This credit is figured like last year's economic stimulus payment, except that your 2008 tax information is used to figure this credit. Your 2007 tax information was used to figure your economic stimulus payment. The maximum credit is $600 ($1,200 if married filing jointly) plus $300 for each qualifying child.

You may be able to take this credit only if:

For more information, see the instructions for Form 1040, line 70; Form 1040A, line 42; or Form 1040EZ, line 9.

New rules apply to losses of personal use property attributable to federally declared disasters declared in tax years beginning after 2007 and that occurred before 2010. A federally declared disaster is any disaster determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. A disaster area is the area determined to warrant such assistance. The new rules discussed here do not apply to losses in the Midwestern disaster areas.

The new rules are as follows.

For more information, see Form 4684.

If you claimed a casualty or theft loss deduction and in a later year you received more reimbursement than you expected, you generally do not recompute the tax for the year in which you claimed the deduction. Instead, you must include the reimbursement in your income for the year in which it was received, but only to the extent the original deduction reduced your tax for the earlier year. However, an exception applies if you claimed a casualty or theft loss deduction for damage to or destruction of your main home caused by Hurricane Katrina, Rita, or Wilma, and in a later year you received a hurricane relief grant. Under this exception, you can choose to file an amended income tax return (Form 1040X) for the tax year in which you claimed the deduction (and for any tax year to which such deduction was included in a net operating loss carryback or carryforward) and reduce (but not below zero) the amount of the deduction by the amount of the grant. If you choose to file an amended return reducing the prior deduction, any underpayment of tax resulting from the reduced deduction will not be subject to any penalty or interest as long as the additional tax is paid not later than 1 year after the filing of the amended return. If you make this choice, you must file Form 1040X by the later of:

For special filing procedures you must follow and more information, see Publication 547, Casualties, Disasters, and Thefts.

The following changes to the AMT went into effect for 2008. For more information, see Form 6251, Alternative Minimum Tax—Individuals, and its instructions.

For tax years beginning after 2007, the 5% maximum tax rate on qualified dividends and net capital gain (the excess of net long-term capital gain over net short-term capital loss) is reduced to 0%. This reduction applies for both regular tax and AMT. The 15% maximum tax rate on qualified dividends and net capital gain has not changed.

The following paragraphs explain the changes to the credit for 2008. For details, see Publication 596, Earned Income Credit (EIC).

The standard deduction for people who do not itemize their deductions on Schedule A (Form 1040) is, in most cases, higher for 2008 than it was for 2007. In addition to the annual increase due to inflation adjustments, your 2008 standard deduction is increased by:

You can figure your 2008 standard deduction by using the 2008 Standard Deduction Worksheet in Publication 501, Exemptions, Standard Deduction, and Filing Information.

The amount you can deduct for each exemption has increased to $3,500 for 2008.

You lose part of the benefit of your exemptions if your AGI is above a certain amount. The amount at which the phaseout begins depends on your filing status. For 2008, the phaseout begins at:

Beginning in 2008, you can lose no more than ¹/₃ of the dollar amount of your exemptions. In other words, each exemption cannot be reduced to less than $2,333.

If your AGI is more than the amount shown for your filing status, use the Deduction for Exemptions Worksheet in the Form 1040 or Form 1040A instructions to figure the amount you can deduct for exemptions.

Beginning in 2008, the definition of qualified education expenses for the tuition and fees deduction for students attending an eligible educational institution in the Midwestern disaster areas in the states of Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska, and Wisconsin is expanded. See Table 3-2 near the end of chapter 3 in Publication 970, Tax Benefits for Education, for a list of counties. For more information about the tuition and fees deduction, see chapter 6 in Publication 970.

For 2008, the amount of the student loan interest deduction is phased out (gradually reduced) if your filing status is married filing jointly and your modified AGI is between $115,000 and $145,000. You cannot take the deduction if your modified AGI is $145,000 or more.

For all other filing statuses, your student loan interest deduction is phased out if modified AGI is between $55,000 and $70,000. You cannot take a deduction if your modified AGI is $70,000 or more. For more information, see chapter 4 in Publication 970.

