This section provides procedures for checking Schedule A, Itemized Deductions. Schedule A changes affect the taxable income amount.

Update the Return Processable Date (RPD) if the Schedule A is a late reply to a "U" coded return. The RPD is the received date of the Schedule A.

Refer to IRM 21.5.1.4.2.10 , Late Replies, for more information.

Determine if itemized deductions are required. The following states do not permit taxpayers to itemize deductions on the state return unless they itemize on the federal return.

Idaho requires taxpayers to itemize if excluding income from:

Schedule A, Itemized Deductions , must be attached to Form 1040, U.S. Individual Income Tax Return, if the taxpayer itemizes deductions or Form 1040X, Amended U.S. Individual Income Tax Return, if the taxpayer is amending the return and Schedule A was not previously filed with the original return. Schedule A is divided into eight sections.

Schedule A, Itemized Deductions , deductible medical and dental expenses must exceed 7.5% of the Adjusted Gross Income (AGI).

See Publication 502, Medical and Dental Expenses, for deductible expenses.

The following taxes paid are deductible:

Taxes and fees cannot be deducted unless they fall into one of the specifically allowable categories stated above. Nondeductible taxes and fees include, but are not limited to:

The types of deductible interest are:

The following types of interest are NOT deductible:

A charitable contribution is deductible if it is:

The Katrina Emergency Tax Relief Act of 2005 (KETRA, PL 109-73) enacted on September 23, 2005, provides temporary suspension of limitations on charitable contributions. Generally, qualified contributions by individuals are exempt from percentage limitations and the phase-out of itemized deductions if:

The Gulf Opportunity (GO) Zone Act of 2005, ( PL 109-135) enacted on December 21, 2005, provides temporary suspension of limitations on charitable contributions made on or after August 28, 2005, and before January 1, 2006, for relief efforts related to Hurricanes Rita or Wilma. Contributions are subject to the same limitations and qualifications as those enacted in KETRA as listed above.

See Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita and Wilma, and Publication 4492–B, Information for Affected Taxpayers in the Midwestern Disaster Areas, for additional information on relief provisions enacted by KETRA and GO Zone legislation. See Publication 526, Charitable Contributions, for more information on reporting and claiming charitable contributions not related to disasters.

PL 109-1 permits taxpayers to claim as charitable contributions in tax year 2004 donations made during January 2005 to assist victims of the tsunami disaster. The deduction is limited to cash gifts made specifically for the tsunami disaster relief and must meet all charitable contribution requirements. Taxpayers may choose whether to claim the deduction for tax year 2004 or tax year 2005.

The substantiation rules for non-cash charitable contributions were changed by The American Jobs Creation Act of 2004 (PL 108-357).

Noncash charitable contributions over $500 must be supported by Form 8283, Noncash Charitable Contributions. Verify the Form 8283, Noncash Charitable Contributions.

Form 8283, Section B, Donated Property Over $5,000, must be completed and the Declaration of Appraiser (Part III) must be signed for contributions (of other than publicly traded securities) claimed over $5,000. The appraisal date must NOT be:

For contributions made after June 30, 2004, a qualified appraisal must be attached to a return for contributions of over $500,000. See IRC § 170 (f)(11)(D).

Taxpayer inquiries may be received regarding balance due and disallowance notices relating to missing or incomplete Forms 8283, Noncash Charitable Contributions.

For tax years 2006, 2007 and 2008, the standard mileage rate for use of the taxpayer's care in giving services to a charitable organization is 14 cents per mile.

For 2005, the standard mileage rate for use of the taxpayer's car in giving services to a charitable organization is 14 cents per mile, other than activities related to Hurricane Katrina relief.

Special rates apply for Hurricane Katrina related charitable miles:

See Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita and Wilma, and Publication 4492–B, Information for Affected Taxpayers in the Midwestern Disaster Areas, for additional information on relief provisions enacted by KETRA and GO Zone legislation. See Publication 526, Charitable Contributions, for more information on reporting and claiming standard mileage rates for charitable services.

A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual, such as a fire, shipwreck or storm, not compensated for by insurance or otherwise. Taxpayer must file Form 4684, Casualties and Thefts, to support the deduction.

A theft is the unlawful taking and removing of property or money with the intent to deprive the owner of it. The loss is allowable to the extent not compensated for by insurance or otherwise. Loss must be supported by Form 4684.

The Katrina Emergency Tax Relief Act of 2005 (KETRA PL 109-73) enacted on September 23, 2005, the Gulf (GO) Zone Opportunity Act of 2005 (PL 109-135), enacted on December 21, 2005, and the Food, Conservation and Energy Act of 2008 (also referred to as the Kansas Disaster Area) (PL 110-234), enacted May 22, 2008, provide suspension of certain limitations on personal casualty losses. These provisions removed two limitations on personal casualty or theft losses to the extent the losses arose in the Hurricane Katrina disaster area on or after August 25, 2005, the Hurricane Rita disaster on or after September 23, 2005, the Hurricane Wilma disaster on or after October 23, 2005 and were attributable to the hurricane or in the Kansas Disaster Area on or after May 4, 2007 and were attributable to the storms and tornados. The two limitations removed are:

KETRA, GO Zone, and Kansas Disaster Area legislation treat personal casualty or theft losses from Hurricanes Katrina, Rita, Wilma, and the Kansas Disaster Area as a deduction separate from all other casualty losses.

