TaxACT will guide you step-by-step through all the tax law changes for 2010 to help minimize your tax liability. Preview editions of TaxACT 2010 will be available in October. In the meantime, learn about some of the tax law changes for 2010 by clicking on the topics below.
American Recovery and Reinvestment Act (ARRA) Provisions
President Obama signed the American Recovery and Reinvestment Act (ARRA) into law in February 2009. Although a large number of the ARRA tax credits and deductions have expired, several are still in effect for 2010 federal returns. (For information about the expired ARRA provisions, click here.)
Making Work Pay Credit
Tips
- Reduced withholding could result in a balance due on your tax return. Ensure you're withholding the right amount by using the IRS withholding calculator. To adjust your withholding, submit Form W-4 to your employer.
- Self-employed workers should consider changing estimated tax payments, but be leery of quarterly underpayment. You can use TaxACT 2009 to adjust your estimated payments.
Overview
- Designed to increase your take-home pay amount by reducing federal income tax withholdings
- Credit of 6.2% of earned income (salary or self-employed), up to $400 for single filers ($800 for married filing jointly)
- Phases out at modified adjusted gross income $75,000 - $95,000 ($150,000 - $190,000 married filing jointly)
- Most wage earners have been receiving the credit as a boost in their paychecks since April 2009, qualified taxpayers will receive the credit in their paychecks via decreased income tax withholding
- Not available for non-residents and taxpayers claimed as a dependent
TaxACT will figure the credit for you (via Schedule M) and record it for you on your 1040, 1040A or 1040EZ
Additional Child Tax Credit
Overview
- For taxpayers who receive less than the full amount of the child tax credit (it may give you a refund even if you do not owe any tax)
- Earned income threshold needed to qualify for this credit decreases to $3,000 to cover more low-income families (was $8,500 in 2008)
- Credit is equal to 15% of the taxpayer's earned income in excess of $3,000
- Families with 3 or more children can choose to use an alternative formula under which the credit equals the amount by which the taxpayer's Social Security and Medicare taxes exceed the taxpayer's earned income credit, if that produces a greater refundable amount
TaxACT will calculate the credit on Form 1040 or 1040A.
Expanded Earned Income Credit
Overview
- Increase in credit for families with 3 or more qualifying children from 40% to 45%, up to $5,657
- Total phased out at $48,279 modified adjusted gross income if married filing jointly with 3 or more qualifying children
TaxACT will adjust for the new thresholds.
American Opportunity Tax Credit (modified HOPE Credit)
Overview
- Maximum credit of $2,500 per student (covers 100% of the first $2,000 and 25% of the next $2,000) for tuition, fees and course materials (books) for the first 4 years of post-secondary education in a degree or certificate program (was previously the first 2 years)
- 40% of the credit is refundable unless student is subject to kiddie tax rules (new line on Forms 1040 and 1040A)
- Phased out at modified adjusted gross income $80,000 - $90,000 ($160,000 - $180,000 if married filing jointly)
TaxACT will guide you through the education topic and give you the deduction or credit that is the most beneficial to you.
Expanded Definition of Qualified Tuition Programs
Overview
- Qualified expenses for Section 529 College Savings plans are expanded to include qualified computer technology, equipment and Internet service for students living at home
- Items must be used by beneficiary or beneficiary's family during the years beneficiary is enrolled at an eligible educational institution
First-time Homebuyer Credit
Overview
***Includes changes from the Worker, Homeownership and Business Assistance Act of 2009
- Refundable 10% credit on homes purchased after Dec. 31, 2008 and before May 1, 2010, up to $8,000 (previously $7,500)
- Eligible taxpayer must have bought, or entered into a binding contract to buy, a principal residence between January 1, 2009 and April 30, 2010, and close on the home by September 30, 2010 - the credit can only be claimed after the closing date (the closing deadline changed from June 30 to September 30 per the Homebuyer Assistance and Improvement Act signed into law on July 2, 2010)
- First-time homebuyers who purchased a home in 2009 can only claim the credit on their 2009 tax return (due by April 15, 2010) - the option to claim the credit on a 2008 tax return expired April 15, 2009
- For qualifying purchases in 2010, you have the option of claiming the credit on either your 2009 (how to amend your 2009 return) or 2010 return
- First-time homebuyers are those who have not owned a primary residence during the 3 years prior to the purchase date (married taxpayers must both qualify as "first-time homebuyers" in order to receive the credit when filing a joint return).
- Repayment only required if, within 3 years of purchase, the home either ceases to be the primary residence or it is sold
- Credit phases out for homes purchased after November 6, 2009 for taxpayers whose modified adjusted gross income exceeds $125,000 ($225,000 if married filing jointly) - credit ends for those with income of $145,000 ($245,000 if married filing jointly)
- For homes purchased after Nov. 6, 2009: You must be at least 18 on the date of purchase and cannot be claimed as a dependent (for a married couple, only one spouse must meet this age requirement)
- For homes purchased after Nov. 6, 2009: A properly executed settlement statement must be attached to the return (at this time, qualifying taxpayers will have to mail their returns since the statement cannot be submitted electronically)
- For homes purchased after Nov. 6, 2009: No credit available for homes where the purchase price exceeds $800,000
- Property cannot be acquired from a relative
TaxACT includes Form 5405 for this credit.
Residential Energy Efficient Property Credit Limitations (good through 2016)
Overview
- Credit of 30% for expenditures related to larger residential energy improvements (solar hot water property, geothermal heat pumps, wind energy property)
- Limit on credit amount removed for solar electric property
- Credit caps eliminated for qualified solar water heating, geothermal pumps, and small energy property; $500 cap for qualified fuel cell property remains
TaxACT will include Form 5695 to claim this credit.
