2010 Season State Tax Training Module


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2010 Season State Tax Training Module

  1. 1. 2010 Tax Season Michigan Tax Training <ul><li>January 2010 </li></ul>
  2. 2. <ul><li>Our training is designed to provide you with the skills to prepare taxes for the clients of Accounting Aid Society. </li></ul><ul><li>Our clients are individuals with household income of $25,000 per year or less (regardless of age) or families with income of $50,000 per year or less. </li></ul><ul><li>Household income includes both taxable and nontaxable income. </li></ul><ul><li>Check with the state publications and/or the site coordinator whenever you encounter something unusual. </li></ul>
  3. 3. Quality <ul><li>Our number one priority is quality! </li></ul><ul><li>We are not going to do complicated returns which exceed our training or capability. </li></ul><ul><li>Don’t guess if you are not sure how to handle a particular situation. </li></ul><ul><li>Consult the instructions and/or the site coordinator for help. </li></ul><ul><li>All returns should be reviewed by a site coordinator. </li></ul>
  4. 4. Quality Intake/Interview Sheet <ul><li>The Intake/Interview & Quality Review Sheet is shown on Pages 9-15 of the Administrative Manual for the Volunteer. </li></ul><ul><li>We will review the intake sheet in the Administrative section of your training and in the TaxWise lab sessions. </li></ul><ul><li>Please familiarize yourself with the Intake/Interview Sheet as the completion of the intake sheet is the first step in preparing a quality return. </li></ul><ul><li>The intake sheet must be completed before you start a return on TaxWise! </li></ul>
  5. 5. Overview
  6. 6. Reference Materials <ul><li>Throughout this training session we will be referencing the following publications: </li></ul><ul><ul><li>Michigan instruction booklets: </li></ul></ul><ul><ul><ul><li>2009 Michigan 1040, Individual Income Tax </li></ul></ul></ul><ul><ul><ul><li>2009 Michigan 1040CR-7, Home Heating Credit Claim </li></ul></ul></ul><ul><ul><li>Intake/Interview & Quality Review Sheet </li></ul></ul><ul><ul><li>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. </li></ul></ul>
  7. 7. What’s New for Tax Year 2009? <ul><li>Michigan EITC still with us, but stays at 10%. </li></ul><ul><li>New exemption amounts. </li></ul><ul><li>New refundable energy credits for home improvements and appliances. </li></ul><ul><li>New nonrefundable credit for Energy Cost Recovery Surcharge. </li></ul>
  8. 8. Who Must File? <ul><li>Many low-income individuals do not have to file federal returns, but may need to file state or city returns. </li></ul><ul><li>Taxpayers who file federal returns should generally file state returns as well. </li></ul><ul><li>Some clients should file to recover withholding or to collect refundable credits, even if they are not required to file by the gross income guidelines. </li></ul><ul><li>Taxpayers should file if their Adjusted Gross Income (AGI) exceeds their Michigan exemption allowance. </li></ul>
  9. 9. Starting the Forms <ul><li>TaxWise carries most information from the federal return directly to the Michigan return. </li></ul><ul><li>You’ll need to add the school district code . School district codes are listed in a table at the back of the MI-1040 instructions booklet. </li></ul><ul><li>TaxWise: Press F1 when you are on Form MI-1040 and select MI Codes for a list of school district codes. </li></ul>
  10. 10. TaxWise Help – MI Codes
