Use the following procedures for nonrefundable credit inquiries.

When a taxpayer inquires by telephone:

Follow this table for all taxpayer inquiries about nonrefundable credits. Refer to subsections in this section for specific credit information and procedures.

If written documentation is required, advise taxpayer to send it to the site receiving the contact.

Math verify the form or schedule, if one is required.

If the credit requires a qualifying child, use CC INOLE to verify the name control, TIN, and date of birth of the qualifying child.

For information on how adjusting nonrefundable credits impact estimated tax penalty, see IRM 20.1, Penalty Handbook

Adjust the credit with Transaction Code (TC) 29X, Reason Code (RC) 036, unless a specific RC applies, and the applicable source codes and blocking series.

If a taxpayer paid someone to care for their child, spouse, or dependent, so that they can work, be a full time student, or look for work, the taxpayer may be able to reduce their tax by claiming the Child and Dependent Care Credit (CDCC)on their federal income tax return, per IRC 21.

For tax year 2021 only, the Child and Dependent Care Credit is refundable if either the taxpayer, or spouse if married filing jointly, lived in the US for more than half the year. See IRM 21.6.3.4.1.3.2, Refundable Child and Dependent Care Credit, for more information. The taxpayer verifies residency by checking a checkbox on Form 2441, Child and Dependent Care Expenses, line B. If the box is not checked, the credit is nonrefundable.

A completed Form 2441, Child and Dependent Care Expenses, must be submitted when claiming the credit.

The taxpayer must file a joint return, if married, unless the taxpayer is legally separated or meets the criteria to be considered unmarried.

The taxpayer must furnish a valid TIN for every qualifying person. This number may be:

A qualifying person is a taxpayer's:

See Publication 17, Your Federal Income Tax For Individuals, and/or Publication 503, Child and Dependent Care Expenses, for detailed information.

A taxpayer may be able to reduce their tax liability by claiming the Credit for the Elderly or Permanently and Totally Disabled provided under IRC 22. The taxpayer may claim the credit if:

Schedule R must be submitted. Schedule R is reported on Form 1040 / Form 1040-SR, Schedule 3, Additional Credits and Payments for tax years 2019 and subsequent (write-in for 2019 and 2020), on Form 1040, Schedule 3, Nonrefundable Credits, for tax year 2018 and on Form 1040 or Form 1040A or for tax years 2017 and prior.

When adjusting the credit:

See Publication 17, Your Federal Income Tax (For Individuals), Publication 524, Credit for the Elderly or the Disabled, or Publication 554, Tax Guide for Seniors, for detailed information.

Taxpayers may claim an education credit (Lifetime Learning Credit and American Opportunity Tax Credit (AOTC)) for qualified tuition and related expenses paid to an eligible educational institution, including accredited colleges, universities, and vocational schools.

For any given tax year, a taxpayer can only elect one of the credits for each eligible student.

If a taxpayer claims / lists an exemption for a dependent who is an eligible student, then only that taxpayer can claim a credit for the student's qualified education expenses.

Taxpayers cannot claim the credit if:

Students under age 24 do not qualify for the refundable portion of the AOTC if all the following apply:

The credit may be for expenses of the taxpayer, the taxpayer's spouse, or the taxpayer's eligible dependent claimed on the taxpayer's return.

All students claimed on Form 8863 must have a valid TIN issued on or before the due date of the return, including extensions. A valid TIN includes an SSN, ITIN or ATIN.

Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), must be submitted.


References:

To qualify for the credit, the taxpayer must have paid or accrued income tax in a foreign country or U.S. possession.

The taxpayer may claim the credit against U.S. income tax or deduct the foreign tax as an itemized deduction.

If an amended return is filed in which the amount of the foreign tax credit is reduced (such as due to a refund of foreign taxes paid or accrued), which results in an increase in the amount of U.S. tax liability, manually compute and assess interest per IRM 20.2, Interest. Contact the taxpayer to determine the refund date, if necessary.

Form 1116, Foreign Tax Credit, must be submitted unless the following conditions are met:

If the total Foreign Tax Credit claimed is above the threshold amounts shown in (4), or requires math verification (see IRM 21.5.3.4.5, Math and Master File Verification of Claims and Amended Returns) and Form 1116 is attached, (both situations require a change to the Foreign Tax Credit), reassign the claim to IMF International. Send through the Correspondence Imaging System (CIS) via IMF International, or mail to:
2970 Market Street
1 D08.113
Philadelphia, PA 19104

See Form 1116, Publication 17, Your Federal Income Tax (For Individuals), and Publication 514, Foreign Tax Credit for Individuals, for detailed information.

To adjust the account, input a TC 29X, RC 036.

To qualify for the credit, taxpayers must have been engaged in the domestic production and sale of oil produced from shale and tar sands, gas produced from geopressured brine, Devonian shale, coal seams or a tight formation, or biomass, liquid, gaseous, or solid synthetic fuels produced from coal (including lignite), including such fuels when used as feedstocks, and coke or coke gas, per IRC 45K.

The nonconventional source fuel credit is not available for fuel sold after 2013.

For Tax Year 2006 and subsequent, the credit is claimed as a general business credit on Form 3800, General Business Credit.