If you are a first-time homebuyer, you may be able to claim a one-time tax credit equal to the lesser of:

You may be able to claim the credit if:

If you constructed your main home, you are treated as having purchased it on the date you first occupied it.

Beginning in 2008, the following changes apply to the Hope and lifetime learning (education) credits. For more information, see chapters 2 and 3 in Publication 970.

For 2008, the amount your earned income must exceed to claim the additional child tax credit is reduced to $8,500.

If your AGI is above a certain amount, you may lose part of your itemized deductions. In 2008, this amount is increased to $159,950 ($79,975 if married filing separately). See the instructions for Schedule A (Form 1040), line 29, for more information on figuring the amount you can deduct.

If you pay your income tax (including estimated tax payments) by credit or debit card, you can deduct the convenience fee you are charged by the card processor to pay using your credit or debit card. The deduction is claimed for the year in which the fee was charged to your card as a miscellaneous itemized deduction on line 23 of Schedule A (Form 1040) (and is subject to the 2% of AGI floor).

A “qualified military benefit” generally means any excludable allowance or other in-kind benefit (other than personal use of a vehicle) received by a member or former member of the uniformed services of the United States or the dependent of such a member because of the member's status or service as a member of such services. The definition of qualified military benefit has been expanded to include payments by a state or a political subdivision thereof to a member or former member of the uniformed services of the United States or to a dependent of such a member if the payments are made only because of the member's service in a combat zone. See Publication 3, Armed Forces' Tax Guide, for more information about qualified military benefits.

The Emergency Economic Stabilization Act of 2008 extended the exclusion from gross income for the discharge of qualified principal residence indebtedness by an additional 3 years. The exclusion now applies to debt discharged after 2006 and before 2013. See Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), and Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals), for more information.

Beginning with exchanges completed after May 22, 2008, the exchange of stock in a mutual ditch, reservoir, or irrigation company may qualify for the nonrecognition of gain or loss under section 1031.

The nonrecognition of gain or loss on the exchange may apply if, at the time of the exchange:

A special rule allows amounts in a health FSA to be distributed to reservists ordered or called to active duty. This rule applies to distributions after June 17, 2008, if the plan has been amended to allow these distributions. A qualified reservist distribution is allowed if:

For more information, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.

For 2008, the maximum adoption credit has increased to $11,650. Also, the maximum exclusion from income for benefits under your employer's adoption assistance program has increased to $11,650. These amounts are phased out if your modified AGI is between $174,730 and $214,730. You cannot claim the credit or exclusion if your modified AGI is $214,730 or more. See Form 8839, Qualified Adoption Expenses, and its instructions for more information.

For 2008, the amount of your interest exclusion is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified AGI is between $100,650 and $130,650. You cannot take the deduction if your modified AGI is $130,650 or more.

For all other filing statuses, your interest exclusion is phased out if your modified AGI is between $67,100 and $82,100. You cannot take a deduction if your modified AGI is $82,100 or more. For more information, see chapter 9 in Publication 970.

For 2008, the maximum amount of qualified long-term care premiums you can include as medical expenses has increased. You can include qualified long-term care premiums, up to the amounts shown below, as medical expenses on Schedule A (Form 1040).

The limit on the exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract increases for 2008 to $270 per day. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other periodic basis under a life insurance contract because the insured is chronically ill.

Under this limit, the excludable amount for any period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts.

See section C of Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, and its instructions for more information.

The following changes to the credit for prior year minimum tax went into effect for 2008. For more information, see Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts, and its instructions.

For tax years beginning after 2007 and before 2011, gross income does not include:

A qualified volunteer emergency response organization is any volunteer organization organized and operated to provide firefighting or emergency medical services for persons in a state or local jurisdiction and required by written agreement with that state or local jurisdiction to furnish such services.

The maximum amount of wages subject to the social security tax for 2008 is $102,000. There is no limit on the amount of wages subject to the Medicare tax.

The social security and Medicare wage threshold for household employees is $1,600 for 2008. This means that if you pay a household employee cash wages of less than $1,600 in 2008, you do not have to report and pay social security and Medicare taxes on that employee's 2008 wages. For more information, see Social security and Medicare wages in Publication 926, Household Employer's Tax Guide.

