more information, see chapter 2 of Publication 970. qualified bicycle commuting months during that year. A

qualified bicycle commuting month is any month you use

Unemployment Compensation the bicycle regularly for a substantial portion of the travel

between your residence and place of employment and you For any tax year beginning in 2009, each recipient of do not receive any of the other qualified transportation unemployment compensation can exclude from gross in- fringe benefits. You are not entitled to this exclusion if the come up to $2,400 of the amount he or she received during reimbursement for bicycle commuting is made under a

the year. compensation reduction agreement.

Alternative Minimum Tax (AMT) Definition of Qualifying Child Revised

The following changes to the AMT went into effect for For 2009, the following changes have been made to the

2009. definition of a qualifying child.

• To be your qualifying child, the child must be AMT exemption amount increased. The AMT exemp- younger than you. tion amount has increased to $46,700 ($70,950 if married • A child cannot be your qualifying child if he or she filing jointly or qualifying widow(er); $35,475 if married filing files a joint return, unless the return was filed only as separately). a claim for refund.

AMT exemption amount for a child increased. The • If the parents of a child can claim the child as a

qualifying child but no parent so claims the child, no AMT exemption amount for a child whose unearned in- one else can claim the child as a qualifying child come is taxed at the parent’s tax rate has increased to unless that person’s AGI is higher than the highest $6,700. AGI of any parent of the child.

Qualified motor vehicle tax allowed against AMT. If • Your child is a qualifying child for purposes of the

child tax credit only if you can and do claim an you claim the standard deduction for the regular tax and it exemption for him or her. includes any state or local sales or excise tax on the

purchase of a qualified motor vehicle, that tax is also

allowed as a deduction for the AMT.

Increase in Investment Income

Tax-exempt interest on specified private activity Amount of Certain Children

bonds issued in 2009 or 2010 exempt from AMT. The amount of taxable investment income a child can have Tax-exempt interest on specified private activity bonds without it being subject to tax at the parent’s rate has issued in 2009 or 2010 is not an item of tax preference and increased to $1,900 for 2009. therefore is not subject to the AMT. A refunding bond is

treated as issued on the date of the issuance of the

refunded bond (or, in the case of a series of refundings, the Standard Mileage Rate

original bond). However, tax-exempt interest on a specified private activity bond issued in 2009 or 2010 to cur- Business-related mileage. For 2009, the standard milerently refund a private activity bond issued after 2003 and age rate for the cost of operating your car for business use

before 2009 is not an item of tax preference. is 55 cents per mile.

Page 12 Chapter 1 Tax Changes for Individuals
Car expenses and use of the standard mileage rate are Standard Deduction Increased

explained in chapter 4 of Publication 463.

The standard deduction for people who do not itemize their

Medical- and move-related mileage. For 2009, the stan- deductions on Schedule A (Form 1040) is, in most cases,

dard mileage rate for the cost of operating your car for higher for 2009 than it was for 2008. In addition to the

medical reasons or as part of a deductible move is 24 cents annual increase due to inflation adjustments and the inper mile. See Transportation under What Medical Ex- crease allowed for the deduction for certain real estate

penses Are Includable in Publication 502 or Travel by car taxes and a net disaster loss, your 2009 standard deducunder Deductible Moving Expenses in Publication 521. tion is increased by any state or local sales tax imposed on

the purchase of a qualified motor vehicle in 2009 after

Charitable-related mileage. For 2009, the standard mile- February 16. For details, see Deduction for Sales and

age rate for the cost of operating your car for charitable Excise Taxes Imposed on Purchase of New Motor Vehipurposes remains 14 cents per mile. cles, next. To figure your 2009 standard deduction now,

see Worksheet 2-3 in Publication 505.

Earned Income Credit (EIC) Amounts

Increased Deduction for Sales and Excise Taxes

Imposed on Purchase of New Motor The following paragraphs explain the changes to the credit Vehicles for 2009.

In 2009, you can deduct the state or local sales and excise Amount of credit increased. The maximum amount of taxes imposed on the purchase of a qualified motor vehicle the credit has increased. The most you can get for 2009 is: after February 16, 2009, and before 2010. A qualified

• $3,043 if you have one qualifying child, motor vehicle includes a passenger automobile, light truck,

or motorcycle, the original use of which begins with that • $5,028 if you have two qualifying children, purchaser and that has a gross vehicle weight rating of

• $5,657 if you have three or more qualifying children, 8,500 pounds or less. A qualified motor vehicle also inor cludes a motor home, the original use of which begins with

that purchaser. The amount of tax you are able to deduct is • $457 if you do not have a qualifying child. limited to the tax that is imposed on the first $49,500 of the

purchase price of the vehicle. The deduction is phased out

Earned income amount increased. The maximum over a $10,000 range that begins when modified AGI is

amount of income you can earn and still get the credit has more than $125,000 ($250,000 if married filing a joint

increased for 2009. You may be able to take the credit if: return). No deduction is allowed when modified AGI is

equal to or more than $135,000 ($260,000 if married filing • You have three or more qualifying children and you a joint return). The new deduction can be used to increase earn less than $43,279 ($48,279 if married filing the amount of your standard deduction or you can take it as jointly), an itemized deduction (if you are not electing to take the

• You have two qualifying children and you earn less state and local general sales tax deduction).

than $40,295 ($45,295 if married filing jointly),

• You have one qualifying child and you earn less than Increase in Personal Casualty and

$35,463 ($40,463 if married filing jointly), or Theft Loss Limit

• You do not have a qualifying child and you earn less Generally, a personal casualty or theft loss must exceed than $13,440 ($18,440 if married filing jointly). $500 to be allowed for 2009. This is in addition to the 10%

The maximum amount of AGI you can have and still get the of AGI limit that generally applies to the net loss.

credit also has increased. You may be able to take the

credit if your AGI is less than the amount in the above list Personal Exemption Amount that applies to you. Increased

Investment income amount increased. The maximum The amount you can deduct for each exemption has in- amount of investment income you can have and still get creased to $3,650 for 2009. the credit has increased to $3,100 for 2009. You lose part of the benefit of your exemptions if your

AGI is above a certain amount. The amount at which the Advance payment of the credit. If you get advance pay- phaseout begins depends on your filing status. For 2009, ments of the credit from your employer with your pay, the the phaseout begins at: total advance payments you get during 2009 can be as

much as $1,826. • $125,100 for married persons filing separately,

Chapter 1 Tax Changes for Individuals Page 13
• $166,800 for single individuals, Income Limits for Lifetime Learning

• $208,500 for heads of households, and Credit Increased

• $250,200 for married persons filing jointly or qualify- For 2009, the amount of your lifetime learning credit is ing widow(er)s. phased out (gradually reduced) if your modified AGI is

between $50,000 and $60,000 ($100,000 and $120,000 if For 2009, each exemption cannot be reduced to less you file a joint return). You cannot claim a lifetime learning than $2,433. credit if your modified AGI is $60,000 or more ($120,000 or

See Publication 505 for more information on figuring the more if you file a joint return). For more information, see

amount you can deduct. chapter 3 in Publication 970.

New Rules for Children of Divorced or Expanded Definition of Qualified

Separated Parents Expenses for Qualified Tuition

Programs

Revocation of release of claim to an exemption. For

The definition of qualified higher education expenses for tax years beginning after July 2, 2008 (the 2009 calendar tax-free distributions from a qualified tuition program is year for most taxpayers), new rules apply to allow the expanded to include amounts paid in 2009 or 2010 for the custodial parent to revoke a release of claim to exemption purchase of computer software, any computer or related that was previously released to the noncustodial parent on peripheral equipment, fiber optic cable related to computer Form 8332, Release/Revocation of Release of Claim to use, and Internet access (including related services) that Exemption for Child by Custodial Parent, or similar form. are to be used by the beneficiary and the beneficiary’s The revocation is effective no earlier than the tax year family during any of the years the beneficiary is enrolled at beginning in the calendar year following the calendar year an eligible educational institution.

in which the custodial parent provides, or makes reasona- For more information, including restrictions on qualifyble efforts to provide, the noncustodial parent with written ing software, see chapter 8 of Publication 970.

notice of the revocation. Therefore, if the custodial parent

provides notice of revocation to the noncustodial parent in Reduction in Earned Income Needed

2009, the earliest tax year the revocation can be effective to Claim Additional Child Tax Credit is the tax year beginning in 2010. You can use Part III of

Form 8332 for this purpose. You must attach a copy of the For 2009, the amount your earned income must exceed to revocation to your return for each tax year you claim the claim the additional child tax credit is reduced to $3,000.

child as a dependent as a result of the revocation.

Residential Energy Credits Post-1984 decree or agreement. If the divorce decree or

separation agreement went into effect after 1984 and Nonbusiness energy property credit. This credit, which before 2009, the noncustodial parent can still attach cer- expired after 2007, has been reinstated. You may be able tain pages from the decree or agreement instead of Form to claim a nonbusiness energy property credit of 30% of 8332. For any decree or agreement executed after 2008, the cost of certain energy-efficient property or improve- Form 8332 or similar form must be used. ments you placed in service in 2009. This property can

include high-efficiency heat pumps, air conditioners, and

Income Limits Increased for Student water heaters. It also may include energy-efficient windows, doors, insulation materials, and certain roofs. The Loan Interest Deduction credit has been expanded to include certain asphalt roofs

For 2009, the amount of the student loan interest deduc- and stoves that burn biomass fuel.

tion is phased out (gradually reduced) if your filing status is Limitation. The total amount of credit you can claim in

married filing jointly and your modified AGI is between 2009 and 2010 is limited to $1,500.

$120,000 and $150,000. You cannot take the deduction if Residential energy efficient property credit. Beginning your modified AGI is $150,000 or more. in 2009, there is no limitation on the credit amount for

For all other filing statuses, your student loan interest qualified solar electric property costs, qualified solar water

deduction is phased out if your modified AGI is between heating property costs, qualified small wind energy prop-

$60,000 and $75,000. You cannot take a deduction if your erty costs, and qualified geothermal heat pump property

modified AGI is $75,000 or more. For more information, costs. The limitation on the credit amount for qualified fuel

see chapter 4 in Publication 970. cell property costs remains the same.

Page 14 Chapter 1 Tax Changes for Individuals
Limits Increased for Itemized Limit on contributions. The maximum HSA contribution

increases to $3,000 ($5,950 for family coverage). The Deductions maximum contribution for individuals age 55 or older increases to $1,000. If your AGI is above a certain amount, you may lose part of

your itemized deductions. In 2009, this amount is increased to $166,800 ($83,400 if married filing separately). Adoption Benefits Increased

See Publication 505 for more information on figuring the For 2009, the maximum adoption credit has increased to

amount you can deduct. $12,150. Also, the maximum exclusion from income for

benefits under your employer’s adoption assistance proSale of Main Home gram has increased to $12,150. These amounts are

phased out if your modified AGI is between $182,180 and

Gain from the sale or exchange of the main home is no $222,180. You cannot claim the credit or exclusion if your

longer excludable from income if allocable to periods of modified AGI is $222,180 or more.

nonqualified use.

Generally, nonqualified use means any period after Income Limits Increased for

2008 where neither you nor your spouse (or your former Reduction of Education Savings Bond spouse) used the property as a main home (with certain Exclusion exceptions).