For additional information, see IRM 21.7.4.4.8.3.10, Form 8907, Nonconventional Source Fuel Credit

When adjusting the credit:

Form 8834, Qualified Electric Vehicle Credit, is used to claim any qualified electric vehicle passive activity credits from prior years, per IRC 30.

Form 8834, Qualified Electric Vehicle Credit, must be submitted. The credit must be carried to Form 3800, General Business Credit, for purposes of figuring the allowable general business credit.

Information about qualified plug-in motor vehicles can be found in IRM 21.6.3.4.1.38, Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit.

When adjusting the credit:

The investment credit consists of the sum of the qualifying advanced coal project credit, qualifying advanced energy project credit, qualifying gasification project credit, rehabilitation credit, and energy credit.

Form 3800, General Business Credit, must also be filed.

When adjusting the credit:

See Form 3468, Investment Credit, for detailed information.
Reference – IRC 46

To qualify for the credit, the taxpayer must have paid or incurred wages for employees who are certified as members of a targeted group. Wages shall not include any amount paid or incurred to an individual who begins work for the employer after Dec. 31, 2025.

Beginning in 2016, the credit also applies to employers who hire qualified long-term unemployed individuals.

For Examination criteria, see Exhibit 21.5.3-3, Examination Criteria (CAT-A) - Credits.

When adjusting the credit:

See Form 5884, Work Opportunity Credit, and instructions for detailed information.

Reference - IRC 51

Form 6478, Biofuel Producer Credit, is used to claim the Second-Generation Biofuel Credit (previously called the Cellulosic Biofuel Credit) for second-generation biofuel used, or sold for use, as fuel in a trade or business. See IRM 21.7.4.4.8.3.4, Form 6478, Biofuel Producer Credit, for more information.

The credits are effective for fuels sold or used before January 1, 2022. For prior year credits, see previous versions of the Form 6478 and instructions.
Effective Jan. 2, 2013, biofuels produced from algae, cyanobacteria, or lemna feedstocks may also be eligible for the credit.

Taxpayers may be required to submit Form 6478, see the form and its instructions for detailed information.

When adjusting the credit:

Generally, to qualify for the credit, taxpayer must have qualified research expenses paid or incurred in carrying on an active trade or business.

The credit can be claimed as a general business credit on Form 3800, General Business Credit, or Form 6765, Credit for Increasing Research Activities.

Taxpayers must attach one of the forms listed in paragraph 2 to claim the credit.

For more information about Form 6765, see IRM 21.7.4.4.8.3.5, Form 6765, Credit for Increasing Research Activities.

When adjusting the credit:

See the instructions for Form 6765 for detailed information.

Among other requirements, to qualify for the credit, taxpayers must own residential rental buildings providing low-income housing.

The credit must be claimed as a general business credit on Form 3800, General Business Credit. Taxpayers whose only source of credit is from pass-through entities, are not required to file Form 8586. Instead, they can report the credit directly on Form 3800. See Form 8586 for details.

Form 8609, Low-Income Housing Credit Allocation and Certification, is issued by the state or local housing credit agency authorized to make credit allocations to the building receiving the credit. The taxpayer is required to make a one-time submission of this form to the Low-income Housing Credit Unit at the Philadelphia Campus to the address specified in the instructions of the form.

When adjusting the credit:

See Form 8586, Low-Income Housing Credit, and Instructions for Form 8609, for detailed information.

To qualify for the credit, the taxpayer must have an eligible small business which has eligible access expenditures.

If Form 8826, Disabled Access Credit, is filed with an amended return, one of the following must be present on the original return in order to allow the credit:

If these schedules or items are not present, disallow the credit and use the following language when explaining the disallowance:
"We have not allowed your claim for the Disabled Access Credit. The Disabled Access Credit is a business credit. There is no indication of business ownership or activity based on your tax return information for this tax year."

The credit must be claimed as a general business credit on Form 3800, General Business Credit.

When adjusting the credit:

See Form 8826 for detailed information.

To qualify for the credit, a taxpayer must sell electricity produced in the U.S. or U.S. possessions from qualified energy resources at a qualified facility to an unrelated person, per IRC 45.

For Tax Year 2006 through 2022, the credit, which is figured on Form 8835, can be claimed as a general business credit on Form 3800, General Business Credit. For wind facilities, a phaseout of the credit applies to the construction of which began after December 31, 2016.

See IRM 21.7.4.4.8.3.9, Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit, and Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit, for detailed information.

When adjusting the credit:

The Indian Employment Credit is a general business credit based on the amount of qualified wages and health insurance costs paid to each qualified employee (up to $20,000). A qualified employee is an enrolled member of an Indian tribe who performs services within an Indian reservation for the employer and whose residence is on or near that reservation.

For Tax Year 2006 through 2021, the credit can be claimed as a general business credit on Form 3800, General Business Credit.

When adjusting the credit:

See Form 8845, Indian Employment Credit, for detailed information.

Reference - IRC 45A

To qualify for the credit, the taxpayer must be an employer and have:

The credit is calculated on Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips, and claimed as a general business credit on Form 3800, General Business Credit.

When adjusting the credit:

See Form 8846 for detailed information.

The Orphan Drug Credit is, for tax years 2018 and subsequent, 25 percent of the qualified clinical testing expenses paid or incurred by the taxpayer during the tax year (50 percent for tax years 2017 and prior).

