ShareWare OnLine 2/ShareWare OnLine Volume 2 (CMS Software)(1993).iso/finance/ttool92.zip/CHAPT36.DOC

Text File | 1992-12-12 | 18KB | 411 lines

Chapter 36. Other Credits

Excess withholding of social security tax, railroad retirement tax tier 1,
and Medicare tax. Social security and railroad retirement tax (RRTA) are both
withheld at a rate of 6.2% on the first $55,500 of wages in 1992. Medicare
tax is withheld at a rate of 1.45% on the first $130,200 of wages. If you
have two or more employers and they withheld too much social security, RRTA,
or Medicare tax during 1992, you may be entitled to a credit of the excess
withholding. For more information about the credit and how to get it, see
Credit for Excess Social Security Tax, Medicare Tax, or Railroad Retirement
Tax Withheld in this chapter.

Introduction

In addition to the child and dependent care credit (Chapter 33), the credit
for the elderly or the disabled (Chapter 34), and the earned income credit
(Chapter 35) you may be able to claim other tax credits. This chapter is
divided into two parts and discusses six credits in the following order.

∙  Part 1, Nonrefundable Credits:

      Credit for prior year minimum tax,

      Mortgage interest credit, and

      Foreign tax credit.

∙  Part 2, Refundable Credits:

      Credit for excess social security tax, Medicare tax, or
      railroad retirement tax withheld,

      Credit from a regulated investment company, and

      Credit on diesel-powered highway vehicles.

Nonrefundable Credits. The first part of the chapter, Nonrefundable Credits,
covers three credits that you subtract directly from your tax. These credits
may reduce your tax to zero. If these credits are more than your tax, the
excess is not refunded to you.

Refundable Credits. The second part of this chapter, Refundable Credits,
covers three credits that are refundable to you and treated as payments. These
three credits are added to the federal income tax withheld from your salary
and wages and added to any estimated tax payments you made. If these credits
are more than your total tax, the excess will be refunded to you.

Related publications and forms.

This chapter refers to several publications and forms that you may need.
The list of forms does not include Forms 1040, 1040A, and 1040EZ. For more
information, you may want to order the publication or form listed under each
credit:

∙  Credit for Prior Year Minimum Tax

      Publication 909, Alternative Minimum Tax for Individuals, and

      Form 8801, Credit for Prior Year Minimum Tax - Individuals and
      Fiduciaries.

∙  Mortgage Interest Credit

      Publication 936, Home Mortgage Interest Deduction,

      Form 8396, Mortgage Interest Credit, and

      Form 8828, Recapture of Federal Mortgage Subsidy.

∙  Foreign Tax Credit

      Publication 514, Foreign Tax Credit for Individuals, and

      Form 1116, Foreign Tax Credit.

∙  Credit for Excess Social Security, Medicare Tax, or Railroad Retirement
   Tax Withheld

      Publication 505, Tax Withholding and Estimated Tax, and

      Form 1040 Instructions.

∙  Credit from a Regulated Investment Company

      Publication 564, Mutual Fund Distributions,

      Form 2439, Notice to Shareholder of Undistributed Long-term Capital
      Gains.

∙  Credit on Diesel-Powered Highway Vehicles

      Publication 378, Fuel Tax Credits and Refunds, and

      Form 4136, Credit for Federal Tax on Fuels.

Nonrefundable Credits

The following credits are discussed in this part:

∙  Credit for prior year minimum tax

∙  Mortgage interest credit, and

∙  Foreign tax credit.

Credit for Prior Year Minimum Tax

You may be able to take a credit against your regular tax if you:

∙  Paid alternative minimum tax in 1991,

∙  Had a minimum tax credit carryforward from 1991 to 1992, or

∙  Had an unallowed nonconventional-source fuel credit or an unallowed
   orphan drug credit in 1991.

Credit amount. The credit is generally the amount of alternative minimum
tax you actually paid in 1991 reduced by the part of it generated by
exclusion items. Add to this any credit carried forward and any unallowed
nonconventional-source fuel credit and orphan drug credit.