A period of nonqualified use does not include: For 2009, the amount of your interest exclusion is phased

out (gradually reduced) if your filing status is married filing

1. Any portion of the 5-year period ending on the date jointly or qualifying widow(er) and your modified AGI is

of the sale or exchange that is after the last date you between $104,900 and $134,900. You cannot take the

(or your spouse) use the property as a main home; exclusion if your modified AGI is $134,900 or more.

2. Any period (not to exceed an aggregate period of 10 For all other filing statuses, your interest exclusion is

years) during which you or your spouse is serving on phased out if your modified AGI is between $69,950 and

qualified official extended duty: $84,950. You cannot take the exclusion if your modified

AGI is $84,950 or more. For more information, see chapter

a. As a member of the uniformed services, 10 in Publication 970.

b. As a member of the Foreign Service of the United

States, or Increase in Deductible Limit for

c. As an employee of the intelligence community; Long-Term Care Premiums

and

For 2009, the maximum amount of qualified long-term care

premiums you can include as medical expenses has in- 3. Any other period of temporary absence (not to ex- creased. You can include qualified long-term care premi- ceed an aggregate period of 2 years) due to change ums, up to the amounts shown below, as medical of employment, health conditions, or such other un- expenses on Schedule A (Form 1040). foreseen circumstances as may be specified by the

IRS. • Age 40 or under – $320.

To figure the portion of the gain that is allocated to the • Age 41 to 50 – $600.

period of nonqualified use, multiply the gain by the follow- • Age 51 to 60 – $1,190. ing fraction:

• Age 61 to 70 – $3,180. Total nonqualified use during

period of ownership after 2008 • Age 71 or over – $3,980.

Total period of ownership

Note. The limit is for each person.

Health Savings Accounts (HSAs) Increase in Limit on Long-Term Care

High Deductible Health Plan (HDHP). For HSA pur- and Accelerated Death Benefits

poses, the minimum annual deductible of an HDHP in- Exclusion

creases to $1,150 ($2,300 for family coverage) and the

maximum annual deductible and other out-of-pocket ex- The limit on the exclusion for payments made on a per

penses limit increases to $5,800 ($11,600 for family cover- diem or other periodic basis under a long-term care insurage). ance contract increases for 2009 to $280 per day. The limit

Chapter 1 Tax Changes for Individuals Page 15
applies to the total of these payments and any accelerated Wage Threshold for Household death benefits made on a per diem or other periodic basis Employees under a life insurance contract because the insured is

chronically ill. The social security and Medicare wage threshold for Under this limit, the excludable amount for any period is household employees is $1,700 for 2009. This means that figured by subtracting any reimbursement received if you pay a household employee cash wages of less than (through insurance or otherwise) for the cost of qualified $1,700 in 2009, you do not have to report and pay social long-term care services during the period from the larger of security and Medicare taxes on that employee’s 2009 the following amounts. wages. For more information, see Social security and

• The cost of qualified long-term care services during Medicare wages in Publication 926.

the period.

• The dollar amount for the period ($280 per day for Health Coverage Tax Credit

any period in 2009).

Increase in the amount of the health coverage tax

See section C of Form 8853 and its instructions for more credit (HCTC). For coverage months beginning after April

information. 2009 and before 2011, the credit increases to 80%.

Payment for monthly premiums paid prior to com- Archer Medical Savings Accounts mencement of advance payments. For coverage

(MSAs) Limits Increased months beginning after 2008 and before 2011,

newly-enrolled monthly participants will be able to receive

For Archer MSA purposes for 2009, the minimum annual a retroactive credit on their HCTC account for qualified

deductible of a high deductible health plan increases to health insurance payments they paid while enrolling in the

$2,000 ($4,000 for family coverage). The maximum annual monthly HCTC program.

deductible of a high deductible health plan increases to

$3,000 ($6,050 for family coverage). The maximum Note. Although these payments will not begin until Auout-of-pocket expenses limit increases to $4,000 ($7,350 gust 2009, the credits will apply to any coverage month

for family coverage). beginning after 2008.

TAA recipients not enrolled in training programs eligi- Decreased Estimated Tax Payments ble for credit. For coverage months beginning after Febfor Qualified Individuals With Small ruary 2009 and before 2011, training and waiver

Businesses requirements have changed for TAA recipients, making it

easier for them to be eligible for the HCTC. Certain individFor 2009, qualified individuals with small businesses may uals who are receiving unemployment compensation

be eligible to make smaller estimated tax payments. If you (whether or not they meet TAA training requirements) and

qualify, your required annual payment for 2009 is the certain individuals who have a break from training, are now

smaller of 90% of the tax shown on your 2008 tax return or eligible for the HCTC.

90% of the tax shown on your 2009 tax return. You must Other changes. Effective as of February 17, 2009, quali- check box F in Part II on Form 2210 or box C on Form fied health insurance is expanded to include coverage 2210-F to certify that you qualify. under an employee benefit plan funded by a voluntary You are a qualified individual if: employees’ beneficiary association.

• More than 50% of your gross income was from a Individuals receiving COBRA premium assistance are

business that had an average of fewer than 500 not eligible for the credit for any month that assistance is

employees in 2008, and provided.

• Your AGI in 2008 was less than $500,000 ($250,000

if you are filing married filing separately for 2009).

Social Security and Medicare Taxes

The maximum amount of wages subject to the social

security tax for 2009 is $106,800. There is no limit on the

amount of wages subject to the Medicare tax.

Page 16 Chapter 1 Tax Changes for Individuals
depreciable basis (after any section 179 expense deduction and before figuring your regular depreciation deduc- 2. tion). For more information, see chapter 3 of Publication

946.

Tax Changes for Qualified recovery assistance property. A special

depreciation allowance is available for qualified recovery

Businesses assistance property you acquired after May 4, 2007, and

placed in service in the Kansas disaster area.

Certain qualified property acquired after 2007. A

2008 Changes special depreciation allowance is available for certain qualified property acquired after 2007 and placed in service

before 2010 (before 2011 for certain property with a long

production period and certain aircraft). Depreciation and Section 179 Qualified reuse and recycling property. A special Deduction depreciation allowance is available for qualified reuse and

recycling property acquired after August 31, 2008.

Increased section 179 limits. The maximum section 179

Qualified cellulosic biofuel plant property. A special deduction you can elect for qualified section 179 property depreciation allowance is available for qualified cellulosic you placed in service in tax years that begin in 2008 has biofuel plant property placed in service after October 3, increased to $250,000 ($285,000 for qualified enterprise 2008, and before 2013. zone property and qualified renewal community property).

This limit is reduced by the amount by which the cost of Qualified disaster assistance property. A special desection 179 property placed in service in the tax year preciation allowance is available for qualified disaster asexceeds $800,000. For qualified section 179 Gulf Opportu- sistance property placed in service in federally declared

nity (GO) Zone property, qualified section 179 recovery disaster areas in which the disaster occurred after 2007.

assistance property, and qualified section 179 disaster

assistance property, the maximum deduction is higher Disqualified Corporate Interest than the deduction for most other section 179 property. Expense Disallowed Under Section See chapter 2 of Publication 946, How to Depreciate Property. 163(j) and Related Information

Depreciation limits on business vehicles. For tax years beginning after 2007, corporations will use The total deForm 8926, Disqualified Corporate Interest Expense Disal- preciation deduction (including the section 179 deduction) lowed Under Section 163(j) and Related Information, to you can take for a passenger automobile (that is not a truck figure the amount of any corporate interest expense de- or a van) you use in your business and first placed in duction disallowed by section 163(j). A corporation’s inter- service in 2008 is $2,960 ($10,960 for automobiles for est expense may be disallowed if it paid or accrued which the special depreciation allowances applies). The disqualified interest during the tax year. maximum deduction you can take for a truck or a van you Disqualified interest is: use in your business and first placed in service in 2008 is

$3,160 ($11,160 for trucks or vans for which the special • Interest paid or accrued (directly or indirectly) to a

depreciation allowance applies). See chapter 5 of Publica- related person not subject to U.S. income tax on the

tion 946. interest,

These limits are reduced if the business use of • Interest paid or accrued on indebtedness held by an

the vehicle is less than 100%. unrelated person if there is a disqualified guarantee

CAUTION

of the indebtedness and the interest is not subject to

!

a U.S. gross basis income tax (a tax figured on the

gross amount of an item of income without reduction

for any allowed deduction), or Special depreciation allowance for qualified property.

You may be able to take an additional first year special • Interest paid or accrued (directly or indirectly) to a

depreciation allowance for qualified recovery assistance taxable real estate investment trust (as defined in

property, certain qualified property acquired after 2007, section 856(l)) by a subsidiary of the trust.

qualified reuse and recycling property, qualified cellulosic

biofuel plant property, and qualified disaster assistance Also, any disqualified interest disallowed as a deduction

property placed in service during the tax year. The allow- by section 163(j) in a tax year is carried forward and treated

ance is an additional deduction of 50% of the property’s as disqualified interest paid or accrued in the next tax year.

Chapter 2 Tax Changes for Businesses Page 17
However, if at least one of the following statements is Optional methods to figure net earnings. For tax years

true, disqualified interest paid or accrued in the current tax beginning in 2008, the dollar thresholds for using the opyear will not be disallowed by section 163(j). tional methods to figure net earnings from

self-employment have increased. You may use the farm • The corporation’s debt to equity ratio at the end of optional method to figure your net earnings from farm the tax year does not exceed 1.5 to 1. self-employment if your gross farm income was $6,300 or

• The corporation does not have any excess interest less or your net farm profits were less than $4,548. The

expense for the tax year. nonfarm optional method may be used to figure your net

earnings from nonfarm self-employment if your net nonFor more information, see the Instructions for Form farm profits were less than $4,548 and also less than

8926. 72.189% of your gross nonfarm income.

In 2008, the maximum social security coverage under

Business Start-up and Organizational the optional methods has increased to four credits, the

equivalent of $4,200 of net earnings from Costs self-employment. In future years, the thresholds will be

indexed to maintain that level of coverage. A separate election statement is no longer required to elect

to deduct up to $5,000 of business start-up and organizational costs paid or incurred after September 8, 2008. This Election to Accelerate Certain Credits

amount is reduced (but not below zero) by the amount by in Lieu of the Special Depreciation

which your costs exceed $50,000. Any costs not deducted Allowance

must be amortized ratably over a 180-month period.

You can also apply the same treatment to business Generally, corporations and a certain automotive partnerstart-up costs and organizational costs paid or incurred ship can elect to accelerate pre-2006 unused research

after October 22, 2004, and before September 9, 2008, credits or minimum tax credits in lieu of claiming the speprovided the period of limitations on assessment of tax has cial depreciation allowance for certain eligible qualified

property acquired after March 31, 2008, and placed in not expired for the year of the election. For more informa- service before January 1, 2010 (before January 1, 2011, tion, see chapter 8 of Publication 535, Business Expenses. for long production period property and noncommercial

aircraft). For more information, see chapter 3 of Publication Meal Expenses When Subject to 946. Also, see Form 3800, General Business Credit; Form

“Hours of Service” Limits 8827, Credit for Prior Year Minimum Tax—Corporations;

and related instructions.