The credit must be claimed as a general business credit on Form 3800, General Business Credit.

When adjusting the credit:

See Form 8820, Orphan Drug Credit, for detailed information.

Reference - IRC 45C

To qualify for the credit, the taxpayer must have made qualified contributions to selected community development corporations.

The credit must be claimed as a general business credit on Form 3800, General Business Credit.

When adjusting the credit:

See Form 8847, Credit for Contributions to Selected Community Development Corporations, for detailed information.

To qualify for the credit, the taxpayer must have made payments into the Trans-Alaska Pipeline Liability Fund.

There is no supporting schedule or form for this credit. The taxpayer must claim the credit on Form 3800, General Business Credit.

See IRM 21.7.4.4.8.3.17, Trans-Alaska Pipeline Liability Fund Credit, for more details.

When adjusting the credit:

To qualify for the credit, the taxpayer must have paid or incurred qualified wages, which can include certain training or educational expenses, to a qualified empowerment zone employee who lives and works in an empowerment zone. For more information, see IRM 21.7.4.4.8.1.3, Form 8844, Empowerment Zone Employment Credit.

The Empowerment Zone Employment Credit is available for tax years 2025 and prior.

Form 8844, Empowerment Zone Employment Credit, must be submitted. The data on Form 8844 (for IMF) is carried to Form 3800.

When adjusting the credit:

See Form 8844 for detailed information.

Reference - IRC 1391 and IRC 1396

Form 3800, General Business Credit, must be filed to claim any of the general business credits, and if applicable, the proper credit form must be attached.

If attached, Form 8582–CR, Passive Activity Credit Limitations, must be math verified.

Credits may generally be carried back one year and then carried forward twenty years. See IRM 21.5.9, Carrybacks, for more information.

Form 3800, General Business Credit, must be math verified.

When adjusting the credit:

See Form 3800 and its instructions for detailed information.

To qualify for the credit, the taxpayer must have:

Form 8801, Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts, may be attached but is not required in most cases.

When adjusting the credit:

See Form 8801 for detailed information.

The Child Tax Credit (CTC) is a nonrefundable credit which is used to reduce the taxpayer's tax liability. The credit has different rules depending on the tax year.

For tax year 2022:

See IRM 21.6.3.4.2.8, Additional Child Tax Credit (ACTC), for additional information on the refundable portion of the credit. For tax year 2021, ACTC is referred to as Refundable Child Tax Credit (RCTC) for taxpayers whose principal abode was in the United States for more than half of the year.

Reference - IRC 24

IRC 23 provides that a taxpayer who paid qualified adoption expenses (QAE) to adopt an eligible child in the tax year the adoption became final may be able to reduce their tax liability by claiming the Adoption Credit on Form 8839, Qualified Adoption Expenses.

All adoption credit claims processed in AM are worked at the Andover Campus. Control to category SPC1. Reassign through CIS to IDRS number 0830141335.

The eligible child must be:

Many provisions of the adoption credit (for example, the definition of QAE, the dollar limitation and the modified adjusted gross income limitation) apply to any type of adoption. For more information, see the rules and examples contained in the instructions to Form 8839. However, each category of adoption (domestic, foreign, or special-needs) also has rules that apply only to that category.

A domestic adoption (including an in-process or a never-completed adoption attempt) is one in which the child was a citizen or resident of the U.S. when the adoption process began.
The timing of the adoption credit depends on when (if ever) the adoption becomes final. Generally, a taxpayer paying QAE in a domestic adoption claims the credit in the year after the payment is made.

A foreign adoption is one in which the child was not a citizen or resident of the U.S. when the adoption process began. An adoption is classified as a foreign adoption even if the child is re-adopted in the U.S. (although the re-adoption expenses are QAE). The adoption credit for QAE paid before or during the year of finality may be claimed only in the year of finality.
If QAE is paid after the year of finality (for example, in connection with post-placement visits by a social worker), the adoption credit may be claimed in the year of payment. The Instructions to Form 8839 contain information on determining the year of finality of a foreign adoption.

In the case of a child with special-needs, the adoption credit may be claimed in the year the adoption is final, even if the taxpayers never pay any QAE.

The adoption of a special-needs child is an adoption in which all the following statements are true.

Sometimes, particularly in the case of an in-process or never-finalized domestic adoption, the taxpayer is unable to provide complete information in Part I of Form 8839. In those circumstances, the taxpayer should complete the entries they can. Other entries should be left blank.

IRC 137 allows employees to exclude employer-provided adoption assistance from their gross income. The exclusion is taken in the year of payment.

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When adjusting the credit:

Taxpayers may file amended returns for earlier periods to release carryforward of the adoption credit.

When working an Adoption Credit carryforward case, ensure all tax periods are controlled to the earliest tax period first and are being worked by one employee. Work the case as follows:

If a statute period claim comes in showing no change in tax liability and only a carryforward:

If a statute period claim comes in requesting a change in tax liability, follow procedures in IRM 25.6.1, Statute of Limitations Processes and Procedures.

If the statute period claims are returned to Accounts Management, process as follows:

To qualify for the credit, a taxpayer must have a mortgage credit certificate (MCC) issued under a qualified MCC program in connection with the taxpayer's principal residence.