Exclusion items. The adjustments and preference items that result in the
permanent exclusion of income for regular tax purposes are exclusion items.
These exclusion items are:

∙  The standard deduction,

∙  Personal exemptions,

∙  Medical and dental expenses,

∙  Miscellaneous itemized deductions,

∙  Taxes,

∙  Interest expense,

∙  Appreciated property charitable deduction,

∙  Tax-exempt interest from specified private activity bonds, and

∙  Depletion.

Figuring the credit. Use Form 8801 to figure your 1992 credit and any
carryforward to 1993. You can carry forward any unused credit to later
years until it is completely used.

For additional information about the credit and an illustrated example,
get Publication 909.

How to claim the credit. Figure the credit and any carryforward to the next
year on Form 8801, and attach it to your Form 1040. Include the credit in your
total for line 44, Form 1040, and check box c. You can carry forward any unused
credit for prior year minimum tax to later years until it is completely used.

For additional information about the credit and an illustrated example, get
Publication 909, Alternative Minimum Tax for Individuals.

Mortgage Interest Credit

Mortgage credit certificates issued by state and local governments may entitle
a certificate holder to a mortgage interest credit. The certificate must be
used in connection with the purchase, qualified rehabilitation, or qualified
home improvement of the certificate holder's main home.

Who qualifies. You may be able to claim a mortgage interest credit if you were
issued a qualified mortgage credit certificate (MCC) under a qualified MCC
program. The MCC must relate to your main home.

Amount of credit. You figure the credit by multiplying the certificate credit
rate by the interest you paid during the year on the covered loan amount
(mortgage). The certificate credit rate and the covered loan amount are
shown on the MCC.

Limit. If the certificate credit rate is more than 20%, the credit cannot be
more than $2,000.

Dividing the interest. If two or more persons (other than a married couple
filing a joint return) hold an interest in the home to which the MCC relates,
the credit must be divided in proportion to the interest held by each person.

Example. John and his brother, George, were issued a qualified MCC. They used
the certificate to obtain a mortgage on a home that is their main home. John
has a 60% interest and George has a 40% interest. In 1992 John paid $5,400
mortgage interest and George paid $3,600.

The MCC shows a credit rate of 25%. The covered loan amount (mortgage) is
$60,000. Because the credit rate is more than 20%, the credit is limited to
$2,000.

John's credit is limited to $1,200 ($2,000 * 60%). He figures the credit by
multiplying the interest he paid in 1992 ($5,400) by the certificate credit
rate (25%) for a total of $1,350. However, his credit is limited to the $1,200
above.

George's credit is limited to $800 ($2,000 * 40%). He figures the credit by
multiplying the interest he paid in 1992 ($3,600) by the certificate credit
rate (25%) for a total of $900. His credit is limited to the $800 above.

Since the entire $2,000 credit was used, the excess ($150 for John and $100
for George) cannot be carried forward to 1993, regardless of the tax
liabilities for John and George. See Carryforward, next.

Carryforward. If your allowable credit is more than your tax liability reduced
by certain credits, you can carry forward the unused portion of the credit to
your next 3 tax years or until used, whichever comes first.

If you are subject to the $2,000 limit because your certificate credit rate is
more than 20%, no amount over the $2,000 (or your prorated share of the $2,000
if you must allocate the credit) may be carried forward.

Reduced home mortgage interest deduction. If you itemize your deductions
on Schedule A (Form 1040), reduce your home mortgage interest deduction by
the amount of mortgage interest credit figured before you add in any credit
carryforwards from previous years. For more information about the home
mortgage interest deduction, see Chapter 24.

How to claim the credit. Figure the credit and any carryforward to next
year on Form 8396, and attach it to your Form 1040. Be sure to include any
carryforward from 1989, 1990, and 1991. You cannot use a carryforward from
1989 on your tax return for any year after 1992.

Include the credit in your total for line 44 (Form 1040), and check box b.