In general, you can deduct only 50% of your business-related meal expenses. However, for 2008 and later Alcohol and Cellulosic Biofuel Fuels years, you can deduct 80% of meal expenses while travel- Credit ing away from your tax home for business purposes if the

meals take place during or incident to any period subject to For credits claimed on returns filed after May 14, 2008, you the Department of Transportation’s “hours of service” lim- cannot claim the alcohol and cellulosic biofuel fuels credit its. Business meal expenses are covered in chapter 1 of for alcohol produced outside the United States for use as a Publication 463. Reimbursements for employee meal ex- fuel outside the United States. For this purpose, the term penses are covered in chapter 11 of Publication 535. “United States” includes any U.S. possession.

For more information, see Form 6478, Alcohol and Self-Employment Tax Cellulosic Biofuel Fuels Credit.

Maximum amount subject to tax. The maximum amount Biodiesel and Renewable Diesel Fuels

of net earnings subject to the social security part of the Credit self-employment tax for tax years beginning in 2008 is

$102,000. All net earnings of at least $400 are subject to The following changes apply to the biodiesel and renewa- the Medicare part of the tax. ble diesel fuels credit.

Conservation Reserve Program (CRP) payments. • For credits claimed on returns filed after May 14,

2008, biodiesel and renewable diesel do not include CRP payments you receive after 2007 are excluded from fuel produced outside the United States for use as a net earnings from self-employment when figuring your fuel outside the Untied States. For this purpose, the self-employment tax if you are receiving social security term “United States” includes any U.S. possession. benefits for retirement or disability. Qualifying individuals

will deduct CRP payments on line 1b of the 2008 Schedule • For fuel produced, and sold or used, after October 3,

SE (Form 1040). 2008, renewable diesel does not include any fuel

Page 18 Chapter 2 Tax Changes for Businesses
derived from co-processing biomass with feedstock 2. Any pesticide (as defined in section 2(u) of the Fedthat is not biomass. eral Insecticide, Fungicide, and Rodenticide Act), including all active and inert ingredients, that is

For more information, see Form 8864, Biodiesel and customarily used on crops grown for food, feed, or

Renewable Diesel Fuels Credit. fiber.

Low-Income Housing Credit Qualified agricultural chemicals security costs. Qualified agricultural chemicals security costs are any of the The low-income housing credit attributable to buildings following costs paid or incurred by an eligible agricultural placed in service after 2007 is allowed against both the business during the tax year to protect specified agricul- regular tax and the AMT. For more information about this tural chemicals. credit, see Form 8586, Low-Income Housing Credit.

• Employee security training and background checks.

Agricultural Chemicals Security • Limitation and prevention of access to controls of

Credit specified agricultural chemicals stored at the facility.

• Tagging, locking tank valves, and chemical additives The Food, Conservation, and Energy Act of 2008 added to prevent theft of specified agricultural chemicals or the agricultural chemicals security credit as part of the to make the chemicals unfit for illegal use. general business credit. Use Form 8931, Agricultural

Chemicals Security Credit, to claim the credit for qualified • Perimeter protection of specified agricultural chemiagricultural chemicals security costs. Only qualified agri- cals.

cultural chemicals security costs paid or incurred after May • Installation of security lighting, cameras, recording 22, 2008, and before 2013 can be used to figure the credit.

The credit is only available to eligible agricultural busi- equipment, and intrusion detection sensors.

nesses. The credit is 30% of the qualified agricultural • Implementation of measures to increase computer or chemicals security costs paid or incurred during the tax computer network security.

year. • Conducting a security vulnerability assessment. Facility limit. The amount of the credit for any facility for a • Implementing a site security plan. tax year cannot be more than $100,000 minus the total of

the credits figured for the facility for the 5 prior tax years. • Other measures for protection of specified agriculAnnual limit. The amount of the credit figured for any tax tural chemicals to be identified in future regulations.

year cannot be more than $2 million. For more information, see section 45O. Eligible agricultural business. An eligible agricultural

business is any person in either of the following trades or Carbon Dioxide Sequestration Credit businesses.

• Selling agricultural products, including specified agri- Carbon dioxide captured after October 3, 2008, from an

cultural chemicals, at retail to farmers and ranchers. industrial source may be eligible for a credit. A credit of $20

per metric ton is allowed for qualified carbon dioxide that is • Manufacturing, formulating, distributing, or aerially captured at a qualified facility and disposed of in secure applying specified agricultural chemicals. geological storage or $10 per metric ton to qualified carbon

dioxide that is captured at a qualified facility and used as a

Specified agricultural chemical. A specified agricultural tertiary injectant in a qualified enhanced oil or natural gas

chemical is either of the following. recovery project. Only carbon dioxide captured and disposed of or used within the United States or a U.S. posses- 1. Fertilizer commonly used in agricultural operations sion is taken into account when figuring the credit. For that is listed under any of the following. more information, see Form 8933, Carbon Dioxide Sequestration Credit. a. Section 302(a)(2) of the Emergency Planning and

Community Right-to-Know Act of 1986.

Social Security and Medicare Taxes b. Section 101 of part 172 of title 49, Code of Federal Regulations. The maximum amount of wages subject to the social

c. Part 126, 127, or 154 of title 33, Code of Federal security tax for 2008 is $102,000. There is no limit on the

Regulations. amount of wages subject to the Medicare tax.

Chapter 2 Tax Changes for Businesses Page 19
Maximum Automobile Value for Using Nonqualified Deferred Compensation

the Cents-Per-Mile Valuation Rule Plans

For 2008, an employer providing a passenger automobile Generally, all amounts deferred under a nonqualified defor the first time for the personal use by an employee may ferred compensation plan for the tax year and all preceding

determine the value of the personal use by using the tax years are included in your employees’ wages in the

vehicle cents-per-mile value rule if the vehicle’s fair market current year, unless the plan meets certain requirements.

value on the date it is first made available to the employee These requirements were stated in Notice 2005-1. How- does not exceed $15,000 for a passenger automobile ever, portions of that notice were obsoleted and replaced other than a truck or van, or $15,900 for a truck or van. For by final regulations that were effective for tax years begin- more information, see Cents-Per-Mile Rule on page 20 of ning after 2007. For more information, see Treasury Deci- the 2008 Publication 15-B, Employer’s Tax Guide to Fringe sion 9321, 2007-19 I.R.B. 1123, available at Benefits. www.irs.gov/irb/2007-19_IRB/ar02.html.

Fringe Benefit Parking Exclusion and Capital Gain Tax Rate Reduction for Commuter Transportation Benefit Corporations With Qualified Timber

You can generally exclude a limited amount of the value of Gain

qualified parking and commuter highway vehicle transpor- For tax years ending after May 22, 2008, and beginning tation and transit passes you provide to an employee from before May 23, 2009, if a corporation has both a net capital the employee’s wages. For 2008, the monthly exclusion for

qualified parking increases to $220 and the monthly exclu- gain and a qualified timber gain, a maximum 15% capital

sion for commuter highway vehicle transportation and gains tax rate may apply for part of the tax year. The

transit passes increases to $115. See Qualified Transpor- reduced tax rate applies for both regular tax and alternative

tation Benefits on page 17 of the 2008 Publication 15-B. minimum tax purposes. See the Instructions for Schedule

D (Form 1120) and the Instructions for Form 4626, Part II,

Health Savings Accounts (HSAs) for details.

5-Year Carryback of 2008 Net Eligibility. For 2008, a qualifying high deductible health

plan (HDHP) must have a deductible of at least $1,100 for Operating Losses (NOLs) for Eligible

self-only coverage or $2,200 for family coverage and must Small Businesses (ESBs) limit annual out-of-pocket expenses of the beneficiary to

$5,600 for self-only coverage and $11,200 for family cover- For 2008, you can choose a 3, 4, or 5-year carryback

age. period for the part of your 2008 NOL that is an ESB loss. An

ESB is a small business as defined in section Employer contributions. Up to specified dollar limits, 172(b)(1)(F)(iii), except that an ESB’s 3-year average an- cash contributions to the health savings account (HSA) of

a qualified individual (determined monthly) are exempt nual gross receipts can be up to $15 million (instead of $5

million). An ESB loss is the smaller of: from federal income tax withholding, social security tax,

Medicare tax, and FUTA tax. For 2008, you can contribute 1. The amount that would be the 2008 NOL if only up to the following amounts to a qualified individual’s HSA. income, gains, losses, and deductions attributable to

• $2,900 for self-only coverage or $5,800 for family ESBs were taken into account, or

coverage. 2. The 2008 NOL.

• $3,800 for self-only coverage or $6,700 for family For more information, see the Instructions for Form coverage for a qualified individual who is age 55 or 1139 (corporations) or the Instructions for Form 1045 (indi- older at any time during the year. The $6,700 limit is viduals, estates, and trusts). increased by $900 for two married individuals who

are age 55 or older at any time during the year

provided each spouse has a separate HSA. Depletion

Employers are allowed to make larger HSA contribu- The temporary suspension of the taxable income limitation

tions for a nonhighly compensated employee than for a on percentage depletion from the marginal production of oil

highly compensated employee. and natural gas is not available for tax years beginning

For more information, see Health Savings Accounts on after 2007 and before 2009. It is, however, available for tax

page 12 of the 2008 Publication 15-B. years beginning after 2008 and before 2010.

Page 20 Chapter 2 Tax Changes for Businesses
Penalty for Late Filing of a liabilities. The credit is taken on line 12a of Form 941, line

11a of Form 944, or line 13a of Form 943 once the 35% of Partnership Return the premium is paid by or on behalf of the assistance

eligible individual. The credit is treated as a deposit made For partnership returns for tax years beginning in 2008 that on the first day of the return period (quarter or year). are required to be filed after 2008, the late filing penalty is

increased to $90 for each month or part of a month (up to Anyone claiming the credit for COBRA assistance pay12 months) the return is late (or does not contain the ments must maintain the appropriate information to suprequired information) multiplied by the total number of port their claim.

persons who were partners in the partnership during any For more information, see Publication 15 (Circular E), part of the partnership’s tax year. No penalty will be im- Employer’s Tax Guide. posed if the partnership shows that the late filing was due

to reasonable cause.