Form 8396 must be submitted and math verified.

If the amount claimed is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡, route to CAT-A.

When adjusting the credit:

See Form 8396, Mortgage Interest Credit, Publication 17, Your Federal Income Tax (For Individuals), or Publication 530, Tax Information for Homeowners, for detailed information.

The Energy Policy Act of 2005 provides for a Non-business Energy Property Credit (IRC 25C) and a Residential Energy Efficient Property Credit (IRC 25D) to qualified taxpayers who made energy efficient purchases. Since the enactment, subsequent legislation has amended and extended these credits.

Form 5695, Residential Energy Credits, is divided into two parts:
Residential Energy Efficient Property Credit
Provides taxpayers a credit for the qualified expenditures for adding the following qualified properties to their existing or newly constructed homes in the United States:

If the Residential Energy Credit is claimed in addition to the:

When adjusting the credit:

See Form 5695 for detailed information. Additional information can be found in Notice 2013-70.

A taxpayer may be able to take a credit of up to $1,000 ($2,000 if married filing jointly) for making eligible contributions to one of the items below. Taxpayers claim this credit on Form 8880, Credit for Qualified Retirement Savings Contributions.

An eligible individual must:

Form 8880 must be submitted.

When adjusting the credit:

See Form 8880, Pub 590-A, Contributions to Individual Retirement Arrangements (IRAs), Pub 907, Tax Highlights for Persons With Disabilities, or Publication 17, Your Federal Income Tax (For Individuals), for detailed information.

For information concerning the Credit for Small Employer Pension Plan Startup Costs and Auto-Enrollment, see IRM 21.7.4.4.8.3.20, Form 8881, Credit for Small Employer Pension Plan Startup Costs and IRM 21.7.4.4.8.3.20.1, Section 45T Auto-Enrollment Option for Retirement Savings Options Provided by Small Employers.

When adjusting the credit:

Form 8882 is used by employers to claim a credit for qualified childcare and resource and referral expenses.

The credit must be claimed as a general business credit on Form 3800, General Business Credit.

For information concerning the Credit for Employer-Provided Childcare Facilities and Services, see IRM 21.7.4.4.8.3.19, Form 8882, Credit for Employer-Provided Childcare Facilities and Services.

When adjusting the credit:

For information concerning the New Markets Credit, see IRM 21.7.4.4.8.3.21, Form 8874, New Markets Tax Credit.

When adjusting the credit:

Form 8864, Biodiesel and Renewable Diesel Fuels Credit, is used to claim a credit for the tax year in which the sale or use occurs. The credit consists of:

For tax years 2006 through 2022, the credit can be claimed as a general business credit on Form 3800, General Business Credit. Taxpayers must attach Form 8864 to their return. See Form 8864 and its instructions for detailed information.

When adjusting the credit:

The Low Sulfur Diesel Fuel Production Credit generally is 5 cents for every gallon of low sulfur diesel fuel produced at a particular facility by a qualified small business refiner during the tax year.

For Tax Year 2006 and subsequent, the credit can be claimed as a general business credit on Form 3800, General Business Credit. Taxpayers may need to attach Form 8896 to their return. See Form 8896, Low Sulfur Diesel Fuel Production Credit, and its instructions, for detailed information.

When adjusting the credit:

Form 8900, Qualified Railroad Track Maintenance Credit, is generally used to claim a credit for qualified railroad track maintenance expenditures. Generally, the credit is an amount equal to 50 percent of the qualified railroad track maintenance expenditures paid or incurred by an eligible taxpayer during the tax year. For tax years beginning on or after January 1, 2023, the credit is reduced to 40 percent.

The credit must be claimed as a general business credit on Form 3800, General Business Credit.

When adjusting the credit:

See Form 8900 for detailed information.

Reference - IRC 45G

Form 8910, Alternative Motor Vehicle Credit, is used to claim a credit for the purchase of new qualified fuel cell motor vehicles. The credit is available for purchases through December 31, 2021, per IRC 30B.

A qualifying fuel cell vehicle is a motor vehicle that is propelled by power derived from one or more cells which convert chemical energy directly into electricity by combining oxygen with hydrogen fuel.

The credit can be claimed as a general business credit on Form 3800, General Business Credit, if the vehicle is property that is subject to an allowance for depreciation.

See IRM 21.7.4.4.8.3.28, Form 8910, Alternative Motor Vehicle Credit, for additional information.

When adjusting the credit:

See Form 8910 and the instructions for detailed information.

Form 8911, Alternative Fuel Vehicle Refueling Property Credit, is used to claim a tax credit for a portion of the cost of qualified alternative fuel vehicle refueling property placed in service after December 31, 2005, and before January 1, 2022, per IRC 30C. The refueling property may be used in the taxpayer's trade or business or installed at the taxpayer's principal residence. Taxpayers are allowed a credit of up to 30 percent of the cost of the installation of the qualified alternative fuel vehicle refueling property, up to a maximum of $30,000, for a property subject to depreciation. If the property is not subject to depreciation, the credit is limited to $1,000.00.

The credit can be claimed as a general business credit on Form 3800, General Business Credit, if the property is subject to an allowance for depreciation.

