Miscellaneous Credits

• All types of credits discussed in this lesson are nonrefundable credits.

• A nonrefundable credit can only reduce the tax liability to zero.

Major Miscellaneous Credits

• Retirement Savings Contributions Credit• Credit for the Elderly or the Disabled• Residential Energy Credits• Mortgage Interest Credit

No AGI limit for Retirement Savings Contributions Credit

a) Trueb) False

Answer BModified AGI Limit Retirement

Savings Contributions Credit

• $56,500 for Married Filing Jointly• $42,375 for Head of Household• $28,250 for Single, Married Filing Separately,

or Qualifying Widow(er)

Plans to Qualify Retirement Savings Contributions Credit

• 401(k) plan—including a SIMPLE 401(k) and the federal Thrift Savings Plan

• 403(b) annuity • Governmental 457 plan • SIMPLE IRA plan • Salary reduction SEP• 501(c)(18)(D) plan

Voluntary after-tax employee contributions to tax-qualified retirement plan or section 403(b) annuity plan. Contributions made as a condition of employment are not considered to be voluntary.

Factors that Reduce the Eligible Contribution

The testing period includes:•The tax year•The two preceding tax years, and•The period between the end of the tax year and the due date of the return, including extensionsThe types of distributions that reduce the eligible contributions include any distribution:•That is included in the taxpayer's gross income from a qualified retirement plan or from an eligible deferred compensation plan•From a Roth IRA that is not a qualified rollover contribution

Determining the Amount of the Credit

• Calculate the retirement savings contributions credit on Form 8880, Credit for Qualified Retirement Savings Contributions, and report the amount in Form 1040, Tax and Credits section.

• The credit can be as low as 10% or as high as 50% of a maximum annual contribution of $2,000 per person depending on filing status and AGI.

Credit for the Elderly or the Disabled

To qualify for the credit for the elderly or the disabled, individuals must be:•Age 65 or older at the end of 2011 or•Under age 65, retired on permanent and total disability, receiving taxable disability income, and have not reached the mandatory retirement age their company has set

Income Limits Credit for the Elderly or the Disabled

Taxpayers cannot take the credit IF filing status is:

AND AGI is equal to or more than:

OR nontaxable social security or other nontaxable pension(s) is equal to or more than:

Single, Head of Household, or Qualifying Widow(er) with Dependent Child

$17,500 $5,000

Married Filing Jointly and both spouses qualify $25,000 $7,500

Married Filing Jointly and only one spouse qualifies $20,000 $5,000

Married Filing Separately and did not live with spouse at any time during the year

$12,500 $3,750

Nonbusiness Energy Property Credit

The nonbusiness energy property credit is available for certain qualifying energy efficiency improvements or residential energy property costs. The qualifying items are:•Biomass stoves•Heating, ventilating, air-conditioning (HVAC)•Insulation•Roofs (metal and asphalt)•Water heaters (non-solar)•Windows and doorsThe credit is only available for existing homes that are the taxpayer's principal residence—new construction and rentals do not qualify

Which of the following item is out of scope of VITA

a) Retirement Savings Contribution Creditb) Child tax creditc) Mortgage Interest Creditd) None

Answer CMortgage Interest Credit

• Taxpayers who hold qualified mortgage credit certificates (MCCs) under a qualified state or local government program may claim a nonrefundable credit for mortgage interest paid.

• This topic is out of scope for the VITA/TCE program and is included for your awareness only.

• Taxpayers who wish to claim this credit should seek the assistance of a professional tax preparer.