New Forms to Adjust Employment

Penalty for Late Filing of an S Tax Returns

Corporation Return

Adjusted employer’s quarterly federal tax return or

If no tax is due, the late filing penalty for returns required to claim for refund. Beginning with errors discovered after be filed after 2008 increased to $89 for each month or part 2008, employers must use Form 941-X, Adjusted Emof a month (up to 12 months) the return is late or does not ployer’s QUARTERLY Federal Tax Return or Claim for

include the required information, multiplied by the total Refund, to adjust errors discovered on previously filed

number of persons who were shareholders in the corpora- Forms 941 and 941-SS. Form 941c, which was previously

tion during any part of the corporation’s tax year. The used to adjust errors on Forms 941 and 941-SS and was

penalty change discussed in the preceding sentence also attached to a currently-filed Form 941 or Form 941-SS, can

applies if tax is due. In addition, the minimum additional no longer be used. You are required to file Form 941-X

late filing penalty for returns required to be filed after 2008 separately from Form 941 or Form 941-SS. that are more than 60 days late increased to $135 or the

balance of the tax due on the return, whichever is smaller. Adjusted employer’s annual federal tax return for agri- For more information, see the Instructions for Form 1120S. cultural employees or claim for refund. Beginning with

errors discovered after 2008, employers must use Form

943-X, Adjusted Employer’s Annual Federal Tax Return

2009 Changes for Agricultural Employees or Claim for Refund, to adjust

errors discovered on previously filed Form 943. Form

941c, which was previously used to adjust errors on Form

943 and was attached to a currently-filed Form 943, can no COBRA Premium Assistance Credit longer be used. You are required to file Form 943-X separately from Form 943. The American Recovery and Reinvestment Act of 2009

allows a credit against certain employment taxes for providing COBRA premium assistance to assistance eligible Adjusted employer’s annual federal tax return or claim

individuals. An assistance eligible individual is any quali- for refund. Beginning with errors discovered after 2008,

fied beneficiary if at any time during the period beginning employers must use Form 944-X, Adjusted Employer’s

on September 1, 2008, and ending on December 31, 2009, ANNUAL Federal Tax Return or Claim for Refund, to

the beneficiary is eligible for COBRA continuation cover- adjust errors discovered on previously filed Forms 944 and

age, the beneficiary elects coverage, and the qualifying 944-SS. Form 941c, which was previously used to adjust

event that allows the beneficiary to get coverage is the errors on Forms 944 and 944-SS and was attached to a

involuntary termination of the covered employee’s employ- currently-filed Form 944 or Form 944-SS, can no longer be

ment during this period. For periods of COBRA continua- used. You are required to file Form 944-X separately from

tion coverage beginning after February 16, 2009, a group Form 944 or Form 944-SS.

health plan must treat an assistance eligible individual as

having paid the required COBRA continuation coverage Adjusted annual return of withheld federal income tax premium if the individual elects COBRA continuation cov- or claim for refund. Beginning with errors discovered erage and pays 35% of the amount of the premium. after 2008, employers must use Form 945-X, Adjusted

The 65% of the amount of the premium not paid by the Annual Return of Withheld Federal Income Tax or Claim

assistance eligible individual is reimbursed to the employer for Refund, to adjust errors discovered on previously filed

or other entity maintaining the group health plan. The Form 945. Form 941c, which was previously used to adjust

maximum period for which the reimbursement can be errors on Form 945 and was attached to a currently-filed

provided for any beneficiary is 9 months. The reimburse- Form 945, can no longer be used. You are required to file

ment is made through a credit against employment tax Form 945-X separately from Form 945.

Chapter 2 Tax Changes for Businesses Page 21
Changes to Investment Credit In 2009, the maximum social security coverage under

the optional methods is four credits, the equivalent of

Generally, the energy credit from the following properties $4,360 of net earnings from self-employment.

was scheduled to expire after 2008 but has been extended

through 2016. Alcohol and Cellulosic Biofuel Fuels

• Qualified fuel cell property. Credit

• Qualified microturbine property. The following changes apply to the alcohol and cellulosic

• Solar energy property. biofuel fuels credit.

• For ethanol sold or used after 2008, the credit rate is For tax years beginning after October 3, 2008, the en- lowered. ergy credit can offset the alternative minimum tax.

For periods after February 17, 2009, the investment • For fuel produced, and sold or used, after 2008, the

credit includes the qualifying advanced energy project credit is expanded to include the cellulosic biofuel

credit. producer credit.

For periods after 2008, the $4,000 limit on the energy • For fuel sold or used after 2008, the percentage of credit for qualified small wind energy is repealed. denaturants included in the volume of alcohol used

You may elect to treat qualified property placed in serv- to figure the credit is lowered. ice as part of a qualified investment credit facility after 2008

as energy property for purposes of the energy credit in- For more information, see Form 6478. stead of taking the renewable electricity production credit.

For more information on the investment credit, see the

Instructions for Form 3468, Investment Credit. Biodiesel and Renewable Diesel Fuels

Credit

Depreciation Limits for Trucks or The following changes apply to the biodiesel and renewa- Vans ble diesel fuels credit.

The maximum deduction you can take for a truck or van 1. For fuel produced after 2008, biodiesel and renewayou use in your business and first placed in service in 2009 ble diesel do not include any liquid eligible for the

is $3,060 ($11,060 for trucks or vans for which the special alcohol and cellulosic biofuel fuels credit.

depreciation allowance applies). 2. For fuel produced, and sold or used, after 2008:

These limits are reduced if the business use of

a. The credit rate for the biodiesel and biodiesel mix- the vehicle is less than 100%.

CAUTION

ture credits increased to $1.00 per gallon.

!

b. Camelina is added to the list of virgin oils from

which agri-biodiesel is derived.

Self-Employment Tax c. The definition of renewable diesel changed.

Maximum amount subject to tax. 3. Biodiesel produced, sold, or used after September The maximum amount

30, 2009, must meet the new ASTM D6751 cold of net earnings subject to the social security part of the soak filtration test. The original April 1, 2009, dead- self-employment tax for tax years beginning in 2009 is line was extended by Notice 2009-34. You can find $106,800. All net earnings of at least $400 are subject to Notice 2009-34, 2009-17 I.R.B. 876, available at the Medicare part of the tax. www.irs.gov/irb/2009-17_IRB/ar07.html.

Optional methods to figure net earnings. For tax years For more information, see Form 8864. beginning in 2009, the dollar thresholds for using the optional methods to figure net earnings from

self-employment have increased. You may use the farm Credit for Employer Differential Wage

optional method to figure your net earnings from farm Payments self-employment if your gross farm income was $6,540 or

less or your net farm profits were less than $4,721. The Eligible small business employers may be able to claim a

nonfarm optional method may be used to figure your net credit for differential wage payments made to qualified

earnings from nonfarm self-employment if your net non- employees after 2008 and before 2010. The credit is 20%

farm profits were less than $4,721 and also less than of the first $20,000 of qualified differential wage payments

72.189% of your gross nonfarm income. made to each qualified employee. For more information,

Page 22 Chapter 2 Tax Changes for Businesses
see Form 8932, Credit for Employer Differential Wage This credit applies to vehicles acquired after February

Payments. 17, 2009.

New plug-in electric drive motor vehicle credit. A new Carbon Dioxide Sequestration Credit plug-in electric drive motor vehicle credit can be claimed

on new Form 8936, Qualified Plug-in Electric Drive Motor A credit of $20 per metric ton is allowed for qualified carbon Vehicle Credit. You may be able to claim this credit if you dioxide that is captured at a qualified facility and disposed place in service a plug-in electric drive motor vehicle for of in secure geological storage and, if captured after Feb- business or personal use in tax years beginning after 2008. ruary 17, 2009, not used as a tertiary injectant in a qualified The amount of the credit varies depending on the battery enhanced oil or natural gas recovery project. capacity and the date the vehicle is acquired. A credit of $10 per metric ton to qualified carbon dioxide A new qualified plug-in electric drive motor vehicle is a that is captured at a qualified facility and used as a tertiary motor vehicle with at least four wheels that meets certain

injectant in a qualified enhanced oil or natural gas recovery requirements including the following. project and, if captured after February 17, 2009, disposed • The original use of the vehicle starts with you. of in secure geological storage. For more information, see

Form 8933. • It is purchased for your use or lease and not for

resale.

Vehicle Credits • It is made by a manufacturer.

Alternative motor vehicle credit. For tax years begin- The list of additional requirements that must be met

ning after 2008, the personal use part of the alternative generally depend on whether the vehicle was acquired

motor vehicle credit is allowed against the AMT. before 2010 or after 2009.

You can generally rely on the manufacturer’s certificaNew plug-in conversion credit. A new plug-in conver- tion that a specific make, model, and model year vehicle

sion credit of 10% of the cost of converting any motor qualifies for the credit and the amount of the credit for

vehicle (new or used) to a qualified plug-in electric drive which it qualifies.

motor vehicle. The maximum credit is $4,000 per vehicle. Generally, no credit is allowed if the vehicle is used

This credit is claimed on Form 8910, Alternative Motor predominately outside the United States.

Vehicle Credit, and applies to property placed in service For more information, see section 30D, Notice 2009-54,

after February 17, 2009. and Notice 2009-89. Notice 2009-54, 2009-26 I.R.B. 1124,

is available at www.irs.gov/irb/2009-26_IRB/ar07.html.

New plug-in electric vehicle credit. A new credit of 10% Notice 2009-89, 2009-48 I.R.B. 714, is available at 

of the cost of a new plug-in electric vehicle can be claimed www.irs.gov/irb/2009-48_IRB/ar09.html.

on Form 8834. The maximum credit is $2,500 per vehicle. Increase in alternative fuel vehicle refueling property A qualified plug-in electric vehicle must meet the follow- credit. For vehicles placed in service after 2008 and ing requirements. before 2011, the alternative fuel vehicle refueling property

credit (claimed on Form 8911) is increased. For property 1. The original use of the vehicle began with you; that relates to hydrogen, the maximum credit per location 2. Was purchased for your use and not for resale; is increased to $200,000. For all other property, the credit

3. percentage is increased to 50% and the maximum credit Is made by a manufacturer; per location is increased to $50,000 ($2,000 for nondepre- 4. Is manufactured primarily for use on public streets, ciable property). roads, and highways;

5. Has a gross vehicle weight rating of less than

14,000; and

6. Is propelled to a significant extent by an electric motor which draws electricity from a battery which: Work Opportunity Credit

a. Has a capacity of not less than 4 kilowatt hours Two new targeted groups have been added to the work (2.5 kilowatt hours in the case of a vehicle with 2 opportunity credit. or 3 wheels), and

• Unemployed veterans. b. Is capable of being recharged from an external

source of electricity. • Disconnected youth.

Generally, no credit is allowed if the vehicle is used Generally, an unemployed veteran is one who has been

predominantly outside the United States. discharged or released from active duty in the Armed

Chapter 2 Tax Changes for Businesses Page 23
Forces at any time during the 5-year period ending on the Exclusion from wages. Generally, the value of transporhiring date and who receives unemployment compensa- tation benefits that you provide to an employee during

tion for not less than 4 weeks during the 1-year period 2009 are excluded from the employee’s wages up to the

ending on the hiring date. following limits.

A disconnected youth is one who is certified as: 1. For combined commuter highway vehicle transporta- • Being at least age 16 but not age 25 or older on the tion and transit passes:

hiring date;

a. $120 per month for the months of January and • Not attending any high school, technical school, or February 2009, and post-secondary school during the 6-month period

ending on the hiring date; b. $230 per month for any month beginning after

February 2009. • Not being regularly employed during that 6-month

period; and 2. $230 per month for qualified parking.

• Not being readily employable due to a lack of having 3. For a calendar year, $20 multiplied by the number of a sufficient number of basic skills. qualified bicycle commuting months during that year

for qualified bicycle commuting reimbursement. This applies to employees who begin work after 2008

and before 2011. Qualified bicycle commuting month. For any em- Use the Form 5884, Work Opportunity Credit, to claim ployee, a qualified bicycle commuting month is any month the credit. the employee regularly uses the bicycle for a substantial

portion of the travel between the employee’s residence

Social Security and Medicare Taxes and place of employment and does not receive transportation in a commuter highway vehicle, any transit pass, or

The maximum amount of wages subject to the social qualified parking benefits. security tax for 2009 is $106,800. There is no limit on the Generally, qualified transportation fringe benefits are amount of wages subject to the Medicare tax. excluded from an employee’s wages even if you provide

them under a compensation reduction agreement. HowMaximum Automobile Value for Using ever, qualified bicycle commuting reimbursements do not

qualify for this exclusion if made under a compensation the Cents-Per-Mile Valuation Rule

reduction agreement. For more information, see Qualified

For 2009, an employer providing a passenger automobile Transportation Benefits on page 19 of the 2009 Publication

15-B. for the personal use of an employee may determine the

value of the personal use by using the vehicle

cents-per-mile value rule if the vehicle’s fair market value Health Savings Accounts (HSAs) on the date it is first made available to the employee does

not exceed $15,000 for a passenger automobile other than Eligibility. For 2009, a qualifying high deductible health a truck or van, or $15,200 for a truck or van. For more plan (HDHP) must have a deductible of at least $1,150 for information, see Cents-Per-Mile Rule on page 23 of the self-only coverage or $2,300 for family coverage and must 2009 Publication 15-B. limit annual out-of-pocket expenses of the beneficiary to

$5,800 for self-only coverage and $11,600 for family cover- Qualified Transportation Fringe age.

