Throughout this training session we will be referencing the following publications:
Michigan instruction booklets:
2009 Michigan 1040, Individual Income Tax
2009 Michigan 1040CR-7, Home Heating Credit Claim
Intake/Interview & Quality Review Sheet
Where possible, we have included instructions for TaxWise entries in this presentation. For complete instruction on how to enter information in TaxWise, see the Step by Step Instructions for TaxWise 2009.
John and Mary are married. They have two dependent children: Ralph, aged 22, and Sara, aged 17. John is 66 and totally and permanently disabled, but is not a Qualified Disabled Veteran. Mary (52) works at a pharmacy. What are their total exemptions?
Interest, dividends, and capital gains for senior citizens up to certain limits.
Social Security benefits which were taxable on the federal return.
Miscellaneous subtractions: Bingo winnings (from a State of Michigan regulated game), political contributions (deduction is limited), and the amount used to determine the credit for elderly or totally and permanently disabled from the federal return (TaxWise will calculate).
See the MI-1040 instructions for a complete list of subtractions.
TaxWise – MI-1040 Schedule 1 Subtractions from Income
If there is state income tax withholding on Form W-2, 1099-R, 1099-G, and/or 1099-MISC, TaxWise will fill in a Schedule W.
A Schedule W must be attached to a paper return.
Forms W-2 and 1099 are not attached to paper copies of MI-1040 returns.
Special Instructions for Years Prior to 2007 TaxWise:
If there is Michigan withholding on a Form 1099, Sch. W will remain red until the bottom of the schedule is completed by checking the appropriate column of R, G, or M – indicating if it was a Form 1099-R, 1099-G, or 1099-MISC. Once the appropriate column is marked, TaxWise will fill in the rest of the information.
Clients should bring all of their 2009 property tax statements – winter and summer bills – indicating the taxes levied for the year and the Taxable Value .
The Homestead Property Tax Credit is based on the taxes levied/billed. They do not have to have been paid.
Vacant lots can be included if they are adjacent to the home. Vacation property and other houses do not qualify.
Do not include penalties, interest or special assessments. Detroit’s solid waste fee ($240 for 2009) is a special assessment.
You can include administrative fees of up to 1% of the taxes.
TaxWise: See the Intake/Interview Sheet, AAS Part IV, for questions to ask the client regarding the Michigan Homestead Property Tax Credit.)
Homestead Property Tax Credit Homeowners Taxable Value
The Taxable Value of the homestead is listed on the property tax statements and on the annual Notice of Assessment.
Be sure to enter this amount on Form MI-1040CR and not the Assessed Value or State Equalized Value (SEV). The state will compare the Taxable Value and the property taxes entered on the form to the School District Code entered. The credit will be delayed or denied if it is sent in without the proper Taxable Value.
Some clients have their property taxes paid by their mortgage company. However, due to the inclusion of special assessments, other fees and payment of prior year taxes, we do not recommend relying on a mortgage interest statement as support for property taxes levied.
20% of rent paid is treated as “property tax” paid indirectly through the landlord. Complete Part 2 of Form MI-1040CR.
Mobile home residents should use 20% of lot rent, but $3 per month of the rent is considered property tax and is entered on the line for property taxes levied.
It’s important to check that rent does not exceed or approach Household Income. If it does, probe for additional income such as assistance from family or friends (nontaxable, but must be included in Household Income.) Also, verify that the rent listed is only the taxpayer’s share of rent paid.
The client should have documentation such as a lease or rental contract and rent receipts. They will also need the landlord’s name and address.
As a general rule, residents in nursing homes, homes for the aged, and adult foster care homes must claim a credit based on their share of the facility’s property tax. They may not claim rent. This also applies to residents of assisted living centers.
Complete Part 4 on the back of Form MI-1040CR.
Please consult the Michigan Taxpayer Assistance Manual and the MI-1040 instructions for special housing situations.
Homestead Property Tax Credit Nursing Homes and Other Adult Care Homes
Anne lived in a mobile home for 10 months and as the guest of friends for 2 months. Her monthly payments for the mobile home to the bank are $200 including principle and interest. Her monthly lot rent is $123. How much is her property tax for the purposes of the Homestead Property Tax Credit?
Anne’s principle and interest payments do not affect the calculation. Of the $123, $3 is considered property tax and $120 is considered rent. Lot rent of $120/month x 10 months x 20% = $240. Add $3/month x 10 months property tax = $30. Total figure used to calculate property tax credit is $270 .
Household Income (HHI) is used to calculate the Homestead Property Tax Credit and the Home Heating Credit , and includes both taxable and nontaxable income of both spouses, or of a single person maintaining a household.
See Page 17 of the MI-1040 instructions for a list of items not included in Household Income, and Pages 20 and 21 for Line-by-Line instructions of Household Income. (Note: Page numbers may change in 2009 instruction booklet.)
(See the Intake/Interview Sheet, Part IV , and the Supplemental Intake/Interview Sheet, AAS Part II, for a list of sources of income – both taxable and nontaxable – typical to our clients.)
TaxWise – Household Income Taxable Income & Nontaxable Income
There are three types of Social Security benefits: retirement, survivor and disability (SSDI) benefits. These benefits are reported on Form SSA-1099, Social Security Benefit Statement. The amount actually received is included in Household Income, do not include the amount deducted for Medicare. Death benefits are also included in HHI.
TaxWise: The amounts entered on 1040 Wkt1 for the taxpayer and/or spouse’s benefits will carry over to Form MI-1040CR.
A minor child can receive benefits as a survivor or because a parent is disabled. Benefits received for minor children or dependent adults who live with the client must be included in Household Income.