If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive. You can claim a refund of any tax paid on the excludable amount (subject to the statute of limitations) by filing an amended return on Form 1040X for each previous year during the retroactive period.

Generally, under the statute of limitations a claim for credit or refund must be filed within 3 years from the time a return was filed or 2 years from the time the tax was paid, whichever period expires later. However, if you receive a retroactive service-connected disability rating determination, the statute of limitations is extended for 1 year beginning on the date of the determination. The extension applies to claims for credit or refund filed after June 17, 2008, and does not apply to any tax year that began more than 5 years before the date of the determination.

If you do not file your return by the due date (including extensions) you may have to pay a failure-to-file penalty. For income tax returns required to be filed after 2008, the failure-to-file penalty for returns filed more than 60 days after the due date (including extensions) is increased. In this situation, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

Any economic recovery payment you receive during 2009 is not taxable. These $250 payments are being made to most people who:

If you are married and you and your spouse both meet these requirements, each of you may get a $250 payment.

If you are entitled to a payment, you will get it automatically. You do not need to apply for it.

Two new credits you may be able to take for 2009 are the:

For tax years 2009 and 2010, the following changes have been made to the Hope credit. The modified credit is also referred to as the American opportunity tax credit.

For more information, see chapter 2 of Publication 970.

For any tax year beginning in 2009, each recipient of unemployment compensation can exclude from gross income up to $2,400 of the amount he or she received during the year.

The following changes to the AMT went into effect for 2009.

Beginning January 1, 2009, the monthly exclusion for commuter highway vehicle transportation and transit passes increased to $120 and the monthly exclusion for qualified parking increased to $230. Beginning March 1, 2009, the monthly exclusion for commuter highway vehicle transportation and transit passes increased to $230.

Beginning January 1, 2009, you may be reimbursed for reasonable expenses of qualified bicycle commuting. Reasonable expenses include the purchase of a bicycle and bicycle improvements, repair, and storage. The exclusion for a calendar year is $20 multiplied by the number of qualified bicycle commuting months during that year. A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your residence and place of employment and you do not receive any of the other qualified transportation fringe benefits. You are not entitled to this exclusion if the reimbursement for bicycle commuting is made under a compensation reduction agreement.

For 2009, the following changes have been made to the definition of a qualifying child.

The amount of taxable investment income a child can have without it being subject to tax at the parent's rate has increased to $1,900 for 2009.

The following paragraphs explain the changes to the credit for 2009.

The standard deduction for people who do not itemize their deductions on Schedule A (Form 1040) is, in most cases, higher for 2009 than it was for 2008. In addition to the annual increase due to inflation adjustments and the increase allowed for the deduction for certain real estate taxes and a net disaster loss, your 2009 standard deduction is increased by any state or local sales tax imposed on the purchase of a qualified motor vehicle in 2009 after February 16. For details, see Deduction for Sales and Excise Taxes Imposed on Purchase of New Motor Vehicles, next. To figure your 2009 standard deduction now, see Worksheet 2-3 in Publication 505.

In 2009, you can deduct the state or local sales and excise taxes imposed on the purchase of a qualified motor vehicle after February 16, 2009, and before 2010. A qualified motor vehicle includes a passenger automobile, light truck, or motorcycle, the original use of which begins with that purchaser and that has a gross vehicle weight rating of 8,500 pounds or less. A qualified motor vehicle also includes a motor home, the original use of which begins with that purchaser. The amount of tax you are able to deduct is limited to the tax that is imposed on the first $49,500 of the purchase price of the vehicle. The deduction is phased out over a $10,000 range that begins when modified AGI is more than $125,000 ($250,000 if married filing a joint return). No deduction is allowed when modified AGI is equal to or more than $135,000 ($260,000 if married filing a joint return). The new deduction can be used to increase the amount of your standard deduction or you can take it as an itemized deduction (if you are not electing to take the state and local general sales tax deduction).

Generally, a personal casualty or theft loss must exceed $500 to be allowed for 2009. This is in addition to the 10% of AGI limit that generally applies to the net loss.

The amount you can deduct for each exemption has increased to $3,650 for 2009.

You lose part of the benefit of your exemptions if your AGI is above a certain amount. The amount at which the phaseout begins depends on your filing status. For 2009, the phaseout begins at:

For 2009, each exemption cannot be reduced to less than $2,433.