Benefits

Employer contributions. Up to specified dollar limits,

After 2008, qualified transportation fringe benefits include cash contributions to the HSA of a qualified individual

any qualified bicycle commuting reimbursement. (determined monthly) are exempt from federal income tax

withholding, social security tax, Medicare tax, and FUTA

Qualified bicycle commuting reimbursement. For any tax. For 2009, you can contribute up to the following

calendar year, the exclusion for qualified bicycle commut- amounts to a qualified individual’s HSA.

ing reimbursement includes any employer reimbursement • $3,000 for self-only coverage or $5,950 for family during the 15-month period beginning with the first day of coverage. the calendar year for reasonable expenses incurred by the

employee during the calendar year. • $4,000 for self-only coverage or $6,950 for family

Reasonable expenses include the purchase of a bicycle coverage for a qualified individual who is age 55 or

and bicycle improvements, repair, and storage. These are older at any time during the year. The $6,950 limit is

considered reasonable expenses as long as the bicycle is increased by $1,000 for two married individuals who

regularly used for travel between the employee’s resi- are age 55 or older at any time during the year

dence and place of employment. provided and each spouse has a separate HSA.

Page 24 Chapter 2 Tax Changes for Businesses
Employers are allowed to make larger HSA contribu- For more information, see section 1202(a)(3).

tions for a nonhighly compensated employee than for a

highly compensated employee.

For more information, see Health Savings Accounts on

page 13 of the 2009 Publication 15-B.

3. Build America Bonds

A build America bond is a bond issued after February 17, IRAs and Other 2009, and before 2011 that qualifies as a tax-exempt bond

that is not a private activity bond, and for which an election Retirement Plans

is made by the issuer.

A tax credit of 35% of interest payable on build America

bonds is available to the bondholder, unless the issuer 2008 Changes elects to receive a direct payment in lieu of the credit to the

bondholder. The amount of credit is taxable as interest

income to the bondholder. The unused credit is not refundable, but can be carried forward to succeeding tax years. Traditional IRA Contribution and

Use Form 8912, Credit to Holders of Tax Credit Bonds, to Deduction Limit

claim the credit.

The contribution limit to your traditional IRA for 2008 will be

Cancellation of Debt increased to the smaller of the following amounts:

• $5,000, or Certain businesses can make an irrevocable election to • Your taxable compensation for the year. delay recognition income from the cancellation of business

debt arising from the reacquisition of certain types of busi- If you were age 50 or older before 2009, the most that ness debt repurchased in 2009 or 2010. If you make this can be contributed to your traditional IRA for 2008 will be election, you cannot exclude, for the taxable year of the the smaller of the following amounts: election or any subsequent taxable year, the income from

the cancellation of such indebtedness based on a title 11 • $6,000, or

bankruptcy case, insolvency, qualified farm indebtedness, • Your taxable compensation for the year. or qualified real property business indebtedness.

Income is deferred until the 5th year after the reacquisition (4th year for reacquisitions in 2010), then the income is

included ratably over the following 5 years. Modified AGI Limit for Traditional IRA

The debtor must include an election statement with the Contributions Increased tax return in the year the debt is reacquired. The statement

must clearly identify the debt instrument and the amount of For 2008, if you are covered by a retirement plan at work,

income deferred. your deduction for contributions to a traditional IRA is

If elected, certain exclusions for cancellation of debt reduced (phased out) if your modified AGI is:

income would not apply to the income from the discharge • More than $85,000 but less than $105,000 for a of such debt for the year of the election or any later year. married couple filing a joint return or a qualifying For more details, including how to make the election, widow(er), see section 108(i).

• More than $53,000 but less than $63,000 for a single

S Corporation Built-in Gains Tax individual or head of household, or

• Less than $10,000 for a married individual filing a For tax years beginning in 2009 or 2010, no tax is imposed separate return. on the net recognized built-in gain of an S corporation after

the 7th tax year in the recognition period. For more infor- If you either live with your spouse or file a joint return, mation, see section 1374. and your spouse is covered by a retirement plan at work,

but you are not, your deduction is phased out if your AGI is

Partial Exclusion Increased for Gain more than $159,000 but less than $169,000. If your AGI is

From Certain Small Business Stock $169,000 or more, you cannot take a deduction for contributions to a traditional IRA.

Exclusion of gain from the sale of qualifying small business

stock is increased to 75% for stock acquired after February

17, 2009, and before 2011.

Chapter 3 IRAs and Other Retirement Plans Page 25
Modified AGI Limit for Retirement Qualified Plans

Savings Contributions Credit The following changes apply to qualified plans. For more

Increased information, see Publication 560, Retirement Plans for

Small Business (SEP, SIMPLE, and Qualified Plans). For 2008, you may be able to claim the retirement savings

contributions credit if your modified AGI is not more than: Limits on contributions and benefits. For 2008, the

maximum annual benefit for a participant under a defined • $53,000 if your filing status is married filing jointly, benefit plan has increased to the smaller of:

• $39,750 if your filing status is head of household, or • $185,000, or

• $26,500 if your filing status is single, married filing • 100% of the participant’s average compensation for separately, or qualifying widow(er). his or her highest 3 consecutive calendar years.

For 2008, a defined contribution plan’s maximum annual

Roth Contribution Limit contributions and other additions (excluding earnings) to

the account of a participant has increased to the smaller of:

If contributions on your behalf are made only to Roth IRAs, • $46,000, or your contribution limit for 2008 will generally be the lesser

of: • 100% of the compensation actually paid to the participant. • $5,000, or

• Your taxable compensation for the year. Compensation limit. For 2008, the maximum compensation used for figuring contributions and benefits has in- If you were age 50 or older before 2009 and contribu- creased to $230,000. tions on your behalf were made only to Roth IRAs, your

contribution limit for 2008 will generally be the lesser of: Simplified Employee Pensions (SEPs) • $6,000, or

The following changes apply to SEPs. For more informa- • Your taxable compensation for the year. tion, see Publication 560.

However, if your modified AGI is above a certain amount, Deduction limit increased. The maximum deduction for your contribution limit may be reduced. contributions to a SEP remains unchanged at 25% of the

compensation paid or accrued during the year to your

Modified AGI Limit for Roth IRA eligible employees participating in the plan. However, for

2008, the maximum combined deduction for a participant’s Contributions Increased elective deferrals and other SEP contributions has increased to $46,000. For 2008, your Roth IRA contribution limit is reduced

(phased out) in the following situations. Contribution limit increased. For 2008, the annual limit

on the amount of employer contributions to a SEP has • Your filing status is married filing jointly or qualifying increased to the smaller of: widow(er) and your modified AGI is at least

$159,000. You cannot make a Roth IRA contribution • $46,000, or

if your modified AGI is $169,000 or more. • 25% of an eligible employee’s compensation.

• Your filing status is single, head of household, or

married filing separately and you did not live with Compensation limit. For 2008, the maximum amount of your spouse at any time in 2008 and your modified an employee’s compensation you can consider when figur- AGI is at least $101,000. You cannot make a Roth ing SEP contributions (including elective deferrals) and the IRA contribution if your modified AGI is $116,000 or deduction for contributions has increased to $230,000.

more.

• Your filing status is married filing separately, you 403(b) Plans lived with your spouse at any time during the year,

and your modified AGI is more than -0-. You cannot For 2008, the limit on annual additions has increased to

make a Roth IRA contribution if your modified AGI is $46,000. For more information, see Publication 571,

$10,000 or more. Tax-Sheltered Annuity Plans (403(b) Plans).

Page 26 Chapter 3 IRAs and Other Retirement Plans
Rollover of Exxon Valdez Settlement Any amount rolled over is subject to the same rules for

converting a traditional IRA into a Roth IRA. See Con- Income verting From Any Traditional IRA Into a Roth IRA in chapter 1 of Publication 590. Also, the rollover contribution must If you are a qualified taxpayer and you received qualified meet the rollover requirements that apply to the specific settlement income in connection with the Exxon Valdez type of retirement plan. litigation, you can contribute all or part of the amount

received to an eligible retirement plan. This includes a

traditional IRA, a Roth IRA, and a qualified retirement plan. Military Death Gratuities and The amount contributed cannot exceed $100,000 (re- Servicemembers’ Group Life duced by the amount of qualified settlement income contributed to an eligible retirement plan in prior tax years) or Insurance (SGLI) Payments

the amount of qualified settlement income received during If you received a military death gratuity or SGLI payment, the tax year. Contributions for the year can be made until you may contribute all or part of the amount received to the due date for filing your return, not including extensions. your Roth IRA or to a Coverdell education savings account For more information on contributing qualified settle- (ESA). The contribution is treated as a rollover, except that ment income to a traditional or Roth IRA, see chapters 1 this type of rollover does not count when figuring the and 2 of Publication 590, Individual Retirement Arrange- annual limit on the number of rollovers allowed.

ments (IRAs). For qualified retirement plans, see Publica- The amount you can contribute to a Roth IRA or Cover- tion 575, Pension and Annuity Income. dell ESA under this provision cannot exceed the total

amount of such payments that you received because of the Rollover of Airline Payments death of a person reduced by any part of the amount so

received that you have already contributed to a Roth IRA If you are a qualified airline employee, you may contribute, or Coverdell ESA.

to a Roth IRA, any portion of an airline payment you Generally, the rollover must be completed before the receive from a commercial airline carrier involved in certain

end of the 1-year period beginning on the date that you bankruptcy proceedings. The contribution must be made received the payment. However, if you received the mili- within 180 days from the date you received the payment, or tary death gratuity because of a death due to an injury before June 23, 2009, whichever is later. The contribution occurring after October 6, 2001, and before June 17, 2008, will be treated as a qualified rollover contribution and the you have until June 17, 2009, to make the contribution to modified AGI limits that generally apply to Roth IRA rollo- your Roth IRA or Coverdell ESA. vers do not apply to airline payments.

The amount contributed is treated as part of your basis For more information and for definitions of qualified (cost) in the Roth IRA or Coverdell ESA. airline employees and airline payments, see Rollover of

Airline Payments in chapter 2 of Publication 590. Also, see

Form 8935, Airline Payments Report. This form will be sent Qualified Reservist Distributions

to you within 90 days following an airline payment, or by

March 23, 2009, whichever is later. The form will indicate Eligibility to receive qualified reservist distributions has

been extended to individuals ordered or called to active the amount of the airline payment that is eligible to be duty after 2007. The additional 10% tax on early distribu- rolled over to a Roth IRA.

tions does not apply to these distributions. In addition, a

qualified reservist distribution can be contributed to an IRA Rollovers From Other Retirement within the 2-year period following the active duty period.

