| Iraci & Phelan |
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Updated March 29, 2009 The Making Work Pay Tax Credit Attention Employers: The IRS has issued updated withholding tables to help you implement the withholding adjustments required by the new economic stimulus law. News release 2009-13 includes information about these tables. More details about the Making Work Pay credit are available in Publication 15-T, New Wage Withholding and Advance Earned Income Credit Payment Tables (For Wages Paid Through 2009). General Information For 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns. This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly. For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes in early spring. These changes may result in an increase in take-home pay. The amount of the credit must be reported on the employee's 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return. It is not necessary to submit a Form W-4 to get the automatic withholding change. However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his or her combined income. Publication 919 provides additional guidance for tax withholding. See Tax Tips page for more info. ed ------------------------------------------------------------------------------------------------------------------------------------ Sales Tax Deduction for Vehicle Purchases The American Recovery and Reinvestment Act of 2009 provides a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles through 2009. The deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A. Purchases before Feb. 17, 2009, are not eligible for this special deduction. The deduction is limited to the tax on up to $49,500 of the purchase price of an eligible motor vehicle. The deduction is phased out for joint filers with modified adjusted gross income between $250,000 and $260,000 and other taxpayers with modified AGI between $125,000 and $135,000. ------------------------------------------------------------------------------------------------------------------------------------ The Economic Recovery Payment A one-time payment of $250 will be made in 2009 to: Retirees, disabled individuals and Supplemental Security Income (SSI) recipients receiving benefits from the Social Security Administration. Disabled veterans receiving benefits from the U.S. Department of Veterans Affairs. Railroad Retirement beneficiaries. The IRS will not make this payment — unlike last year's economic stimulus program. Individuals who may qualify for this year's economic recovery payment should contact their respective agency for more information. ------------------------------------------------------------------------------------------------------------------------------------ Tax Exemption for Unemployment Benefits in 2009 Under the American Recovery and Reinvestment Act (ARRA), the first $2,400 of unemployment benefits an individual receives in 2009 are tax free. This provision applies only to benefits received in 2009: Normally, unemployment benefits are taxable. Individuals who receive unemployment benefits this year should check their withholding to ensure they are not having unnecessary tax withheld. IRS News Release 2009-29 has more detail on this provision. ------------------------------------------------------------------------------------------------------------------------------------ American Opportunity Credit Under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify over the next two years for a tax credit, the American Opportunity Credit, to pay for college expenses. The American Opportunity Credit is not available on the 2008 returns taxpayers are filing during 2009. The new credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student. The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits. ------------------------------------------------------------------------------------------------------------------------------------ Want to read the full summary, (19 pages), of The American Recovery and Reinvestment Act of 2009? The full summary of provisions from Senate Finance, House Ways and Means Committees can be found here. ======================================================= Self-Employed Individuals Below you will find information helpful in answering many questions related to being self-employed individuals or independent contractors. Who is Self-Employed? If you are in business for yourself, or carry on a trade or business as a sole proprietor or an independent contractor, you generally would consider yourself a self-employed individual. You are an independent contractor if the person for whom you perform services has only the right to control or direct the result of your work, not what will be done or how it will be done. Independent Contractor (Self-Employed) or Employee? It is critical that you, the employer, correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors. Do I Need an Identification Number? You must have a taxpayer identification number to operate your business. This is generally your social security number, or an individual taxpayer number. However if you have employees, and in some other circumstances, you will need an Employer Identification Number. Filing Requirements for Self-Employed Individuals Self-employed individuals, sole-proprietors, independent contractors and persons who have net earnings of $400 or more are required to pay self-employment tax by filing Schedule SE, attached to their Form 1040, U.S. Individual Income Tax Return. Employees of a church that receive income of $108.28 or more, but do not receive a Form W-2 for the earnings must also pay self-employment tax by filing a Schedule SE, attached to Form 1040, U.S. Individual Income Tax Return. As a self-employed individual (someone who owns an unincorporated business) or an independent contractor, you are required to report income and expenses on a Schedule C or C-EZ . Your net profit may be subject to SE tax. You must file a completed Schedule SE attached to your Form 1040, U.S. Individual Income Tax Return. As a member of a partnership that carries on a trade or business, or as a member of a Limited Liability Company (LLC) that chooses to be treated as a partnership, your distributive share of its income or loss from that trade or business is included in your net earning from self-employment. These entities must report the business income and expenses on Form 1065, U.S. Return of Partnership Income, along with a Schedule K-1 reporting each partner's net income or loss. You must file a completed Schedule SE attached to your Form 1040, U.S. Individual Income Tax Return. If you have employees, you must pay employment taxes, including Federal income, Social Security, and Medicare taxes. If you manufacture or sell certain products, operate certain kinds of businesses, use various kinds of equipment, facilities, or products, or receive payment for certain services, you may need to pay excise taxes. Estimated tax is the method used to pay (including SE tax) on income not subject to withholding. You generally have to make estimated tax payments if you expect to owe taxes, including self-employment tax, of $1,000 or more when you file your return. Use Form 1040-ES to figure and pay the tax. |
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