The law, enacted May 22, 2007, lifts the $100 and the 10 percent loss for the Kansas Disaster Area struck by severe weather in May 2007. As a result, many individuals and couples who originally showed disaster losses on either their 2006 or 2007 return may now be eligible to report a larger deduction and thus claim an additional refund by filing an amended return for tax year 2007. In addition, those barred from claiming a loss because of the regular $100 and 10 percent limits can now claim a deduction on either an original or amended return for tax year 2007. To speed processing, those claiming this relief should write, "Kansas Disaster Area," in red, at the top of their Form 1040X .

Taxpayers filing or amending tax returns with additional casualty and theft losses not related to Hurricane Katrina must complete Form 4684 following normal procedures. If the taxpayer has both normal casualty and theft losses in addition to Hurricane Katrina, Rita, Wilma or the Kansas Disaster Area casualty and theft losses, two Forms 4684 must be submitted.

See Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita and Wilma, for additional information on relief provisions enacted by KETRA and GO Zone legislation. See Publication 4492-A, Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes, and Publication 4492–B, Information for Affected Taxpayers in the Midwestern Disaster Areas, for additional information on relief provisions enacted. See Publication 547, Casualties, Disasters, and Thefts; Publication 584, Casualty, Disaster, and Theft Loss Workbook; and Rev. Proc. 2006–32, Internal Revenue Bulletin 61, for additional information.

Certain expenses (e.g., unreimbursed employee expenses) can be claimed as miscellaneous itemized deductions on lines 21–23 of Schedule A, Form 1040, and are deductible to the extent that such expenses exceed 2% of AGI. Attach Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses, if required.

Credit card convenience fees related to the payment of tax can be deducted on Schedule A, line 23.

Some other expenses listed as miscellaneous deductions are not subject to the 2% limit. These expenses include, but are not limited to:

There is an overall limitation on itemized deductions which applies to individuals whose income from line 37 (AGI) of the Form 1040, U.S. Individual Income Tax Return, exceeds the amounts listed below. These taxpayers must reduce the amount of their otherwise allowable itemized deductions by the lesser of:

Taxpayers (other than corporations) can make an election to treat certain assets held on 01/01/2001, as sold and then reacquired on the same date. Gain resulting from the election must be included in gross income for the year that includes 01/01/2001. This election is made to give the asset a new holding period and to make any future gain on the asset eligible for the 18% rate.

Property qualifying for the election is:

Per Notice 2002-58, if the taxpayer has already filed their return without making an election under §311, the election can still be made by filing an amended return within six months of the due date of the original return (excluding extensions). One of the following statements must be written across the top of the amended return: "Election Under Section 311 of the Taxpayer Relief Act of 1997" or "Filed Pursuant to Section 301.9100-2" . Once made, an election for any asset is irrevocable. Follow normal procedures in IRM 21.5.3, General Claims.

Per Notice 2002-58, if a taxpayer did not timely file an original return on which a §311 (e) election could have been made, as described above, or failed to make a §311 (e) election with respect to one or more eligible assets on a timely filed original return and failed to make the §311 (e) election on an amended return, then the taxpayer may apply for relief under section 301.9100-3, in accordance with the provisions of Rev. Proc. 2009-1, I.R.B. 1 (or any successor).

An Employer Identification Number (EIN) is required to be present on Schedule H, Household Employment Taxes.

To establish, change, or correct the primary or secondary EIN, use CC ADJ54 — "XREF/PRIM/SEC—EIN. "

All EIN changes on Schedule H, Household Employment Taxes, reporting social security and/or Medicare tax, must be processed manually to prevent erroneous Combined Annual Wage Reporting (CAWR) records. Individual Master File (IMF) systemically forwards a record to the Business Master File (BMF) containing the Schedule H social security and Medicare information.

The reference number 993/994 .00 is input in the item reference code field on (CC) ADJ54.

Fiscal year filers must report wages paid on a calendar year basis.

Schedule H, Household Employment Taxes, has four parts:

Schedule H, Household Employment Taxes, may be filed by either the primary or secondary taxpayer. The Form 1040 program allows the input and adjustment of either or both taxpayer's employment taxes.

The reference numbers for adjusting Schedule H, Part I are:

The employer is instructed not to report social security and Medicare wages for an amount less than $1,700 for 2009, ($1,600 for 2008; $1,500 for 2007 and 2006; or $1,400 for 2005, 2004 and 2003). Delete total social security and Medicare wages if less than those amounts.