Plans to Roth IRAs The dollar limits otherwise applicable to IRA contributions

do not apply to any such contribution. For more information

Prior to 2008, you could only rollover (convert) amounts on qualified reservist distributions and qualified reservist

from either a traditional, SEP, or SIMPLE IRA into a Roth repayments, see Publication 590.

IRA. After 2007, you can rollover amounts from the following plans into a Roth IRA. Tax-Free Withdrawal of Economic • A qualified pension, profit-sharing or stock bonus Stimulus Payments plan (including a 401(k) plan);

You may choose to withdraw an economic stimulus pay- • An annuity plan; ment that was directly deposited to your traditional or Roth

• A tax-sheltered annuity plan (section 403(b) plan); IRA in 2008. If you choose to withdraw any or all of the

payment, that portion of the payment is treated as neither • A deferred compensation plan of a state or local contributed nor distributed from your IRA. The amount government (section 457 plan); or withdrawn is not included in your income and is not subject

• An IRA. to additional tax or penalty. The withdrawal must be made

Chapter 3 IRAs and Other Retirement Plans Page 27
by the due date for filing your 2008 tax return, including • $55,500 if your filing status is married filing jointly,

extensions. For most people, that would be April 15, 2009. • $41,625 if your filing status is head of household, or

For more information on reporting these withdrawals, • $27,750 if your filing status is single, married filing see the instructions for your tax return. Also see chapters 1 separately, or qualifying widow(er). and 2 of Publication 590.

Modified AGI Limit for Roth IRA 2009 Changes Contributions Increased

For 2009, your Roth IRA contribution limit is reduced

Temporary Waiver of Required (phased out) in the following situations.

Minimum Distributions (RMDs) for • Your filing status is married filing jointly or qualifying

2009 widow(er) and your modified AGI is at least

$166,000. You cannot make a Roth IRA contribution

For 2009, you are not required to take an RMD from your if your modified AGI is $176,000 or more.

IRA or most defined contribution retirement plans. This • Your filing status is single, head of household, or waiver applies to plan participants as well as to beneficia- married filing separately and you did not live with ries. The waiver also applies to you if you turn 701

/2 in 2009 your spouse at any time in 2009 and your modified and delay your 2009 RMD until April 1, 2010. The waiver AGI is at least $105,000. You cannot make a Roth does not apply to RMDs for 2008, even if you turned 701

/2 in IRA contribution if your modified AGI is $120,000 or 2008 and choose to take the 2008 RMD by April 1, 2009. more.

For more information on the waiver of RMDs from IRAs, • Your filing status is married filing separately, you see Publication 590. For more information on the waiver of lived with your spouse at any time during the year, RMDs from employer-provided qualified retirement plans, and your modified AGI is more than -0-. You cannot see Publication 575. make a Roth IRA contribution if your modified AGI is

$10,000 or more. Modified AGI Limit for Traditional IRA

Contributions Increased

Qualified Plans For 2009, if you are covered by a retirement plan at work,

your deduction for contributions to a traditional IRA is The following changes apply to qualified plans. For more reduced (phased out) if your modified AGI is: information, see Publication 560.

• More than $89,000 but less than $109,000 for a Limits on contributions and benefits. For 2009, the married couple filing a joint return or a qualifying maximum annual benefit for a participant under a defined widow(er), benefit plan has increased to the smaller of:

• More than $55,000 but less than $65,000 for a single • $195,000, or individual or head of household, or • 100% of the participant’s average compensation for • Less than $10,000 for a married individual filing a his or her highest 3 consecutive calendar years. separate return.

For 2009, a defined contribution plan’s maximum annual If you either live with your spouse or file a joint return, contributions and other additions (excluding earnings) to and your spouse is covered by a retirement plan at work, the account of a participant has increased to the smaller of: but you are not, your deduction is phased out if your

modified AGI is more than $166,000 but less than • $49,000, or

$176,000. If your modified AGI is $176,000 or more, you • 100% of the compensation actually paid to the par- cannot take a deduction for contributions to a traditional ticipant. IRA.

Compensation limit. For 2009, the maximum compensa- Modified AGI Limit for Retirement tion used for figuring contributions and benefits has inSavings Contributions Credit creased to $245,000.

Increased

For 2009, you may be able to claim the retirement savings

contributions credit if your modified AGI is not more than:

Page 28 Chapter 3 IRAs and Other Retirement Plans
Simplified Employee Pensions (SEPs)

The following changes apply to SEPs. For more informa- 4.

tion, see Publication 560.

Deduction limit increased. The maximum deduction for Estate and Gift Taxes contributions to a SEP remains unchanged at 25% of the

compensation paid or accrued during the year to your

eligible employees participating in the plan. However, for

2009, the maximum combined deduction for a participant’s 2008 Changes

elective deferrals and other SEP contributions has increased to $49,000.

Annual Exclusion for Gifts to Contribution limit increased. For 2009, the annual limit

on the amount of employer contributions to a SEP has Non-U.S. Citizen Spouses Increased

increased to the smaller of:

For calendar year 2008, the annual exclusion for gifts

• $49,000, or made to spouses who are not U.S. citizens will increase to

$128,000. • 25% of an eligible employee’s compensation.

Compensation limit. For 2009, the maximum amount of

an employee’s compensation you can consider when figur- 2009 Changes

ing SEP contributions (including elective deferrals) and the

deduction for contributions has increased to $245,000.

Annual Exclusion for Gifts Increased

SIMPLE Plans The annual exclusion for gifts of present interests made to

a donee during the calendar year has increased to For 2009, the limit on salary reduction contributions (ex- $13,000. cluding catch-up contributions) to a SIMPLE plan has in- The annual exclusion for gifts made to spouses who are creased to $11,500. For more information, see Publication not U.S. citizens will increase to $133,000. 560.

403(b) Plans Estate Tax Applicable Exclusion

Amount Increased

The following changes apply to 403(b) plans. For more

information, see Publication 571. An estate tax return for a U.S. citizen or resident needs to

be filed only if the gross estate exceeds $3.5 million for Limit on elective deferrals. For 2009, the limit on elec- decedents dying during 2009. tive deferrals (excluding catch-up contributions) has increased to $16,500.

Limit on annual additions. For 2009, the limit on annual

additions has increased to $49,000.

5.

Excise Taxes

Changes Effective for the First

Quarter of 2008

Air Transportation Taxes

For amounts paid during 2008, the tax on use of international air travel facilities will be $15.40 per person for flights

that begin or end in the United States, or $7.70 per person

Chapter 5 Excise Taxes Page 29
for domestic segments that begin or end in Alaska or

Hawaii (applies only to departures). For amounts paid for Changes Effective for the each domestic segment of taxable transportation of persons by air, the domestic segment tax is $3.50 per seg- Fourth Quarter of 2008

ment for transportation that begins in 2008.

Arrow Shafts Arrow Shafts

The tax on arrow shafts (IRS No. 106) is $.43 per arrow After October 3, 2008, the tax does not apply to any shaft

shaft. made of all natural wood with no laminations or artificial

means of enhancing the spine of such shaft (whether sold

Dyed Diesel Fuel Used in Trains separately or incorporated as part of a finished or unfinished product) and used in the manufacture of any arrow

The train operator is no longer liable for the leaking under- that after its assembly meets both of the following conditions. ground storage tank (LUST) tax on dyed diesel fuel used in

trains. IRS No. 71 has been removed from Form 720, • It measures 5

/16 of an inch or less in diameter.

Quarterly Federal Excise Tax Return. The position holder • It is not suitable for use with a taxable bow. of the dyed diesel fuel generally is liable for the LUST tax

under IRS No. 105.

Inland Waterways Fuel Use Tax Alternative Fuel Credit and Alternative

Fuel Mixture Credit

Generally, the inland waterways fuel use tax is $.20 (IRS

No. 64). However, the LUST tax (IRS No. 125) must be You may be eligible to claim the alternative fuel credit and

paid on any liquid fuel used on inland waterways that is not alternative fuel mixture credit for compressed gas derived

subject to LUST tax under section 4041(d) or 4081. For from biomass and liquefied gas derived from biomass sold

example, gallons of Bunker C fuel oil must be reported or used after October 3, 2008.

under both IRS Nos. 64 and 125.

Alternative Fuel Used in Aviation

Disregarded Entities and Qualified

You can claim the alternative fuel credit for alternative fuel Subchapter S Subsidiaries (QSubs) sold after October 3, 2008, for use as a fuel in aviation.

After 2007, qualified subchapter S subsidiaries (QSubs)

and eligible single-owner disregarded entities are treated Credits for Fuel Limited to Fuels with

as separate entities for certain excise tax and related Connection to the United States reporting purposes. QSubs and eligible single-owner disregarded entities must pay and report excise taxes (other After May 14, 2008, the alcohol fuel credit, alcohol fuel than IRS Nos. 31, 51, and 117), register for excise tax mixture credit, biodiesel credit, biodiesel mixture credit,

activities, and claim any refunds, credits, and payments alternative fuel credit, and alternative fuel mixture credit

under the entity’s EIN. These actions cannot take place may not be claimed for alcohol, biodiesel, and alternative under the owner’s taxpayer identification number (TIN). fuel that is produced outside the United States for use as a Some QSubs and disregarded entities may already have fuel outside the United States. The United States includes

an EIN. However, if you are unsure, please call the IRS any possession of the United States. Business and Specialty Tax Line at 1-800-829-4933. Generally, QSubs and eligible single-owner disregarded enti- Liquefied Gas Derived From Biomass ties will continue to be treated as disregarded entities for

other federal tax purposes. Thus, taxpayers filing Form Liquefied gas derived from biomass sold or used after 4136, Credit for Federal Tax Paid on Fuels, with Form October 3, 2008, is taxable at $.184 per gallon. You are 1040 can use the owner’s TIN. For more information on liable for tax on liquefied gas derived from biomass that is these new regulations, see Treasury Decision 9356. You delivered into the fuel supply tank of a motor vehicle or can find Treasury Decision 9356, 2007-39 I.R.B. 675, motorboat and on certain bulk sales. Report this tax under available at www.irs.gov/irb/2007-39_IRB/ar04.html. IRS No. 79.

 You can make a claim for nontaxable use of liquefied

gas derived from biomass on Schedule C (Form 720) or

Schedule 1 (Form 8849) at $.183 per gallon.

Page 30 Chapter 5 Excise Taxes
Renewable Diesel Renewable diesel also includes fuel derived from biomass

that meets a Department of Defense specification for miliAfter October 3, 2008, renewable diesel does not include tary jet fuel or an ASTM specification for aviation turbine

any fuel derived from co-processing biomass (as defined in fuel. For a renewable diesel mixture used in aviation,

section 45K(c)(3)) with a feedstock that is not biomass. kerosene is treated as diesel fuel.

Retail Tax Qualified Methanol and Ethanol

Produced From Coal

You can exclude the cost of certain idling reduction devices and insulation sold or installed after October 3, 2008, The tax on qualified methanol and ethanol produced from

from the sales price of the taxable vehicle. coal (IRS No. 79) is $.184 per gallon.