  11. 11. State Campaign Fund <ul><li>This is similar to the Federal Election Campaign Fund. </li></ul><ul><li>$3 can go to the fund if the taxpayer (or spouse) checks “Yes”. </li></ul><ul><li>The taxpayer’s tax due or refund amount will not change by checking “Yes.” </li></ul><ul><li>TaxWise does not assume that the taxpayer will make the same choice on federal and state forms. </li></ul>
  12. 12. Mini-Quiz 1 <ul><li>What is the School District Code for Detroit? </li></ul><ul><li>82010 </li></ul><ul><li>What is the School District Code for Warren Consolidated? </li></ul><ul><li>50230 </li></ul><ul><li>TaxWise Hint: Pressing F1 when on Form MI-1040 and selecting MI Codes will bring up a list of School District Codes. </li></ul>
  13. 13. Filing Status and Exemptions
  14. 14. Filing Status <ul><li>Michigan has three filing statuses: Single, Married Filing Jointly, and Married Filing Separately. </li></ul><ul><li>If you filed your federal return as Head of Household or Qualifying Widow(er), you must file the Michigan return as Single. </li></ul>
  15. 15. Residency <ul><li>Most of our clients are full-time Michigan residents. </li></ul><ul><li>Part-year and nonresidents must complete Schedule NR which apportions income and adjustments between Michigan and other states. </li></ul><ul><li>TaxWise: Full-year residency of MI will be defaulted on the Main Information Sheet. This section should be changed by the preparer if taxpayer is a part-year or nonresident. </li></ul>
  16. 16. Residency <ul><li>Reciprocal States: Residents of Illinois , Indiana , Kentucky , Ohio , Minnesota and Wisconsin do not have to pay Michigan income tax on salaries and wages earned in Michigan. </li></ul><ul><li>Michigan residents pay only </li></ul><ul><li>Michigan income tax on their </li></ul><ul><li>salaries and wages earned </li></ul><ul><li>in any of these states. See </li></ul><ul><li>the instructions for further </li></ul><ul><li>details. </li></ul>
  17. 17. Exemptions and Dependents <ul><li>The Michigan definition of a dependent is identical to that of the federal law. Personal and dependency exemptions carry over from the federal return in TaxWise. </li></ul><ul><li>The personal exemption amount is $3,600 for 2009. </li></ul><ul><li>If someone else claims the taxpayer, the personal exemption maximum is $1,500. </li></ul>
  18. 18. Special Exemptions <ul><li>An extra $2,300 for taxpayers and dependents age 65 or older as of 12/31/2009. </li></ul><ul><li>An extra $2,300 for taxpayers and dependents who are deaf, blind, hemiplegic, paraplegic, quadriplegic, or totally and permanently disabled. </li></ul><ul><li>If you claim a 65 or older exemption, you may not claim an exemption for totally and permanently disabled. </li></ul><ul><li>An extra $600 for dependent children ages 18 and under as of 12/31/2009. </li></ul><ul><li>An extra $2,300 if unemployment compensation is 50% or more of your Adjusted Gross Income (AGI). </li></ul>
  19. 19. Special Exemptions <ul><li>$300 for each taxpayer and every dependent of the taxpayer who is a Qualified Disabled Veteran. </li></ul><ul><li>A Qualified Disabled Veteran is a veteran with a service-connected disability. </li></ul><ul><li>The $300 can be claimed by either the taxpayer or a dependent, but not both. </li></ul>
  20. 20. Special Exemptions Deaf, Blind or Disabled <ul><li>See the MI-1040 instructions for the criteria of meeting the definitions for the deaf and blind exemptions. Totally and permanently disabled means disabled as defined under Social Security Guidelines. </li></ul><ul><li>See the Intake/Interview Sheet (Part I, Section B, and AAS Part I) for questions to ask the client regarding disability. </li></ul>
  21. 21. TaxWise – Main Information Sheet Blind/Disabled
  22. 22. TaxWise MI-1040 Exemptions (Note: 2008 exemptions amounts shown below.)