Homebuyer Credit for Current Homeowners (extended First-Time Homebuyer Credit)
Overview
***Part of the Worker, Homeownership and Business Assistance Act of 2009 signed into law on November 6, 2009
- A refundable credit of up to $6,500 (up to $3,250 for a married individual filing separately) for long-time homeowners buying a replacement principal residence - buyers must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased
- Eligible taxpayer must have bought, or entered into a binding contract to buy, a principal residence between November 7, 2009 and April 30, 2010, and close on the home by September 30, 2010 - the credit can only be claimed after the closing date (the closing deadline changed from June 30 to September 30 per the Homebuyer Assistance and Improvement Act signed into law on July 2, 2010)
- Phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers
- 2009 purchases must be claimed on your 2009 return, but 2010 purchases can be claimed on either your 2009 (how to amend your 2009 return) or 2010 return
TaxACT includes Form 5405 for this credit.
Nonbusiness Energy Credits
Overview
- Individual homeowners can now claim 30% for property improvements, up to $1,500 for 2009 and 2010 combined (was previously 10%, up to $500) - taxpayers must claim the credit on the tax return for the year that the improvements are made
- Definition of qualifying property revised - includes qualifying insulation; exterior windows, skylights and doors; electric heat pumps; central air conditioners; natural gas, propane or oil water heaters; biomass stoves; furnaces and boilers
- There are higher efficiency standards to claim the credit
TaxACT will include Form 5695 to claim this credit.
Vehicle Credits
Overview
- 10% of the cost of the new plug-in vehicle, up to $2,500
- Claimed on Form 8834
- Ranges from $2,500 to $7,500 depending on battery capacity for vehicles purchased after Dec. 31, 2009 and before Jan. 1, 2015
- Increased amount for vehicles drawing propulsion from battery with at least 5 kilowatt hours of capacity
- Phases out after manufacturer sells its 200,000th plug-in electric drive vehicle
- Claimed on Form 8936
- 10% of the cost of converting, up to $4,000
- Must be placed in service after Feb. 17, 2009 and before Jan. 1, 2012
- May claim even if the vehicle qualified for a previous hybrid credit
- Claimed on Form 8910
TaxACT will include the forms to claim the above credits.
Other ARRA Provisions
More 2010 Tax Law Changes
Repayment of First-time Homebuyer Credit claimed on 2008 tax returns begins on 2010 returns
- The 2008 credit acts like a 15-year interest-free loan – the credit amount of up to $7,500 will be repaid in 15 equal annual installments beginning in the second tax year (2010) after the credit is claimed.
- Repayment amount is included as additional tax on your federal return. You have the option of paying more than the annual amount due on Form 5405.
- Example: if you claimed the full $7,500 credit on your 2008 return, you will begin paying $500 each year on your federal tax return from 2010 to 2024.
- Review your federal withholding and/or make quarterly estimated tax payments to make up for the repayment amounts (see if you're withholding enough using the IRS withholding calculator and adjust your withholding by submitting Form W-4 to your employer.
- Exceptions to the repayment rule can be found here.
TaxACT includes Form 5405 and will walk you through the information.
For more information, visit the following IRS web pages: Homes purchased in 2008 and Tax Topic 611 
Adoption Credit extended for tax years 2010 and 2011
- A refundable credit worth a maximum for $13,170 for 2010 returns and $13,170 for 2011 returns
- For 2010, the credit phases out between $182,520 and $222,520.
- After 2011, the credit amount will return to $5,000 (or $6,000 for a special needs child).
TaxACT will calculate the credit on Form 8839.
Exclusion for some health professionals retroactive to 2009 returns
- Amounts received for student loan relief under state programs and other loan repayment and forgiveness programs can now be excluded from taxes for 2009 federal returns and going forward. Previously, only amounts under the National Health Service Corps Loan Repayment Program or certain state loan repayment programs eligible for funding under the Public Health Service Act could be excluded.
- If you have not yet filed your 2009 return, you do not need to report eligible loan repayment or forgiveness amounts.
- If you've already filed your 2009 return, you can exclude eligible amounts by amending your return using Form 1040X (included in TaxACT Deluxe) and writing "Excluded student loan amount under 2010 Health Care Act" in the Explanation of Changes box. Health care professionals may request an employer or other issuer to provide a Form W-2c, Corrected Wage and Tax Statement, or 1099 and may attach the corrected form to the Form 1040X. However, the Form 1040X may also be filed without attaching a corrected form.
Medicare Part D coverage gap "donut hole" rebate
- A one-time, non-taxable $250 rebate in 2010 to Medicare Part D recipients who have reached their Medicare drug plan's coverage gap.
- Those receiving Medicare Extra Help do not qualify for the rebate.
- Payments will be automatically sent to qualified participants by Medicare (not the IRS) throughout 2010 (started sending in June).
- Be sure the Social Security Administration has your correct home address by calling your local office or 1-800-772-1213.
- More information can be found at www.medicare.gov; if you do not receive your rebate check, call 1-800-Medicare.
- You do not need to report this rebate as income on your 2010 federal return.
Tax-free health coverage for children under 27 years old
- As of March 30, 2010, employees who can choose from a menu in their cafeteria plan of tax-free benefit options and cash or taxable benefits can make pre-tax contributions for health coverage for qualified children (who will still be under 27 years of age at the end of 2010) who are already covered under the employer's plan or added to the employer's plan at any time (this also applies to self-employed taxpayers who qualify for the self-employed health insurance deduction on their return).
- By Sept. 23, 2010, employer health care plans that provide dependent coverage of children must offer dependent coverage of employees' children until they turn 26 years of age.
- A child includes a son, daughter, stepchild, adopted child or eligible foster child (child does not have to qualify as a dependent for tax purposes).
- You do not need to report this on your 2010 federal return.