Changes Effective for the First Changes Effective for the

Quarter of 2009 Fourth Quarter of 2009

Alcohol Fuel Mixture Credit Carbon Capture Requirement

The claim rate for alcohol fuel mixtures containing ethanol A credit for liquid fuel derived from coal (including peat) is $.45 per gallon. through the Fischer-Tropsch process can be claimed only

if the fuel is derived from coal produced at a gasification

Air Transportation Taxes facility that separates and sequesters not less than the

following percentage of the facility’s total carbon dioxide For amounts paid during 2009, the tax on use of interna- emissions.

tional air travel facilities will be $16.10 per person for flights • 50% for fuel produced after September 30, 2009, that begin or end in the United States, or $8.00 per person and before December 31, 2009. for domestic segments that begin or end in Alaska or

Hawaii (applies only to departures). For amounts paid for • 75% for fuel produced after 2009. each domestic segment of taxable transportation of persons by air, the domestic segment tax is $3.60 per segment for transportation that begins in 2009.

Arrow Shafts

6. The tax on arrow shafts (IRS No. 106) is $.45 per arrow

shaft.

Biodiesel Mixture Credit Foreign Issues

The claim rate for biodiesel mixtures is $1.00 per gallon.

2008 Changes

Oil Spill Liability Tax

The oil spill liability tax (IRS Nos. 18 and 21) is $.08 per Foreign Earned Income and Housing barrel. Exclusions

Renewable Diesel Requirements Exclusion amount. For 2008, the maximum foreign

earned income exclusion has increased to $87,600. Renewable diesel used to produce a renewable diesel

mixture must be derived from biomass, meet ASTM D975,

D396, or other equivalent standard approved by the IRS, Housing expenses—base amount. The base housing

and meet EPA’s registration requirements for fuels and amount has increased to $38.30 per day, or $14,016 for an

fuel additives under section 211 of the Clean Air Act. entire calendar year.

Chapter 6 Foreign Issues Page 31
Exemption for Certain Distributions a qualified substitute. Qualified substitutes are explained in

Publication 515, Withholding of Tax on Nonresident Aliens From Mutual Funds Extended and Foreign Entities, under U.S. Real Property Interest.

The exemption from 30% tax on certain interest-related Generally, the treatment of a regulated investment comdividends and short-term capital gain dividends received pany (RIC) as a qualified investment entity (QIE) was

from a mutual fund or other regulated investment company scheduled to expire at the end of 2007. The provision has

has been extended 2 years. It now applies to dividends for been extended through 2009. The special rules that apply tax years of the company beginning before 2010. See to distributions from a QIE attributable to the gain from the Dividend Income in chapter 3 of Publication 519, U.S. Tax sale or exchange of a U.S. real property interest will con- Guide for Aliens. tinue to apply to any distribution from a RIC. See Qualified

investment entities under U.S. Real Property Interest in

New Rules for Former U.S. Citizens Publication 515.

and Former Long-Term Residents

If you expatriated after June 16, 2008, new expatriation

rules apply to you if any of the following statements apply. 2009 Changes

• Your average annual net income tax for the 5 years

ending before the date of expatriation or termination

of residency is more than $139,000 (if you expatri- Foreign Earned Income and Housing

ated or terminated residency before 2009). Exclusions

• Your net worth is $2 million or more on the date of

your expatriation or termination of residency. Exclusion amount. For 2009, the maximum foreign

earned income exclusion has increased to $91,400. • You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5

years preceding the date of your expatriation or ter- Housing expenses—base amount. For 2009, the base

mination of residency. housing amount has increased to $40.07 per day, or

$14,624 for the entire calendar year.

Note. If you expatriated before June 17, 2008, the expa- New Treaties and Protocol

triation rules in effect at that time continue to apply.

See chapter 4 in Publication 519 for more information. The United States has exchanged instruments of ratification for new income tax treaties with Bulgaria and Iceland

Withholding on Foreign Partners and a new protocol to the income tax treaty with Canada.

The effective dates are as follows:

A foreign partner can provide to a partnership a certifica- Bulgaria. The provisions for withholding tax at source tion to reduce or eliminate the partnership’s withholding tax are effective for amounts paid or credited after 2008. For obligation under section 1446 on the partner’s allocable other taxes, the treaty is effective for tax periods beginning share of effectively connected taxable income from the after 2008. partnership. Any certificate (including any updated certificates and status reports) submitted, or required to be Canada. The provisions for withholding tax at source

submitted, after July 28, 2008, must comply with Regula- are generally effective for amounts paid or credited after

tions section 1.1446-6. January 31, 2009. For other taxes, the protocol is generally The foreign partner must use Form 8804-C, Certificate effective for tax periods beginning after 2008. of Partner-Level Items to Reduce Section 1446 WithholdIceland. The provisions for withholding tax at source ing. The partner gives the form to the partnership. For

more information, including when the partnership has to are effective for amounts derived after 2008. For other

file the form with the IRS, see the Instructions for Form taxes, the new treaty is effective for tax years beginning

8804-C. after 2008. An individual who was otherwise entitled to

benefits under Article 21 (Teachers) of the former treaty

U.S. Real Property Interests can continue to apply those provisions. A person entitled to

benefits under the former treaty can elect to have that

For dispositions of U.S. real property interests after July treaty apply in its entirety for a twelve-month period follow30, 2008, transferors can give a nonforeign certification to ing the date the new treaty would otherwise apply.

Page 32 Chapter 6 Foreign Issues
• Check the status of your 2008 refund. Go to 

www.irs.gov and click on Where’s My Refund. Wait 7. at least 72 hours after the IRS acknowledges receipt

of your e-filed return, or 3 to 4 weeks after mailing a

How To Get Tax Help paper return. If you filed Form 8379 with your return,

wait 14 weeks (11 weeks if you filed electronically).

Have your 2008 tax return available so you can You can get help with unresolved tax issues, order free provide your social security number, your filing sta- publications and forms, ask tax questions, and get informa- tus, and the exact whole dollar amount of your re- tion from the IRS in several ways. By selecting the method fund. that is best for you, you will have quick and easy access to

tax help. • Download forms, instructions, and publications.

Contacting your Taxpayer Advocate. • Order IRS products online. The Taxpayer

Advocate Service (TAS) is an independent organization • Research your tax questions online. within the IRS whose employees assist taxpayers who are • Search publications online by topic or keyword. experiencing economic harm, who are seeking help in

resolving tax problems that have not been resolved • View Internal Revenue Bulletins (IRBs) published in

through normal channels, or who believe that an IRS the last few years.

system or procedure is not working as it should. • Figure your withholding allowances using the with- You can contact the TAS by calling the TAS toll-free holding calculator online at www.irs.gov/individuals. case intake line at 1-877-777-4778 or TTY/TDD

1-800-829-4059 to see if you are eligible for assistance. • Determine if Form 6251 must be filed by using our

You can also call or write your local taxpayer advocate, Alternative Minimum Tax (AMT) Assistant. whose phone number and address are listed in your local • Sign up to receive local and national tax news by telephone directory and in Publication 1546, Taxpayer

Advocate Service—Your Voice at the IRS. You can file email.

Form 911, Request for Taxpayer Advocate Service Assis- • Get information on starting and operating a small tance (And Application for Taxpayer Assistance Order), or business.

ask an IRS employee to complete it on your behalf. For

more information, go to www.irs.gov/advocate.

Low Income Taxpayer Clinics (LITCs). LITCs are in- Phone. Many services are available by phone. 

dependent organizations that provide low income taxpayers with representation in federal tax controversies with the

IRS for free or for a nominal charge. The clinics also

provide tax education and outreach for taxpayers who

speak English as a second language. Publication 4134, • Ordering forms, instructions, and publications. Call

Low Income Taxpayer Clinic List, provides information on 1-800-829-3676 to order current-year forms, instrucclinics in your area. It is available at www.irs.gov or your tions, and publications, and prior-year forms and inlocal IRS office. structions. You should receive your order within 10

days. Free tax services. To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. • Asking tax questions. Call the IRS with your tax

questions at 1-800-829-1040. It contains lists of free tax information sources, including

publications, services, and free tax education and assis- • Solving problems. You can get face-to-face help tance programs. It also has an index of over 100 TeleTax solving tax problems every business day in IRS Tax- topics (recorded tax information) you can listen to on your payer Assistance Centers. An employee can explain telephone. IRS letters, request adjustments to your account, or Accessible versions of IRS published products are help you set up a payment plan. Call your local available on request in a variety of alternative formats for Taxpayer Assistance Center for an appointment. To people with disabilities. find the number, go to www.irs.gov/localcontacts or

Internet. You can access the IRS website at look in the phone book under United States Governwww.irs.gov 24 hours a day, 7 days a week to: ment, Internal Revenue Service.

• TTY/TDD equipment. If you have access to TTY/

TDD equipment, call 1-800-829-4059 to ask tax

questions or to order forms and publications. • E-file your return. Find out about commercial tax

preparation and e-file services available free to eligi- • TeleTax topics. Call 1-800-829-4477 to listen to

ble taxpayers. pre-recorded messages covering various tax topics.

Chapter 7 How To Get Tax Help Page 33
• Refund information. To check the status of your days to schedule an in-person appointment at your

2008 refund, call 1-800-829-1954 during business convenience. If you have an ongoing, complex tax

hours or 1-800-829-4477 (automated refund infor- account problem or a special need, such as a disamation 24 hours a day, 7 days a week). Wait at least bility, an appointment can be requested. All other

72 hours after the IRS acknowledges receipt of your issues will be handled without an appointment. To

e-filed return, or 3 to 4 weeks after mailing a paper find the number of your local office, go to 

return. If you filed Form 8379 with your return, wait www.irs.gov/localcontacts or look in the phone book 14 weeks (11 weeks if you filed electronically). Have under United States Government, Internal Revenue your 2008 tax return available so you can provide Service. your social security number, your filing status, and

the exact whole dollar amount of your refund. Re- Mail. You can send your order for forms, instruc- funds are sent out weekly on Fridays. If you check tions, and publications to the address below. You the status of your refund and are not given the date should receive a response within 10 days after it will be issued, please wait until the next week your request is received. before checking back.

• Other refund information. To check the status of a Internal Revenue Service prior year refund or amended return refund, call National Distribution Center 1-800-829-1954. 1201 N. Mitsubishi Motorway

Bloomington, IL 61705-6613 Evaluating the quality of our telephone services. To

ensure IRS representatives give accurate, courteous, and DVD for tax products. You can order Publication

professional answers, we use several methods to evaluate 1796, IRS Tax Products DVD, and obtain:

the quality of our telephone services. One method is for a

second IRS representative to listen in on or record random

telephone calls. Another is to ask some callers to complete

a short survey at the end of the call. • Current-year forms, instructions, and publications.

Walk-in. Many products and services are avail- • Prior-year forms, instructions, and publications.

able on a walk-in basis. • Tax Map: an electronic research tool and finding aid.

• Tax law frequently asked questions.

• Tax Topics from the IRS telephone response sys- • Products. You can walk in to many post offices, tem. libraries, and IRS offices to pick up certain forms,

instructions, and publications. Some IRS offices, li- • Internal Revenue Code—Title 26 of the U.S. Code.

braries, grocery stores, copy centers, city and county • Fill-in, print, and save features for most tax forms. government offices, credit unions, and office supply

stores have a collection of products available to print • Internal Revenue Bulletins.

from a CD or photocopy from reproducible proofs. • Toll-free and email technical support. Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue • Two releases during the year.