  23. 23. TaxWise MI-1040CR Exemptions
  24. 24. Mini-Quiz 2 <ul><li>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? </li></ul>
  25. 25. Mini-Quiz 2 – Answer <ul><li>Their total exemptions, personal and special, is 6 </li></ul><ul><li>Four personal exemptions at $3,600 each equals $14,400. </li></ul><ul><li>Two special exemptions: </li></ul><ul><ul><li>A special exemption for John of $2,300 because he is 65 or older. (Note: Because he is 65 or older, he cannot also get the special exemption for totally and permanently disabled.) </li></ul></ul><ul><ul><li>A special exemption of $600 because their daughter Sara is 18 or under as of 12/31/09. </li></ul></ul><ul><li>Their total exemption allowance is $17,300, which is subtracted from their Income Subject to Tax. </li></ul>
  26. 26. Income
  27. 27. <ul><li>Michigan starts with the federal Adjusted Gross Income (AGI) and then makes several Additions and Subtractions to AGI to determine Income Subject to Tax. </li></ul><ul><li>Additions and Subtractions are shown on MI-1040 Schedule 1. </li></ul><ul><li>TaxWise: Adjusted Gross Income and most Additions and Subtractions to income carry over from the federal return. </li></ul>Income
  28. 28. Taxable Income and Tax Rate <ul><li>Adjusted Gross Income (AGI) plus Additions and less Subtractions determine Income Subject to Tax. </li></ul><ul><li>Exemption allowance is subtracted from this to determine Taxable Income. </li></ul><ul><li>The 2009 tax rate is 4.35%. </li></ul>
  29. 29. Additions to Income <ul><li>Interest from municipal bonds issued outside of Michigan. This is rare for our clients. </li></ul><ul><li>The deduction for self-employment tax taken on the Federal 1040. This is added back into income for Michigan. </li></ul><ul><li>Other additions are not common to our clients – see the MI-1040 instructions for the complete list. </li></ul>
  30. 30. TaxWise – MI-1040 Schedule 1 Additions to Income
  31. 31. Subtractions from Income <ul><li>Income from U.S. Government bonds. </li></ul><ul><li>Military pay. </li></ul><ul><li>Pension benefits up to certain limits. </li></ul><ul><li>Interest, dividends, and capital gains for senior citizens up to certain limits. </li></ul><ul><li>Social Security benefits which were taxable on the federal return. </li></ul><ul><li>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). </li></ul><ul><li>See the MI-1040 instructions for a complete list of subtractions. </li></ul>
  32. 32. TaxWise – MI-1040 Schedule 1 Subtractions from Income
  33. 33. Mini-Quiz 3 <ul><li>Which of the following are taxable in Michigan? </li></ul><ul><ul><li>Wages </li></ul></ul><ul><ul><li>Unemployment compensation </li></ul></ul><ul><ul><li>Gifts received </li></ul></ul><ul><ul><li>Series E Bond Interest </li></ul></ul><ul><ul><li>Bingo Winnings </li></ul></ul><ul><ul><li>Casino Winnings </li></ul></ul><ul><ul><li>Lottery Winnings </li></ul></ul><ul><ul><li>Self-employment income </li></ul></ul><ul><ul><li>See the MI-1040 instructions for taxable income items. Also, see Page 18 of Accounting Aid Society’s Administrative Manual for the Volunteer to see a list of taxable and nontaxable income. </li></ul></ul>     
  34. 34. Credits
  35. 35. Nonrefundable Credits <ul><li>Income tax paid to Michigan cities: The MI-1040 instructions has a worksheet to calculate this. </li></ul><ul><li>Contributions to certain community foundations, homeless shelters, food banks and other public institutions. </li></ul><ul><li>College Tuition and Fees Credit: Only tuition paid to certain schools qualifies for this credit – see the list on the back of Schedule CT which is located in the MI-1040 instruction booklet. </li></ul><ul><li>Vehicle Donation Credit: Credit is received if donated vehicle was subsequently transferred to an individual for employment purposes. </li></ul><ul><li>Energy Cost Recovery Surcharge Credit: New for 2009 </li></ul>
  36. 36. Nonrefundable Credits Income Tax Paid to Michigan Cities <ul><li>TaxWise will calculate the credit from city withholding information on the W-2. </li></ul><ul><li>In addition to city income tax withholding, any city taxes paid or refunds received during the tax year should be included in this credit calculation. </li></ul><ul><li>TaxWise: There are fields on Schedule 2 of the MI-1040 to enter any city tax paid or city refund received during 2009. </li></ul>