See IRM 21.7.4.4.8.3.29, Form 8911, Alternative Fuel Vehicle Refueling Property Credit, for additional information.

When adjusting the credit:

See Form 8911 for detailed information.

Form 8912, Credit to Holders of Tax Credit Bonds, is used to claim the credit for various tax credit bonds.

The Tax Reform Act of 2017 repealed IRC 54, Clean Renewable Energy Bonds, IRC 54A, Qualified Tax Credit Bonds, IRC 54B, Qualified Forestry Conservation Bonds, IRC 54C, New Clean Renewable Energy Bonds, IRC 54D, Qualified Energy Conservation Bonds, IRC 54E, Qualified Zone Academy Bonds, IRC 54F, Qualified School Construction Bonds, and IRC 54AA, Build America Bonds, effective for bonds issued after December 31, 2017. Form 8912 continues to be used by taxpayers holding tax credit bonds issued before January 1, 2018.

When adjusting the credit:

See Form 8912 for detailed information.

Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit (Including Qualified Two- or Three-Wheeled Plug-in Electric Vehicles), is used to claim a credit for qualified plug-in electric drive motor vehicles placed in service during the tax year. The credit is capped at $2,500 for 2- and 3-wheeled plug in electric vehicles and $7,500 for other qualified plug-in electric drive motor vehicles, per IRC 30D.

The credit can be claimed as a general business credit on Form 3800, General Business Credit, if the vehicle is property subject to an allowance for depreciation.

See IRM 21.7.4.4.8.3.38, Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, for additional information.

When adjusting the credit:

See Form 8936 for detailed information.

Generally, IRC 45R offers a nonrefundable tax credit to certain eligible small employers that provide health insurance coverage to their employees.

The credit is designed to encourage small employers to offer health insurance coverage to their employees for the first time or to maintain existing coverage. The credit is effective for taxable years beginning in 2010. The credit is calculated on Form 8941, Credit for Small Employer Health Insurance Premiums, and is claimed on Form 1040. Impacted IMF taxpayers could be Schedule C or F sole proprietors with employees, Schedule H household employers, or Schedule E filers.

In order to qualify for the credit, the small employer must have met the following conditions:

For tax year 2014 and subsequent, the maximum health insurance credit is generally equal to 50 percent of the lesser of the premiums paid by the employer, subject to a cap determined by the small group market in the rating area in which the employee enrolls for coverage.

The credit phases out gradually for the eligible small employers if the number of FTEs exceeds 10 or if the average annual wages exceed $28,7000 for 2022 ($27,800 for 2021 and $27,000 for 2019 and 2020). For an employer with both more than 10 FTEs and average annual wages exceeding those amounts, the total reduction is the sum of the two reductions. This may reduce the credit to zero for some employers in this instance. See Notice 2010-44 for specific information on computing the phase out credit.

For tax years 2014 and subsequent, the credit is limited to 2 consecutive taxable years. Command Codes (CC) ENMOD and IMFOLE displays a 45R year indicator (in a 45R YR1 > YYYY / 45R YR2 > YYYY format).

The small business credit for the qualifying Schedule C or F small proprietor and Schedule H household employer is claimed on Form 8941, carried onto Form 3800 and then onto Form 1040. Schedule E filers, whose only source of this credit is from a pass-through entity, are not required to complete Form 8941. Instead, they can report this credit directly on Form 3800.

This credit is a nonrefundable general business credit for taxable employers. For certain tax-exempt employers, the credit is refundable.

Verify the taxpayer has filed a Schedule C, E, F or H. If neither schedule was filed, follow no consideration procedures.

Action required:

For tax year 2014 and subsequent, control amended returns claiming the 45R credit using category code ACAX (program 40320) and correspondence using category code ACA7 (program 40310).

See the instructions to Form 8941 for more specific information. Additional information can be found on IRS.gov/.

IRC 45S established a nonrefundable tax credit for eligible employers that provide paid family and medical leave. The credit is equal to a percentage of wages (ranging from 12.5 percent to 25 percent) paid to qualifying employees while on family and medical leave. For additional information, see Notice 2018-71.

The credit applies to wages paid in taxable years beginning after December 31, 2017, and before January 1, 2026. The credit is claimed on Form 8994, Employer Credit for Paid Family and Medical Leave, and carried to Form 3800, General Business Credit. Impacted taxpayers could be Schedule C or Schedule F sole proprietors with employees, Schedule H household employers, or Schedule E filers.

To be eligible for the credit, an employer must have a written policy in place that satisfies certain requirements:

The credit is limited to the employee’s normal hourly wage rate for each hour (or fraction) of actual services performed for the employer and the number of hours (or fraction of) for which family and medical leave is taken. Non-hourly wages earners are prorated to an hourly rate.

Control amended returns reporting Form 8994 using category code "TRFX" , correspondence about the form using "TRFC" .

See Exhibit 21.5.3-3, Examination Criteria (CAT-A) - Credits, for applicable criteria. When adjusting the credit:

An overpayment is refunded or applied as credit-elect only after all other outstanding obligations are satisfied (spousal obligations, non-tax debts, etc.).