See Publication 505 for more information on figuring the amount you can deduct.

For 2009, the amount of the student loan interest deduction is phased out (gradually reduced) if your filing status is married filing jointly and your modified AGI is between $120,000 and $150,000. You cannot take the deduction if your modified AGI is $150,000 or more.

For all other filing statuses, your student loan interest deduction is phased out if your modified AGI is between $60,000 and $75,000. You cannot take a deduction if your modified AGI is $75,000 or more. For more information, see chapter 4 in Publication 970.

For 2009, the amount of your lifetime learning credit is phased out (gradually reduced) if your modified AGI is between $50,000 and $60,000 ($100,000 and $120,000 if you file a joint return). You cannot claim a lifetime learning credit if your modified AGI is $60,000 or more ($120,000 or more if you file a joint return). For more information, see chapter 3 in Publication 970.

The definition of qualified higher education expenses for tax-free distributions from a qualified tuition program is expanded to include amounts paid in 2009 or 2010 for the purchase of computer software, any computer or related peripheral equipment, fiber optic cable related to computer use, and Internet access (including related services) that are to be used by the beneficiary and the beneficiary's family during any of the years the beneficiary is enrolled at an eligible educational institution.

For more information, including restrictions on qualifying software, see chapter 8 of Publication 970.

For 2009, the amount your earned income must exceed to claim the additional child tax credit is reduced to $3,000.

If your AGI is above a certain amount, you may lose part of your itemized deductions. In 2009, this amount is increased to $166,800 ($83,400 if married filing separately).

See Publication 505 for more information on figuring the amount you can deduct.

Gain from the sale or exchange of the main home is no longer excludable from income if allocable to periods of nonqualified use.

Generally, nonqualified use means any period after 2008 where neither you nor your spouse (or your former spouse) used the property as a main home (with certain exceptions).

A period of nonqualified use does not include:

To figure the portion of the gain that is allocated to the period of nonqualified use, multiply the gain by the following fraction:

For 2009, the maximum adoption credit has increased to $12,150. Also, the maximum exclusion from income for benefits under your employer's adoption assistance program has increased to $12,150. These amounts are phased out if your modified AGI is between $182,180 and $222,180. You cannot claim the credit or exclusion if your modified AGI is $222,180 or more.

For 2009, the amount of your interest exclusion is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified AGI is between $104,900 and $134,900. You cannot take the exclusion if your modified AGI is $134,900 or more.

For all other filing statuses, your interest exclusion is phased out if your modified AGI is between $69,950 and $84,950. You cannot take the exclusion if your modified AGI is $84,950 or more. For more information, see chapter 10 in Publication 970.

For 2009, the maximum amount of qualified long-term care premiums you can include as medical expenses has increased. You can include qualified long-term care premiums, up to the amounts shown below, as medical expenses on Schedule A (Form 1040).

The limit on the exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract increases for 2009 to $280 per day. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other periodic basis under a life insurance contract because the insured is chronically ill.

Under this limit, the excludable amount for any period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts.

See section C of Form 8853 and its instructions for more information.

For Archer MSA purposes for 2009, the minimum annual deductible of a high deductible health plan increases to $2,000 ($4,000 for family coverage). The maximum annual deductible of a high deductible health plan increases to $3,000 ($6,050 for family coverage). The maximum out-of-pocket expenses limit increases to $4,000 ($7,350 for family coverage).

For 2009, qualified individuals with small businesses may be eligible to make smaller estimated tax payments. If you qualify, your required annual payment for 2009 is the smaller of 90% of the tax shown on your 2008 tax return or 90% of the tax shown on your 2009 tax return. You must check box F in Part II on Form 2210 or box C on Form 2210-F to certify that you qualify.

You are a qualified individual if:

The maximum amount of wages subject to the social security tax for 2009 is $106,800. There is no limit on the amount of wages subject to the Medicare tax.

The social security and Medicare wage threshold for household employees is $1,700 for 2009. This means that if you pay a household employee cash wages of less than $1,700 in 2009, you do not have to report and pay social security and Medicare taxes on that employee's 2009 wages. For more information, see Social security and Medicare wages in Publication 926.