  37. 37. TaxWise – MI-1040 Schedule 2 Nonrefundable Credits Credit for Income Tax Paid to Michigan Cities
  38. 38. Nonrefundable Credits Energy Cost Recovery Surcharge Credit <ul><li>Available to homeowners and renters who paid residential electric bills for 2009. </li></ul><ul><li>Based on an itemized surcharge (maximum $3.00 per month) appearing on bills as “cost recovery” surcharges. </li></ul><ul><li>Limited to taxpayers with AGI of $65,000 or less ($130,000 MFJ). </li></ul><ul><li>Maximum credit is for 2009 is $9.00 per meter (25% x $3 x 12 mos.). </li></ul>
  39. 39. Use Tax <ul><li>Taxpayers who purchase items from out of state sellers or from catalogues or the internet must pay a 6% use tax if sales tax of that amount was not collected by the seller. </li></ul><ul><li>This is entered on Line 25 on Page 2 of Form MI-1040. (Note: Line number may change on 2009 MI-1040.) </li></ul><ul><li>Note: Due to our clients’ low income this is almost never an issue, but should be part of the interview process. </li></ul>
  40. 40. Refundable Credits and Payments <ul><li>The most common of these payments and credits for our clients is: </li></ul><ul><ul><li>Michigan Tax Withheld (from Schedule W, Michigan Withholding Tax Schedule) </li></ul></ul><ul><ul><li>Homestead Property Tax Credit (from Form MI-1040CR or Form MI-1040CR-2) </li></ul></ul><ul><ul><li>Home Improvements/Appliances ( new for 2009 ) </li></ul></ul>
  41. 41. Michigan Stillbirth Credit <ul><li>Refundable credit of 4.5% of exemption amount. </li></ul><ul><li>Requires certificate of stillbirth from the Department of Community Health. </li></ul>
  42. 42. TaxWise MI-1040 Page 2 Refundable Credits and Payments (Note: Line numbers may change on 2009 Form MI-1040.)
  43. 43. Michigan Withholding Tax Schedule Schedule W <ul><ul><li>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. </li></ul></ul><ul><ul><li>A Schedule W must be attached to a paper return. </li></ul></ul><ul><ul><li>Forms W-2 and 1099 are not attached to paper copies of MI-1040 returns. </li></ul></ul><ul><ul><li>Special Instructions for Years Prior to 2007 TaxWise: </li></ul></ul><ul><ul><li>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. </li></ul></ul>
  44. 44. Homestead Property Tax Credit
  45. 45. Homestead Property Tax Credit Form MI-1040CR <ul><li>This credit is available to homeowners AND renters. </li></ul><ul><li>You have to have been a Michigan resident at least six months of 2009. </li></ul><ul><li>The credit is available only to those owning the homestead or to those listed on the lease. If there are multiple owners there are special rules. </li></ul><ul><li>(See the Intake/Interview Sheet, AAS Part IV , for questions to ask the client regarding the Michigan Homestead Property Tax Credit.) </li></ul><ul><li>TaxWise: Identifying information, school district code and residency status will carry over from the Main Information Sheet and the MI-1040. </li></ul>
  46. 46. Homestead Property Tax Credit Age 65 or Blind/Deaf/Disabled <ul><li>Form MI-1040CR, Line 5 – check one of these boxes if the taxpayer or spouse was: </li></ul><ul><ul><li>65 or older at 12/31/09; or an unremarried spouse of a person who was 65 or older at the time of death </li></ul></ul><ul><ul><li>Blind, deaf, hemiplegic, paraplegic, quadriplegic, or totally and permanently disabled </li></ul></ul><ul><ul><li>TaxWise: 65 or older will carry over from Main Info. </li></ul></ul><ul><ul><li>Blind or disabled will also carry over from Main Info. </li></ul></ul><ul><ul><li>Unremarried spouse and deaf or plegic must be marked directly on the credit form. </li></ul></ul>
  47. 47. Homestead Property Tax Credit Homeowners <ul><li>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 . </li></ul><ul><li>The Homestead Property Tax Credit is based on the taxes levied/billed. They do not have to have been paid. </li></ul><ul><li>Vacant lots can be included if they are adjacent to the home. Vacation property and other houses do not qualify. </li></ul><ul><li>Do not include penalties, interest or special assessments. Detroit’s solid waste fee ($240 for 2009) is a special assessment. </li></ul><ul><li>You can include administrative fees of up to 1% of the taxes. </li></ul><ul><li>TaxWise: See the Intake/Interview Sheet, AAS Part IV, for questions to ask the client regarding the Michigan Homestead Property Tax Credit.) </li></ul>
