Tax Insider: Tax Tips for the Unemployed, Part 2

Expert advice that individuals and businesses can use to stay abreast of tax news and rules.

Tax credits can help ease the burden of unemployment.

Labor Day is upon us, but unfortunately 9.5% of the population and 16.6% of African Americans are unemployed. Some 6.6 million people or 44.9% of the unemployed have been that way for 27 weeks. If you’re one of them, the last thing you want to think about are your taxes. Last week on the Tax Insider, we looked at tax tips that can help the unemployed get tax money in their hands now. But if you plan ahead and consider now what tax credits you might be eligible for, then you might be able to get tax refunds in April 2011 also. Here are six tax credits that anyone can claim, but are especially beneficial to the unemployed.

Earned Income Tax Credit. If you worked part of the year before you became unemployed you can qualify for The Earned Income Tax Credit. The EITC is a credit for people who earn low-to-moderate incomes. You must have earned income from employment, self-employment or another source and your child must pass the relationship, age, residency, and joint return tests. You can receive between $3,050 and $5,666 for one to three or more children. For the maximum earned income for taxpayers with children visit the IRS 2010 Earned Income limits page. Most people think the EITC is for people with children, but that is not true.  If you do not have a child you can still receive the credit of $457, but you must be between 25 and 65 years of age, you can only file as single/head of household or jointly with a spouse and you must make less than $13,460 single ($18,470 married). You cannot file separately if you are married.

Expanded Child Tax Credit. The American Recovery and Reinvestment Act of 2009 (ARRA) temporarily expanded the refundable portion of the child tax credit, for tax years 2009 and 2010. This credit can go towards offsetting your tax bill, but it is also partially refundable; meaning more money in your pocket come tax time. You also need to have earned income to receive this credit. Last year, after the tax bill was paid, tax payers were able to receive 15% of their earnings minus $8,500 as a refund. Now that threshold has decreased to 15% of earnings minus $3,000, taxpayers can get more of their money refunded. Also look into the Additional Child Tax Credit. If the amount of your child tax credit is limited by your income tax liability, you may be able to claim the ACTC if your earned income is less than $110,000 for a married couple filing jointly or $75,000 as single/head of household. If your income exceeds the above limit, then your credit will be reduced by $50 for every $1,000 that exceeds the income guidelines.

The Child and Dependent Care Credit. If you are looking for work and must arrange for care of a child under 13 years of age, a spouse or another dependent who is not physically or mentally able to care for themselves and lived with you for more than half the year, then those expenses may help you get a credit on next year’s tax return. The credit can be used toward the cost of day camp, a sitter at your home, or a daycare facility outside the home. The actual credit can be up to 35% of your qualifying expenses, depending upon your income. You may claim up to $3,000 of the expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals. But remember, to get the credit you should not have received reimbursements for those expenses from an employer or other organization.

Health Coverage Tax Credit. If you lost your job due to trade competition with foreign countries and you’re receiving Trade Adjustment Assistance, pension payments from the Pension Benefit Guaranty Corporation (PBGC), you are covered by a qualified health plan, over 55-years of age and you meet other general requirements then you and your family may qualify for the Health Coverage Tax Credit. The HCTC was established to help cover the cost of health insurance and families can receive the HCTC even if they don’t owe taxes. The HCTC pays 80% of health insurance premiums to qualifying individuals and their families.

American Opportunity Credit. Fall classes at colleges and universities are starting now, and many career counselors say returning to school to get a post secondary degree is a good idea when you can’t find a job. Not only that, but it might put a little extra in your wallet next year. If you or your children go to college for a bachelor’s degree then the American Opportunity Credit, formerly called the Hope Credit, can provide as much as $2500 per student and 40% of the credit is refundable; meaning you can receive up to $1,000 even if you owe no taxes. It was created under the American Recovery and Reinvestment Act of 2009. Taxpayers will receive a tax credit based on 100% of the first $2,000 of tuition, fees and course materials paid during 2010, plus 25% of the next $2,000 of tuition, fees and course materials paid during the taxable year. 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. There is one downside, if you claim the AOC credit then you cannot deduct $4,000 for tuition and fees in the same year or claim the Life Time Learning Credit. Before claiming the credit calculate which is most beneficial the AOC, the LTLC, or the deduction.

Life Time Learning Tax Credit. If you are pursuing an advanced or professional degree and will be enrolled less than full time consider the Life Time Learning Tax Credit. You can claim a tax credit of up to $2000 per tax return (not per student). However, it is non refundable— the maximum credit that you can receive is limited to the amount of tax you owe.

Visit the Tax Insider next week for more tax news, advice and tips.

For more information visit:

Tax Insider: Tax Tips for the Unemployed, Part 1

The Tax Center for Unemployed Tax Payers

Overlooked Tax Breaks

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