Employers are required to withhold income tax on wages paid to employees. A Form W-2, Wage and Tax Statement, is issued to the employee by February 1 following the end of the tax year. This form shows the wages and the total withholding (W/H) deducted for the year. The amount withheld is allowed as a credit to the employee on the employee's individual tax return.

For information on Backup Withholding (BUWH), see IRM 21.7.4.4.10, Federal Income Tax Withheld (FITW)/Backup Withholding (BUWH) on Income Tax Returns.

Federal income tax may be deducted (withheld) from various other types of income which the taxpayer may receive. Verify the W/H amount is picked up from the correct box.

Taxpayer must furnish:

Examine all documents and related information before making adjustments or answering taxpayer inquiries.

Do not return an original Form W-2, Copy C, to the taxpayer. If no adjustment is necessary, refile with the original return. If filed electronically, destroy as classified waste. Treat photocopies as classified waste.

If a taxpayer receives a notice showing math error code 283 or 582, refer to IRM 21.5.4, General Math Error Procedures.

Consider the following before deciding to allow the W/H:

Allow withholding increases of up to ≡ ≡ ≡ ≡ ≡ ≡ with oral statement or written request, if ALL the following criteria are met:

If the withholding exceeds the threshold in (9) and documentation is not available, use CC IRPTR, or the Transcript Delivery System (TDS), to access a summary of the Information Returns Master File data extracted from Forms W–2/W–2G and Forms 1099.

Take the following actions on any type of request that claims withholding associated with social security (SSA) benefits or other types of income where the withholding may be questionable:

Federal Income Tax Withholding (FITW) reported, or should be reported, on a Form 1041, U.S. Income Tax Return for Estates and Trusts, in the Trust's or Estate's name and Employer Identification Number (EIN) CANNOT be transferred from the Trust or Estate to an individual taxpayer's (beneficiary's) Form 1040, U.S. Individual Income Tax Return, account. There are no provisions of law that allow us to distribute FITW to beneficiaries. Backup withholding distributed to the beneficiary should be reported on Schedule K-1.

A taxpayer not eligible for an SSN must use an ITIN when filing their return. The taxpayer provides an SSN to the employer in order to obtain employment. Thus, the employer withholds income tax on the taxpayer's wages under the SSN the taxpayer provided, and any Form W-2 or Form 1099 filed with the IRS contains the SSN.

Estimated tax (ES) is the method used to pay:

ES payments are submitted with Form 1040-ES. Payment due dates for a calendar year return (unless the due date falls on a Saturday, Sunday, legal holiday, or as otherwise extended) are:

Taxpayer requests to apply current year ES payments to a previous year's outstanding tax liability cannot be honored. IRC 6402(a) provides that in the case of an overpayment, the Secretary, within the applicable period of limitations, may credit the amount of the overpayment against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall refund any balance to such person. The Service is authorized to make a refund only if an overpayment exists. Therefore, the Service does not have the authority to apply an ES installment to an outstanding tax liability until the ES installment constitutes an overpayment. An "overpayment" cannot be determined until after the close of the tax year when the tax liability is determined.

If the taxpayer is not liable for ES payments based on the account history (i.e., no prior ES payment history, SE income, etc.), or current income situation, and a payment is posted as an ES payment, it can be refunded back to the taxpayer. Disregard any properly completed ES voucher. The payment can either be refunded back to the taxpayer or applied to the correct year's balance due.

Taxpayers who do not report payments they made (ES payments or a credit elect) of ≡ ≡ ≡ ≡ ≡ ≡ ≡ on their return are sent a Letter 12C, Individual Return Incomplete for Processing, asking them to verify the dates and amounts of these payments. If a taxpayer calls in response to the 12C letter, do not provide the payment amounts, dates or a transcript of the account. Advise the taxpayer to respond in writing to the address provided on the letter.

Employees are subject to social security tax and the equivalent portion of the RRTA Tier I Tax based on the following wage limitations:

Employees are subject to the employee portion of Medicare tax (shown separately on Form W-2, Wage and Tax Statement), at the rate of 1.45 percent. There is no wage base limit for Medicare tax. All wages are subject to the tax. Thus, there is no excess Medicare tax credit.

For withholding purposes, the above social security tax (and equivalent portion of the RRTA Tier I tax) maximum applies separately with respect to each employer for whom an employee works. If an employee works for one employer and receives the maximum social security wages and also works for another employer in the same calendar year, the second employer is also required to deduct social security tax from the employee's wages up to the maximum social security tax.

If more than the maximum social security tax (or equivalent portion of the RRTA Tier I tax, or more than 6.2 percent) is deducted from the wages of the employee, the employee can receive a credit for the social security tax or RRTA Tier I withheld more than the maximum social security tax or RRTA Tier I tax. This credit is available only if such withholding is the result of the employee working for two or more employers. This credit is taken on:

If an employee has more than the maximum social security or RRTA Tier I taxes deducted from his or her total wages, the action depends on the information entered on the Forms W-2 received by the employee.

If FICA taxes were withheld when the taxpayer is not liable for FICA tax, see IRM 21.7.2.4.6.4.2, Excess Social Security and Medicare Tax Withheld - Employee Claims for Refund.

If an adjustment is required, take the following action:

For information about RRTA Tier I, Tier II or CT-1 claims, see IRM 21.7.2.6.5.7, Claims filed on Form CT-1X and Form 843. Excess RRTA Tier II tax credits must be claimed on Form 843, not the Form 1040.