  48. 48. Homestead Property Tax Credit Homeowners Taxable Value <ul><li>The Taxable Value of the homestead is listed on the property tax statements and on the annual Notice of Assessment. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul>
  49. 49. SUMMER TAXES LEVIED = 975.22 + 9.75 = 984.97
  50. 50. WINTER TAXES LEVIED = 141.73 + 1.41 = 143.14 SO … TOTAL TAXES LEVIED FOR THE YEAR = 984.97 + 143.14 = 1,128.11
  51. 51. <ul><li>20% of rent paid is treated as “property tax” paid indirectly through the landlord. Complete Part 2 of Form MI-1040CR. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul>Homestead Property Tax Credit Renters
  52. 52. Homestead Property Tax Credit Renters
  53. 53. <ul><li>Service Fee Housing: </li></ul><ul><li>If a taxpayer lived in housing on which service fees are paid instead of taxes (PILOT program), 10% of rent can be claimed for credit. Complete Part 3 on the back of Form MI-1040CR. </li></ul><ul><li>If not sure, a client needs to ask his landlord. </li></ul><ul><li>Cooperative Housing Residents: </li></ul><ul><li>These residents claim their share of the property taxes on the building and should receive a statement from management indicating their share. </li></ul><ul><li>They cannot take 20% of their monthly payment or carrying charges. </li></ul><ul><li>Other: </li></ul><ul><li>No credit is available for tax-exempt housing. </li></ul><ul><li>See instructions for other types of housing. </li></ul>Homestead Property Tax Credit Service Fee and Co-Op Housing
  54. 54. <ul><li>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. </li></ul><ul><li>Complete Part 4 on the back of Form MI-1040CR. </li></ul><ul><li>Please consult the Michigan Taxpayer Assistance Manual and the MI-1040 instructions for special housing situations. </li></ul>Homestead Property Tax Credit Nursing Homes and Other Adult Care Homes
  55. 55. TaxWise MI-1040CR, Page 2 Other Housing
  56. 56. Mini-Quiz 4 <ul><li>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? </li></ul>
  57. 57. Mini-Quiz 4 – Answer <ul><li>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 . </li></ul>
  58. 58. Household Income
  59. 59. Household Income <ul><li>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. </li></ul><ul><li>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.) </li></ul><ul><li>(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.) </li></ul>
  60. 60. TaxWise – Household Income Taxable Income & Nontaxable Income
  61. 61. Household Income Social Security Benefits <ul><li>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. </li></ul><ul><li>TaxWise: The amounts entered on 1040 Wkt1 for the taxpayer and/or spouse’s benefits will carry over to Form MI-1040CR. </li></ul>
  62. 62. <ul><li>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. </li></ul><ul><li>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. </li></ul>Household Income Social Security Benefits
  63. 63. <ul><li>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. </li></ul><ul><li>Individuals can receive both Social Security benefits and SSI if their Social Security benefit is low. </li></ul>Household Income Supplemental Security Income (SSI)
  64. 64. <ul><li>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.) </li></ul><ul><li>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. </li></ul>Household Income Supplemental Security Income (SSI)
  65. 65. <ul><li>Child support and all payments received as a foster parent are included in Household Income. </li></ul><ul><li>Add the amounts paid (including back-due support paid for prior years). </li></ul><ul><li>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. </li></ul>Household Income Child Support
  66. 67. <ul><li>Workers’ compensation: The client should be able to tell you how much he/she received a month for workers’ comp. </li></ul><ul><li>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. </li></ul>Household Income Worker’s Comp and Veteran Benefits
  67. 68. <ul><li>Assistance provided by the Michigan Department of Human Services common to our clients include: </li></ul><ul><ul><li>Family Independence Program (FIP) benefits – clients should receive an Annual Statement. </li></ul></ul><ul><ul><li>State Disability Assistance (SDA) – clients should receive an Annual Statement. </li></ul></ul><ul><ul><li>State SSI Payment – A year-end statement is not issued. Our clients typically receive $14/month or $42 every three months, amounting to an annual payment of $168. </li></ul></ul>Household Income FIP and other DHS Benefits
