New 2011 Tax Regulations to Relieve Your Low-Income Budget

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There’s a crisis out there, everywhere. Many of the biggest economies in the world are struggling, so no wonder your own budget is strapped. One thing, however, that’s up to you is staying informed about the latest tax laws, credits and deductions. You don’t want to waste any opportunities to cash in on any funds that Uncle Sam is willing to give away.

Taxes on Unemployment Payments

Unemployment benefits are a huge relief for many American families. But many of them don’t realize that this income is taxable and that they can do something about it.

The first $2,400 of unemployment benefits were excluded from gross income in 2009. This threshold was however not extended in 2019, so it is no longer tax-free.

What can you still do? Make sure you consider all the other deductions that you can get. For example, expenses related to searching for a new job that may be deductible from your taxable income.

What is considered a qualifying expense? The cost of printing and mailing your CV, the travel cost to a job interview, the fees you paid to a placement agency, etc. You have to itemize your deductions in order to deduct these costs, and only expenses that exceed 2% of your AGI (adjusted gross income) can be deducted.

Put Those Kids to Work

Your children can be a great source for some extra money. You don’t need to break the law and make them get a job; it’s enough to claim a tax credit that can go from 20% to 35% of accepted expenditures. These expenditures are eligible if they were for childcare for a child of less than 13 years of age, if you as a parent, are working or studying. The maximum allowed expenditure is $3,000 (or $6,000 if you have two or more children).

To get the full 35% credit, your family income has to be lower than $15,000. If your family income is over $43,000, you only qualify for the minimum 20% credit.

You should know that this credit is not re-fundable. If it exceeds your tax liability, you won’t get any money from Uncle Sam. So before applying, make sure your family income is big enough so that you can benefit from this credit.

If your family has an income that ranges between $75,000 and $200,000, you are in the category that benefits most from this credit.

What will happen to this credit starting in 2019? Unless the Congress extends the some of the measures beyond 2019, the maximum credit will return to 30% for families with income lower than $10,000, while the minimum credit will be 20% for families with income higher than $28,000. There’s even more. The total expenditure for which the family can claim credit will decrease from $3,000 ($6,000 for families having at least two children), to $2,400 ($4,800 for families having at least two children).

To claim this credit, you have to file jointly if you are married. You must file Form 2441 along with your Form 1040 or 1040A.

Did you Buy a New Home? You May be Able to Claim a Credit

If you bought your first home in the first five months of 2019, you may get a 10% credit of the price you paid, but not more than $8,000. You have to have purchased your home before April 30, 2019 and closed escrow by September 30, 2019.

The allowed income limits were raised in 2019. If you’re single or head of household, you can ask for the full credit if your modified adjusted gross income (MAGI) is not higher than $125,000. If you’re married and file jointly, your income has to be lower than $225,000 in order to claim the full credit. The income limits for a partial credit are $145,000 if you’re single or head of household and $245,000 if your married filing jointly.

If the new home’s purchase price exceeded $800,000, you cannot qualify for this credit.

How to Deduct your Private Mortgage Insurance

Do you have private mortgage insurance (PMI)? If you bought your home with a down payment of under 20%, you probably do. This insurance is paid by you but it protects the lender in the unfortunate case that you default.

Paying your PMI is not very cheap. According to statistics, for an average priced home ($198,000 in the year 2008), the premium goes from $50 to $100 every month. This means between $600 and $1,200 every year.

Studies show that most home owners are done paying PMI within five years after the purchase. Until then, however, it’s a very good idea to use your PMI to lower the pressure on your taxable income.

PMI premiums can be deducted from the taxable income, if your adjusted gross income is not higher than $100,000 ($50,000 if married filing separately). If your AGI runs between $100,000 and $109,000 ($54,500 if married filing separately), the deduction is reduced. The deduction is eliminated for AGIs that exceed $109,000. You can check Publication 936 on the IRS website for more detailed information.

Working Pays Back!

If you worked during 2019 you probably are eligible for a 6.2 percent credit of your earned income, but not more than $400 if you’re single, or $800 if you’re married and file jointly.

If you’re a single tax filer, the credit starts phasing out at $75,000 of your AGI (adjusted gross income) and totally disappears at $95,000. If you’re married filing jointly, the reduced credit applies for AGIs higher than $150,000 and is phased out at $190,000.

College tuition

The brand new American Opportunity Tax Credit replaces the old Hope Credit. It gives you a credit of up to $2,500 per year during four years of college. In order to claim it at its maximum value, your AGI (adjusted gross income) has to be less than $80,000 ($160,000 if you’re married and file jointly).

If the credit goes beyond your tax liability, 40% of it is refundable. This means you can get up to $1,000 as a refund even if you owe no taxes to the government.

Summing Up

If you, like many Americans, are facing lower income and higher costs, why not take advantage of some of the breaks the government is trying to give you? Keep in mind, some of these credits may not be around next year, so get it while it’s hot!