Bulletins, and Cumulative Bulletins available for re- – The first release will ship the beginning of January

search purposes. 2009.

– The final release will ship the beginning of March • Services. You can walk in to your local Taxpayer 2009. Assistance Center every business day for personal,

face-to-face tax help. An employee can explain IRS Purchase the DVD from National Technical Information letters, request adjustments to your tax account, or Service (NTIS) at www.irs.gov/cdorders for $30 (no han- help you set up a payment plan. If you need to dling fee) or call 1-877-233-6767 toll free to buy the DVD resolve a tax problem, have questions about how the for $30 (plus a $6 handling fee). tax law applies to your individual tax return, or you

are more comfortable talking with someone in per- Small Business Resource Guide 2009. This son, visit your local Taxpayer Assistance Center online guide is a must for every small business where you can spread out your records and talk with owner or any taxpayer about to start a business. an IRS representative face-to-face. No appointment This year’s guide includes: is necessary—just walk in. If you prefer, you can call

your local Center and leave a message requesting • Helpful information, such as how to prepare a busian appointment to resolve a tax account issue. A ness plan, find financing for your business, and

representative will call you back within 2 business much more.

Page 34 Chapter 7 How To Get Tax Help
• All the business tax forms, instructions, and publica- • A site map of the guide to help you navigate the

tions needed to successfully manage a business. pages with ease.

• Tax law changes for 2009. • An interactive “Teens in Biz” module that gives practical tips for teens about starting their own business, • Tax Map: an electronic research tool and finding aid. creating a business plan, and filing taxes.

• Web links to various government agencies, business

associations, and IRS organizations. The information is updated during the year. Visit 

www.irs.gov and enter keyword “SBRG” in the upper • “Rate the Product” survey—your opportunity to sug- right-hand corner for more information. gest changes for future editions.

Chapter 7 How To Get Tax Help Page 35
To help us develop a more useful index, please let us know if you have ideas for index entries.

Index See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

Credit for employer differential Student loan interest ........ . 5, 14

403(b) plans ................. . 26, 29 wage payments ............... . 22 Tuition and fees ................ . 5

Credits: Deferred compensation,

Adoption .................... . 8, 15 nonqualified .................. . 20 A Agricultural chemicals Depletion: Accelerated death benefits ...... . 8, security ...................... . 19 Marginal production of oil and 15 Alcohol and cellulosic biofuel gas .......................... . 20 Additional child tax credit, earned fuels ..................... . 18, 22 Depreciation limits for trucks or income for ................. . 7, 14 Biodiesel and renewable diesel vans ........................... . 22 Adoption benefits............ . 8, 15 fuels ..................... . 18, 22 Depreciation limits on business Agricultural chemical security Build America bonds ........... . 25 vehicles ....................... . 17 credit .......................... . 19 Carbon dioxide Depreciation, section 179 expense Airline payments ................ . 27 sequestration ............ . 19, 23 deduction ..................... . 17 Alcohol and cellulosic biofuel fuels COBRA premium Distributions: credit ...................... . 18, 22 assistance ................... . 21 Qualified reservist ............. . 27 Alternative minimum tax ..... . 3, 9, Earned income ............. . 4, 13

Divorced parents ............... . 14 12, 22 Employer differential wage

Annual exclusion for gifts ...... . 29 payments .................... . 22

Archer MSA .................. . 9, 16 Energy ......................... . 22 E

Assistance First-time homebuyer ........... . 5 (See Tax help) Earned income credit ........ . 4, 13 Government retiree ............ . 11 Economic recovery Health coverage tax ........... . 16 B payment ...................... . 11 Hope ....................... . 6, 11 Biodiesel and renewable diesel Economic stimulus payments: Investment ..................... . 22 fuels credit................ . 18, 22 Withdrawal of .................. . 27 Lifetime learning ............ . 6, 14

Build America bonds ........... . 25 Education benefits: Low-income housing ........... . 19

Business start-up ............... . 18 Making work pay Education savings bonds ... . 8, 15 ............... . 11

Minimum tax, prior year ......... . 9 Hope credit ................. . 6, 11

C Nonbusiness energy Lifetime learning credit ...... . 6, 14

Cancellation of debt ............ . 25 property .................. . 7, 14 Qualified tuition program ....... . 14

Carbon dioxide sequestration Recovery rebate ................ . 2 Tuition and fees deduction ...... . 5

credit ...................... . 19, 23 Rehabilitation .................. . 22 Education savings bonds ... . 8, 15

Child tax credit, qualifying Residential energy efficient Election to accelerate certain

child property .................. . 7, 14 credits in lieu of the special ........................... . 12

Child’s investment income ...... . 4, Retirement savings depreciation allowance ...... . 18

12 contributions ............ . 26, 28 Employees of the Peace

COBRA premium assistance Vehicle ........................ . 23 Corps .......................... . 7

Work opportunity .............. . 23 credit .......................... . 21 Employment tax:

Comments on publication ....... . 2 Amend ......................... . 21

Compensation limit: D Energy credit ................... . 22

Qualified plans ............. . 26, 28 Deductible limit for long-term care Estate tax applicable exclusion

Simplified employee pensions premiums .................. . 8, 15 amount ........................ . 29

(SEPs) .................. . 26, 29 Deduction limit: Estimated tax payments ..... . 2, 16

Contribution limit: Simplified employee pensions Exclusion of income:

Qualified plans ............. . 26, 28 (SEPs) .................. . 26, 29 Volunteer emergency medical

Simplified employee pensions Deductions: responders ................... . 9

(SEPs) ...................... . 29 Convenience fees, credit or debit Volunteer firefighters ........... . 9

Contributions: card .......................... . 7 Expatriates ...................... . 32

Roth IRA....................... . 26 Long-term care insurance Exxon Valdez settlement

Salary reduction ............... . 29 premiums ................ . 8, 15 income ........................ . 27

Simplified employee pensions Personal casualty and theft loss

(SEPs) ...................... . 26 limit .......................... . 13

Traditional IRA................. . 25 Sales and excise taxes on F

Convenience fees, credit or debit purchase of new motor Federally declared disasters .... . 3

card deduction ................ . 7 vehicles ..................... . 13 First-time homebuyer credit .... . 5

Page 36 Publication 553 (June 2009)
Foreign earned income Investment credit ............... . 22 Qualified plans .............. . 26, 28

exclusion ................. . 31, 32 IRAs: Qualified principal residence

Foreign housing exclusion .... . 31, Contribution and deduction indebtedness .................. . 7

32 limit .......................... . 25 Qualified reservist

Form: Modified AGI limit .......... . 25, 28 distributions .................. . 27

941-X .......................... . 21 Itemized deductions ......... . 7, 15 Qualified settlement income ... . 27

943-X .......................... . 21 Qualified timber gain, capital gain

944-X .......................... . 21 K tax rate reduction for

945-X .......................... . 21 Kansas disaster area corporations with ............ . 20 ............ . 1 1040-ES ........................ . 2 Qualified tuition program ...... . 14

1045 ........................... . 20 Qualifying child ................. . 12

1139 ........................... . 20 L

4684 ........................ . 3, 13 Lifetime learning credit ...... . 6, 14

5405 ............................ . 5 Like-kind exchanges ............ . 7 R

5884 ........................... . 23 Recovery rebate credit .......... . 2 Limit on annual additions ..... . 26,

6478 ....................... . 18, 22 29 Rehabilitation credit ............ . 22

8332 ........................... . 14 Limit on elective deferrals Required minimum distribution: ...... . 29

8586 ........................... . 19 Temporary waiver ............. . 28 Long-term care .............. . 8, 15

8615 ........................ . 4, 12 Residential energy efficient Low-income housing credit .... . 19

8804-C ........................ . 32 property credit............. . 7, 14

8834 ........................... . 23 Rollovers:

8864 ....................... . 18, 22 M Airline payments ............... . 27

Making work pay credit......... . 11 8910 ........................... . 23 Rollovers to Roth IRA .......... . 27

8911 Maximum automobile value ... . 20, ........................... . 23 Roth IRAs:

8912 ........................... . 25 24 Contribution limit ............... . 26

8926 ........................... . 17 Meal expenses .................. . 18 Modified AGI limit .......... . 26, 28

8931 ........................... . 19 Midwestern disaster areas ...... . 1 Rollovers to .................... . 27

8932 ........................... . 22 Military:

8933 ....................... . 19, 23 Qualified benefits ............... . 7

8936 ........................... . 23 S Military death gratuities ........ . 27

W-4 S corporation built-in gains ............................. . 2 Military retirement: tax ............................. . 25 Free tax services ............... . 33 Special limitation period ....... . 10 Sale of main home .............. . 15 Fringe benefits: Minimum tax credit, prior Employees of the Peace Bicycle commuting reimbursement, year ............................ . 9 Corps ........................ . 7 qualified ................. . 12, 24 More information (See Tax help) Surviving spouse ............... . 7 Commuter transportation ..... . 12, Mutual fund distributions ...... . 32 Volunteers of the Peace 20, 24

Corps ........................ . 7 Parking exclusion ...... . 12, 20, 24

N Section 179 expense

Net operating losses ........... . 20 deduction ..................... . 17

G Nonbusiness energy property Self-employment tax........ . 18, 22

Gifts to spouses who are not U.S. credit ....................... . 7, 14 Conservation Reserve Program

citizens ....................... . 29 Nonresident aliens ............. . 32 payments .................... . 18

Government retiree credit ...... . 11 Optional method ............... . 18

Separated parents .............. . 14 O Servicemembers’ Group Life H Organizational costs ........... . 18 Insurance (SGLI) Health coverage tax credit ..... . 16 payments ..................... . 27 Health flexible spending P SIMPLE plans ................... . 29 arrangements .................. . 8 Penalty: Simplified employee pensions Health savings accounts .... . 8, 15, Failure to file income tax (SEPs)..................... . 26, 29 20, 24 return ........................ . 10 Small business stock ........... . 25 Help (See Tax help) Penalty for late filing: Social security and Medicare Hope credit................... . 6, 11 Partnership return ............. . 21 taxes ................ . 9, 16, 19, 24 Hurricanes Katrina, Rita, and S corporation return ........... . 21 Special depreciation Wilma .......................... . 3 Personal exemptions ........ . 5, 13 allowance ..................... . 17

Publications (See Tax help) Special depreciation allowance,

I election to accelerate certain

Income averaging: Q credits in lieu of .............. . 18

Farmers ....................... . 10 Qualified dividends, maximum tax Standard deduction ......... . 5, 13

Fishermen ..................... . 10 rate reduction ................. . 4 Standard mileage rate ....... . 4, 12

Publication 553 (June 2009) Page 37
Student loan interest Tuition and fees deduction ...... . 5 W

deduction .................. . 5, 14 Wage threshold for household

Suggestions for publication .... . 2 U employees ................. . 9, 16

Surviving spouse, sale of main Unemployment Withholding for 2009 ............ . 2

home ........................... . 7 compensation ................ . 12 Withholding on foreign

partners ....................... . 32

T V Work opportunity credit ........ . 23

Tax help ......................... . 33 Vehicle credit ................... . 23 ■ Taxpayer Advocate ............. . 33 Volunteers of the Peace

TTY/TDD information ........... . 33 Corps .......................... . 7

Page 38 Publication 553 (June 2009)