  68. 69. <ul><li>The value of food stamps is not included in Household Income. </li></ul><ul><li>If a client’s only source of income is from DHS, they are not eligible for the Property Tax Credit. </li></ul><ul><li>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. </li></ul>Household Income FIP and other DHS Benefits
  69. 71. <ul><li>Gifts of cash or merchandise over $300 from parents, relatives or friends. </li></ul><ul><li>The value over $300 of expenses paid on the client’s behalf (rent, taxes, utilities, food, medical care, etc.) </li></ul><ul><li>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. </li></ul><ul><li>See the MI-1040 instructions for other nontaxable income. </li></ul>Household Income Other Nontaxable Income
  70. 72. Adjustments to Household Income <ul><li>Certain items can be deducted to reduce Household Income. These adjustments can include: </li></ul><ul><ul><li>One-half of self-employment tax. </li></ul></ul><ul><ul><li>Student loan interest. </li></ul></ul><ul><ul><li>All other adjustments to income from the federal Form 1040 or Form 1040A. </li></ul></ul><ul><ul><li>Premiums paid for medical insurance (not including long-term care.) </li></ul></ul><ul><ul><li>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. </li></ul></ul>
  71. 73. Calculating the Property Tax Credit <ul><li>Most filers have the credit reduced by 40%. </li></ul><ul><li>Exceptions are seniors, unremarried spouses of deceased seniors, deaf, blind, paraplegic, quadriplegic, hemiplegic, and totally and permanently disabled clients. </li></ul><ul><li>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.) </li></ul><ul><li>Filers who received DHS benefits will have their credit prorated. There is a worksheet in the MI-1040 instructions for this calculation. </li></ul><ul><li>TaxWise: All of the above calculations to determine the credit are done by TaxWise from information previously entered. </li></ul>
  72. 74. Veterans and Blind Homestead Property Tax Credit Form MI-1040CR-2 <ul><li>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. </li></ul><ul><li>There are Household Income limits for some military personnel. </li></ul><ul><li>Calculate the credit using both the MI-1040CR and the MI-1040CR-2, and use the larger credit. </li></ul><ul><li>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. </li></ul>
  73. 75. Home Improvement/Appliances Credit (Refundable) <ul><li>Credit is based on home improvements and appliances purchased after 12/31/2008 and before 01/01/2012. </li></ul><ul><li>Credit is limited to purchases for use in a home for a principal residence exemption is allowed. </li></ul><ul><li>AGI must not exceed $37,500 ($75,000 MFJ). </li></ul>
  74. 76. <ul><li>Credit is equal to 10% of the purchase price and installation (limited to $75, $150 MFJ)) for a purchase from each of the following categories for each tax year: </li></ul><ul><li>Insulation </li></ul><ul><li>Furnace </li></ul><ul><li>Water heaters </li></ul><ul><li>Windows </li></ul><ul><li>Refrigerators, clothes washers, and dishwashers </li></ul><ul><li>Note: Equipment must meet or exceed EPA Energy Star criteria. Michigan Department of Treasury may request receipts to prove cost and energy rating. </li></ul>Home Improvement/Appliances Credit – Continued
  75. 77. Home Heating Credit
  76. 78. Home Heating Credit Claim Form MI-1040CR-7 <ul><li>This credit helps low income people pay their heating bills. It is generally available to anyone who owns or rents and whose income is within the income limits listed in the instructions. </li></ul><ul><li>It is not available to students claimed by their parents, and residents of nursing homes, homes for the aged, adult foster care homes, and substance abuse centers. </li></ul><ul><li>The deadline for filing the 2009 </li></ul><ul><li>Home Heating Credit Claim is </li></ul><ul><li>September 30, 2010. </li></ul><ul><li>--There is no extension. </li></ul>