TaxWise: There is a field on TaxWise’s MI-1040CR where the preparer can enter death benefits and amounts received for minor children or dependent adults.
Supplemental Security Income (SSI) is paid by the Social Security Administration (SSA) to individuals who have low income and limited financial resources, and are: age 65 or older; blind; or disabled. SSI received by minor children or dependent adults must be included in Household Income also.
Individuals can receive both Social Security benefits and SSI if their Social Security benefit is low.
Household Income Supplemental Security Income (SSI)
SSI recipients do not receive a year-end statement, as SSI is never taxable. They do receive a letter during the year stating what their monthly benefits will be for the next tax year. (Note: The maximum SSI payment for an eligible individual in 2009 was $674 per month. Make sure that clients are not reporting current year payments.)
TaxWise: SSI is entered as an override entry on Form MI-1040CR and is included on the line with Social Security benefits and Railroad Retirement benefits. SSI is never entered on 1040 Wkt 1. See the TaxWise Step by Step Instructions.
Household Income Supplemental Security Income (SSI)
Child support and all payments received as a foster parent are included in Household Income.
Add the amounts paid (including back-due support paid for prior years).
Important: If client received both child support from Friend of the Court and FIP benefits from DHS, see the Michigan Taxpayer Assistance Manual for instruction on how to report these amounts on Form MI-1040CR.
Workers’ compensation: The client should be able to tell you how much he/she received a month for workers’ comp.
Veterans’ disability compensation and pension benefits : Clients do not receive a year-end statement for veterans’ benefits. Ideally they will have a letter from the Veterans’ Administration (VA) stating their monthly benefit for the tax year.
Household Income Worker’s Comp and Veteran Benefits
The value of food stamps is not included in Household Income.
If a client’s only source of income is from DHS, they are not eligible for the Property Tax Credit.
If a client received both FIP benefits from DHS and child support from Friend of the Court, see the Michigan Taxpayer Assistance Manual for instruction on how to report these amounts on Form MI-1040CR.
Gifts of cash or merchandise over $300 from parents, relatives or friends.
The value over $300 of expenses paid on the client’s behalf (rent, taxes, utilities, food, medical care, etc.)
We generally only ask questions about gifts or expenses paid if a client is claiming to have paid more rent than their HHI can support. For example, if rent is $400/month, or $4,800, and HHI is $5,000, we need to ask appropriate probing questions.
See the MI-1040 instructions for other nontaxable income.
Certain items can be deducted to reduce Household Income. These adjustments can include:
One-half of self-employment tax.
Student loan interest.
All other adjustments to income from the federal Form 1040 or Form 1040A.
Premiums paid for medical insurance (not including long-term care.)
TaxWise: Adjustments carry over from the federal return. Enter medical insurance premiums paid on Sch A Detail, Itemized Deduction Detail Worksheet. Medicare premiums deducted from Social Security are entered on 1040 Wkt1.
Exceptions are seniors, unremarried spouses of deceased seniors, deaf, blind, paraplegic, quadriplegic, hemiplegic, and totally and permanently disabled clients.
Seniors who pay rent may benefit from the Alternate Credit on Worksheet 5 on Pg. 22 of the MI-1040 instructions. (Note: Page number may change in 2009 instruction booklet.)
Filers who received DHS benefits will have their credit prorated. There is a worksheet in the MI-1040 instructions for this calculation.
TaxWise: All of the above calculations to determine the credit are done by TaxWise from information previously entered.
Veterans and Blind Homestead Property Tax Credit Form MI-1040CR-2
This is an alternate calculation which is available to blind homeowners and certain veterans – see the instructions for Form MI-1040CR-2 for details of which type of veteran qualifies to use this form.
There are Household Income limits for some military personnel.
Calculate the credit using both the MI-1040CR and the MI-1040CR-2, and use the larger credit.
TaxWise: See the site coordinator and/or the Site Manual for instructions on how to make entries on the MI-1040CR-2 for veterans who were renters.
Home Improvement/Appliances Credit (Refundable)
Credit is based on home improvements and appliances purchased after 12/31/2008 and before 01/01/2012.
Credit is limited to purchases for use in a home for a principal residence exemption is allowed.
Form MI-1040CR-7, Line 4, requires a county code. The county codes are listed on the back of the paper form.
TaxWise: Press F1 on Form MI-1040CR-7 and select MI Codes for a list of county codes.
Exemptions for the Home Heating Credit Claim are basically the same as on the MI-1040, Michigan Income Tax Return. Note: You can claim an exemption for children who live with you, even if their support comes from someone else.
TaxWise: Exemptions will carry over from the entries made on Main Info and on the MI-1040. It is critical to enter all of the exemptions the taxpayer is entitled to.
Household Income reported on the Home Heating Credit Claim is the same as on the Homestead Property Tax Credit Claim – see previous slides for instruction on types of income.
TaxWise: Important: No income is entered directly on the MI CR-7 (Home Heating Credit) in TaxWise. All income carries over from the federal return and from entries made on the MI CR Pg 1 (Property Tax Credit Claim.)
There are two ways to calculate the credit, using the Standard Credit and the Alternate Credit.
TaxWise calculates the credit both ways and awards the larger of the two.
Bob (65) has two exemptions for the Home Heating Credit. His Household Income is $10,000. He contacted his heat provider and his annual heating costs for the period 11/01/2008 through 10/31/2009 were $1,200.
There are two separate addresses to file Michigan returns, one for payments and one for refunds. Please make sure that you are using the correct label. Envelopes and labels will be located in the Site Box.
Do not staple the Home Heating Credit Claim to the other forms. It may be sent in the same envelope.