A Regulated Investment Company (RIC) or Real Estate Investment Trust (REIT) that does not distribute all of its net capital gain to its shareholders must pay tax on the undistributed part. The RIC or REIT may issue a Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, to each of its shareholders to designate the amount of the undistributed long-term capital gains required to be reported on the shareholder's Form 1040, Schedule D. In addition, Form 2439 includes the shareholder's share of the tax paid by the RIC or REIT on the undistributed long-term capital gains. That amount may be claimed by its shareholders as a credit or refund on their respective return.

The shareholder should attach Form 2439, Copy B, to the original or amended tax return.

Loose Forms 2439, Copy A and/or B, may be received. If "NOMINEE" is noted at the top of the form, no adjustment is made to the taxpayer's account. Associate the form with the return of the taxpayer who appears in the "Shareholder's" name and address box. If this refers to a Form 990, refer to Ogden AM per IRM 21.7.7.6.3.10, Composite Form 990-T. If this is a company entity refer to IRM 21.7.4.4.9.2.2, Loose Form 2439, Copies A and B, for BMF instructions.

Action required if "NOMINEE" is not noted:

Form 4136, Credit for Federal Tax Paid on Fuels, is used to claim certain nontaxable uses or sales of fuel during the income tax year. The corresponding Credit Reference Number (CRN) applicable to the type fuel tax paid is shown in column (e) of the Form 4136.

Form 4136 must be attached to an income tax return (Form 1040) or an amended tax return (Form 1040-X), if the credit claimed is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡.

Amounts previously claimed on Form 8849, Claim for Refund of Excise Taxes, or Form 720, Quarterly Federal Excise Tax Return, (Schedule C, Claims), cannot be included on Form 4136. For information about Form 8849 claims, refer to IRM 4.24.22.4.5, Form 8849, Claim for Refund of Excise Taxes, and for Form 720 claims, refer to IRM 4.24.22.4.1.6, Form 720, Schedule C Claims.

The same documentation required for Form 8849 must be included with Form 4136.

Form 4136 claiming a credit of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡. See Exhibit 21.5.3–3, Examination Criteria (CAT A) - Credits.

Claims on Form 4136, Line 1, Nontaxable Use of Gasoline, cannot be made for personal use. If the taxpayer does not show any business activity, such as a Schedule C, E, or F, follow no consideration procedures shown in IRM 21.5.3.4.6.3, No Consideration Procedures.

Earned Income Tax Credit (EITC), as established by IRC 32, is available for certain low-income individuals who meet earned income, adjusted gross income (AGI) and certain other requirements. EITC greater than the tax liability may be refunded to the taxpayer.

Use CC DDBCK when processing all returns received in the current processing year and two prior years amended returns/Forms 1040X resulting in an increase to EITC due to adding, changing, or deleting a qualifying child. When adding or increasing EITC, DDBCK determines if the claim meets CAT-A criteria, and in most cases, updates the Duplicate TIN database. CC DDBCK must be used in conjunction with the appropriate IRM procedure to determine subsequent actions.

Certain individuals who get less than the full amount of the nonrefundable Child Tax Credit (CTC) are entitled to the refundable Additional Child Tax Credit (ACTC). ACTC may result in a refund even if no tax is owed. See IRM 21.6.3.4.1.24, Child Tax Credit, and subsequent subsections, for rules and regulations pertaining to the Child Tax Credit prior to addressing Additional Child Tax Credit.

For tax year 2021 only, for taxpayers whose principal abode was in the United States for more than one‐half of the year (Schedule 8812, Line 13, Box A), ACTC is referred to as Refundable Child Tax Credit (RCTC) and the entire amount is refundable.

Taxpayers must claim the qualifying child as a dependent to be a qualifying child for the Child Tax Credit.

Earned income generally does not include workfare payments to the extent subsidized under a state program for work experience (including work associated with the refurbishing of publicly assisted housing if sufficient private sector employment is not available), work in community service programs, or certain Medicaid waiver payments (see IRM 21.6.6.2.35, Qualified Medicaid Waiver Payments/Difficulty of Care Payments, for more information). However, the taxpayer may include certain Medicaid waiver payments received as wages or self-employment income in earned income if they benefit from the inclusion (even if this payment is excluded on Schedule 1).

For tax year 2015 and subsequent, filers of Form 2555, Foreign Earned Income, cannot claim the credit.

For taxpayers indicating a religious (e.g., Amish/Mennonite) or conscience-based objection to obtaining a TIN, refer to IRM 21.6.1.6.1, Determining the Exemption/Dependent Deduction.

For tax years 2020 and prior, a bona fide resident of Puerto Rico must have 3 or more children to qualify for the ACTC if the taxpayer is excluding all their income under IRC 933.

For tax year 2021, bona fide residents of Puerto Rico are eligible for enhanced refundable child tax credit (RCTC). The following applies for tax year 2021.