  77. 79. Home Heating Credit <ul><li>Clients with the heating bill in their name should contact the gas company to get the amount they were billed for heat from November 1, 2008 until October 31, 2009. </li></ul><ul><li>Clients who have the heat included in the rent or in someone else’s name also qualify for the credit. </li></ul><ul><li>(See the Supplemental Intake/Interview Sheet, AAS Part V , for questions to ask the client regarding the Michigan Home Heating Credit.) </li></ul>
  78. 80. Home Heating Credit <ul><li>Form MI-1040CR-7, Line 4, requires a county code. The county codes are listed on the back of the paper form. </li></ul><ul><li>TaxWise: Press F1 on Form MI-1040CR-7 and select MI Codes for a list of county codes. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul>
  79. 81. Home Heating Credit <ul><li>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. </li></ul><ul><li>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.) </li></ul><ul><li>There are two ways to calculate the credit, using the Standard Credit and the Alternate Credit. </li></ul><ul><li>TaxWise calculates the credit both ways and awards the larger of the two. </li></ul>
  80. 82. Home Heating Credit <ul><li>For clients with the heat in their name, they will receive their credit as an energy draft. This is a voucher which the client subsequently sends to the gas company who will credit their account. </li></ul><ul><ul><li>Clients who receive their heat from DTE Energy, Consumers Energy or SEMCO Energy Gas may have their home heating credit sent directly to their heat provider. </li></ul></ul><ul><li>For clients whose heat is included in the rent or their heat service is in someone else’s name, they will receive a check. </li></ul>
  81. 83. Mini-Quiz 5 <ul><li>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. </li></ul><ul><li>How much is his credit? </li></ul>
  82. 84. Mini-Quiz 5 – Answer <ul><li>For the Standard Credit: Standard Allowance = $562. $562 less ($10,000 HHI x .035) = $212 </li></ul><ul><li>For the Alternate Credit: Heating costs = $1,200. Subtract ($10,000 HHI x .11= $1,100) leaving $100. $100 x 0.70 = $70. </li></ul><ul><li>$212 is greater than $70, so the Home Heating Credit will be based on the Standard Credit. </li></ul><ul><li>Note that the credit is reduced based on funding available, so multiply $212 by the applicable percentage to find the amount of Bob’s energy draft. </li></ul><ul><li>Note: The 2009 percentage reduction was not available at the time of printing. </li></ul>
  83. 85. Finishing the Return
  84. 86. <ul><li>TaxWise will generate an MI-1040-V if taxes are owed. The taxpayer mails this form with a check or money order along with the tax return. </li></ul><ul><li>Refund checks are mailed to clients, or the refund can be directly deposited. </li></ul><ul><li>Energy Drafts for the Home Heating Credit are mailed separately. </li></ul><ul><li>For a direct deposit of a Home Heating Credit refund check, a Form 3174 must be prepared and attached to the MI-1040CR-7. </li></ul><ul><li>Paper returns take much longer to process. </li></ul>
  85. 87. <ul><li>The paperwork that Accounting Aid Society requires for a Michigan return is similar to that of a federal return – follow Accounting Aid’s Final Checklist. </li></ul><ul><li>Note that a Michigan income tax return cannot be electronically filed without a federal return, unless the state filing is just for the Homestead Property Tax and/or Home Heating Credits. </li></ul>
  86. 88. TaxWise – MI-1040 Page 1 Credit-Only Indicator
  87. 89. Finishing the Paper Return <ul><li>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. </li></ul><ul><li>Do not staple the Home Heating Credit Claim to the other forms. It may be sent in the same envelope. </li></ul>
  88. 90. Amended Returns <ul><li>Enter the return as originally prepared or find the original return in a site computer. </li></ul><ul><li>Open a Michigan 1040X. Check the red box on the 1040X form next to the instruction “Check to override all original entries in Column A…” </li></ul><ul><li>Make the necessary changes on the original forms. </li></ul>
  89. 91. Amended Returns – Continued <ul><li>If a Property Tax Credit was not originally clamed on a Michigan 1040, it can be filed by itself and is the preferred method. </li></ul><ul><li>The Home Heating Credit will not be included on the Michigan Form MI-1040X. The MI-1040CR-7 and/or city return will be recomputed as part of the process and should be marked “Amended”. </li></ul>
  90. 92. Thanks for attending this session!