The interest-free provisions for underpayment adjustments on BMF taxes ( IRC Section § 6205) apply to errors discovered on IMF, Schedule H, Household Employment Taxes.

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Adjustments to social security and Medicare taxes may be made interest-free if reported by the due date of the return for the period the error is ascertained.

Income tax withholding is not required on amounts paid to household employees unless the employee asks and the employer agrees.

Generally, adjustments to income tax withholding errors may only be made for errors discovered during the same calendar year. Since household employees' employment taxes are reported annually on Schedule H, no quarterly adjustments are necessary. Adjustments to amounts reported as income tax withheld in a prior calendar year may only be made to correct an administrative error. An administrative error occurs if the amount entered on Schedule H as income tax withheld is not the amount the employer actually withheld. An example of an administrative error is an erroneous mathematical computation or a transposition error. See IRM 21.6.4.4.8.13, Schedule H, Household Employment Taxes, Claims Citing IRC Section 3509, for provisions regarding use of Section 3509 when the taxpayer misclassified the worker.

Adjustments to income tax withheld carry the same provision as social security and Medicare taxes.  

When an adjustment includes a Schedule H (FICA or Income Tax Withholding; not FUTA) assessment AND another IMF issue(s), assure ONLY the FICA tax and any income tax withholding (not FUTA) of the Schedule H assessment receives the interest-free treatment .

A corrected Schedule H may be filed with a Form 1040X or an amended Form 1041. In such case, the correction on the Schedule H should be explained in Part II of the Form 1040X or on the required attached statement with the amended Form 1041. If a corrected Schedule H is filed by itself, the corrected Schedule H should include the date the error was discovered in the top margin. See Publication 926, Household Employer's Tax Guide, for more information.

The interest-free provisions for overpayment adjustments on BMF taxes (IRC Section § 6413) apply to errors discovered on IMF, Schedule H, Household Employment Taxes.

Process an overpayment of social security and Medicare taxes (and any overpayment of income tax withholding made as an administrative error) on Schedule H as an interest-free adjustment if there is any indication that the taxpayer wants the overpayment applied as a credit to the period in which the Schedule H reporting the overpayment is filed.

Process an overpayment of social security and Medicare taxes (and any overpayment of income tax withholding made as an administrative error) on Schedule H as a refund with interest if there is no indication that the taxpayer wants the overpayment applied as a credit.

Interest free adjustments to overpayments of social security and Medicare taxes may be made at any time after the error is ascertained with the applicable period of limitations of the period in which the error occurred.

A corrected Schedule H may be filed with a Form 1040X or an amended Form 1041. In such case, the correction on the Schedule H should be explained in Part II of the Form 1040X or on the required attached statement with the amended Form 1041. If a corrected Schedule H is filed by itself, the corrected Schedule H should include the date the error was discovered in the top margin. See Publication 926, Household Employer's Tax Guide, for more information.

Interest-free adjustments to overpayments for the employee share of social security and Medicare tax may only be made once the employer has repaid or reimbursed the employee in the amount of the over collection of employee tax. An employer reimburses an employee by applying the over withheld amount against taxes to be withheld on future wages. Publication 926 instructs the employer to include a statement in their explanation in Part II of Form 1040X or in the attached statement to an amended Form 1041 that it has repaid or reimbursed its employee, except where taxes were not withheld from the employee or where, after reasonable efforts, the employer cannot locate the employee.

As part of the claim process, the employer must repay or reimburse the employee in the amount of the over collection or secure the employee's consent to the allowance of the claim for refund. Publication 926 instructs the employer to include a statement in their explanation in Part II of Form 1040X or in the attached statement to an amended Form 1041 that it has repaid or reimbursed its employee or has secured the employee's written consent to the allowance of the filing of the claim, except to the extent that the taxes were not withheld from the employee.

Generally, interest-free adjustments to income tax withholding errors may only be made for errors discovered during the same calendar year. Since household employees' employment taxes are reported annually on Schedule H, no quarterly adjustments are necessary. Interest-free adjustments to amounts reported as income tax withheld in a prior calendar year may only be made to correct an administrative error. An administrative error occurs if the amount entered on Schedule H as income tax withheld is not the amount the employer actually withheld. An example of an administrative error is an erroneous mathematical computation or a transposition error.

When a Form 1040X, Amended U.S. Individual Income Tax Return, includes an overpayment on the Schedule H (FICA or Income Tax Withholding; not FUTA) AND another IMF issue(s), and indicates that it wants the overpayment applied as a credit, assure ONLY the Schedule H overpayment receives interest-free treatment.

FUTA State Codes must be input for adjusting both the primary and secondary taxpayer information.

The FUTA State Code is a three character code comprised of a single Alpha letter followed by the two character state code used by the U.S. Postal Service.

The FUTA State Code Alpha is used as follows:

The three character code is systemically converted to the applicable item reference number (IRN) for MF.

The reference number is not displayed on tax modules.

Following is a list of Unpostable Codes (UPC) applicable to Schedule H, Household Employment Taxes