A special rule applies for certain taxpayers affected by disaster areas shown below. Qualified individuals whose earned income in the applicable taxable year is less than the earned income in the preceding taxable year may elect to use their earned income of the preceding taxable year when figuring ACTC. Taxpayers who do not claim Earned Income Tax Credit (EITC) should enter "PYEI" and the dollar amount of the prior year earned income on the dotted line for ACTC. Taxpayers who also claim EITC must follow the election they made when they figured EITC.
The main home of qualified individuals must have been in:

As part of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, individuals whose earned income for tax year 2020 is less than the earned income for 2019 may elect to use their 2019 earned income when figuring ACTC. Taxpayers should enter "PYEI" and the dollar amount of the prior year earned income on the dotted line for ACTC. If they file a joint return and make the election, their 2019 earned income is the sum of their 2019 earned income and their spouse's 2019 earned income. Taxpayers who elect to use PYEI in figuring their 2020 ACTC, and who also claim EITC, may also elect to use PYEI when figuring their 2020 EITC, but they are not required to do so.

The Health Coverage Tax Credit (HCTC) is a refundable credit that pays for 72.5 percent of health insurance premiums for eligible individuals. The credit is claimed on Form 8885, Health Coverage Tax Credit.

HCTC paper is centralized at the Andover campus. If not trained to work HCTC, update the category code to HCTC or HCTX as necessary and reassign to 0830141335. HCTC can also be claimed on Form 1040-SS and Form 1040 (PR), those claims are processed in Philadelphia.

HCTC phone calls about advance payment eligibility and registration are answered at the Andover and Atlanta campuses. If not trained on those subjects, transfer the call to 1109. Account related calls cannot be transferred directly to Andover. If unable to answer the call, have the taxpayer write to the address on their notice.

HCTC is effective for tax years through Dec. 31, 2021. For tax years 2016 through 2021, coverage through the Health Insurance Marketplace won’t qualify for HCTC.

Taxpayers can receive a full credit for insurance premiums paid upon filing Form 8885 with their return, or can receive the benefit of an advance monthly credit to help cover the cost of insurance premiums. Taxpayers must register with the IRS to receive the benefit of an advance monthly credit. Taxpayers who choose the advance credit option are required to submit 27.5 percent of their total health insurance costs to the IRS. The IRS contributes the remaining 72.5 percent (the advanced monthly credit), for a total of 100 percent of the insurance premiums, paid directly to their third-party administrator (TPA) or health plan administrator (HPA).

The American Rescue Plan Act enacted a 100 percent COBRA subsidy for eligible individuals for the period of April 1, 2021 through September 30, 2021. Individuals are not eligible for HCTC for the months they receive the COBRA Subsidy.

Taxpayers can request reimbursement for premiums they paid (for the current year only) while waiting to be accepted into the advance monthly program. Form 14095, The Health Coverage Tax Credit (HCTC) Reimbursement Request, is used to request reimbursement. Taxpayers must be a monthly HCTC participant or have an HCTC registration in process.

Each January, taxpayers receive a list of the advance payment amounts made on their behalf in the prior year. The payments are reported on Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Taxpayers should use Form 1099-H to complete Form 8885. The Service issues Form 1099-H.

The Housing and Economic Recovery Act of 2008 (HERA) (PL 110-289), enacted on July 30, 2008, allowed a taxpayer who is a first-time homebuyer a refundable tax credit of the lesser of $7,500 ($3,750 for Married Filing Separate) or 10 percent of the purchase price. The law was effective for qualifying homes purchased on or after April 9, 2008, and on or before December 31, 2008.

The American Recovery and Reinvestment Tax Act of 2009 (ARRA) (PL 111-5), enacted on February 17, 2009, allowed a refundable tax credit of the lesser of 10 percent of the purchase price of the residence or $8,000. The credit was available for first-time homebuyers who purchased a home after December 31, 2008 and before December 1, 2009.

The Worker, Homeownership, and Business Assistance Act of 2009 (WHBAA) (PL 111-92), enacted on November 6, 2009, extended the eligibility period for the first-time homebuyer credit to purchases made before May 1, 2010. Taxpayers who had entered into a written binding contract before May 1, 2010, had to close on the home before July 1, 2010 to qualify. This bill also established special rules for long-time residents and members of the Armed Services, Foreign Service officers and the intelligence community.

The Homebuyer Assistance and Improvement Act of 2010 (HAIA) (PL 111-198), enacted on July 2, 2010, extended the deadline to purchase a home to October 1, 2010, for taxpayers who had entered into a written binding contract before May 1, 2010, to close before July 1, 2010.

For homes purchased in 2008, the credit is treated as a 15-year interest-free loan. The credit is recaptured over fifteen years beginning the second year after the home is purchased.

For homes purchased in 2009 and 2010, the taxpayer had to repay the credit only if the home ceased to be the taxpayer's main home within the 36-month period beginning on the purchase date.

A "home" had to be the taxpayer's primary and principal residence and be located in the United States.

A "home" had to meet the definition of a house, condo, co-op, mobile home, house trailer, or houseboat that has sleeping, cooking and toilet facilities.

If a taxpayer was constructing a new home, the home was treated as "purchased" by the taxpayer on the date the taxpayer first occupies the home as the principal residence. This also applied to manufactured homes installed on a new site.

The credit could not be claimed if the taxpayer was a nonresident alien or for the purchase of a residence after 2008, if the taxpayer qualified for the DC First-Time Homebuyer Credit.