Recapture of Federal Mortgage Subsidy. If you closed on a mortgage from a
qualified mortgage bond program and received a mortgage credit certificate
after December 31, 1990, you may be subject to a new recapture rule. The
recapture would generally occur if you sold or disposed of your home during
the first 9 years following the date of closing. See Publication 523, Tax
Information on Selling Your Home, for more information.

Foreign Tax Credit

You generally can choose to claim income taxes you paid or accrued during
the year to a foreign country or U.S. possession as a credit against your U.S.
income tax. Or, you can deduct them as an itemized deduction.

To take the foreign tax credit, complete Form 1116 and attach it to your
Form 1040. Enter the credit on line 43, Form 1040. For more information,
get Publication 514.

Refundable Credits

The following credits are refundable and are treated as payments of tax:

∙  Credit for excess social security tax, Medicare tax, or railroad
   retirement tax withheld,

∙  Credit from a regulated investment company, and

∙  Credit on diesel-powered highway vehicles.

Credit for Excess Social Security Tax, Medicare Tax, or Railroad Retirement
Tax Withheld

If you worked for two or more employers in 1992, and together they paid you
wages that exceed certain limits, you may be entitled to a credit of the
excess amounts of tax withheld on those wages. This is a credit against your
income tax. The wage and tax withholding limits are:

∙  $55,500 in wages subject to social security and tier 1 RRTA withholding
   tax of not more than $3,441.00,

∙  $130,200 in wages subject to Medicare withholding tax of not more than
   $1,887.90 (this applies to both social security and tier 1 RRTA wages),
   or

One employer. If you had only one employer, and that employer withheld social
security, Medicare, or RRTA tax that exceeds the wage and withholding limits
in the preceding list, you cannot claim the extra amount withheld as a credit
against your income tax. Your employer must adjust this for you.

Joint return. If you are filing a joint return, you cannot add the social
security, Medicare, or RRTA tax withheld from your spouse's wages to the
amount withheld from your wages. Figure the credit separately.

Where to report the credit. If you file Form 1040, enter the credit on line
58. If you file Form 1040A or Form 1040EZ, include the credit in the total
on line 28d of Form 1040A or on line 6 of Form 1040EZ. Write "Excess SST"
and show the amount of the credit in the space to the left of the line.

Note. If taxable income is $50,000 or more, then you must file Form 1040. If
taxable income is less than $50,000, then you may file either Form 1040A or
Form 1040EZ.

How to figure the credit if you did not work for a railroad. If you did not
work for a railroad during 1992, figure the credit as follows:

     1. Add all social security tax withheld
        (but not more than $3,441.00 for
        each employer) .............................
                                                      __________
     2. Enter any uncollected social security
        tax on tips or group-term life
        insurance shown on any 1992
        Form(s) W─2 ................................
                                                      __________
     3. Add lines 1 and 2 ..........................
                                                      __________
     4. Social security tax limit ..................    3,441.00
                                                      __________
     5. Subtract line 4 from line 3. (If less
        than zero, enter zero) .....................
                                                      __________
     6. Add all Medicare tax withheld (but
        not more than $1,887.90 for each
        employer) ..................................
                                                      __________
     7. Enter any uncollected Medicare tax
        on tips or group-term life insurance
        shown on any 1992 Form(s) W─2 ..............
                                                      __________
     8. Add lines 6 and 7 ..........................
                                                      __________
     9. Medicare tax limit .........................    1,887.90
                                                      __________
     10. Subtract line 9 from line 8 (If less
         than zero, enter zero) ....................
                                                      __________
     11. Credit. Add lines 5 and 10. Enter the
         result here and on Form 1040, line 58
         (or Form 1040A, line 28d or Form
         1040EZ, line 6) ...........................
                                                      ==========

Example. You are married and file a joint return with your spouse who had no
gross income in 1992. During 1992 you worked for the Brown Shoe Company and
earned $35,000 in wages. Social security tax of $2,170 and Medicare tax of
$507.50 was withheld. You also worked for another employer in 1992 and earned
$25,000 in wages. $1,550 of social security tax and $362.50 of Medicare tax
was withheld from these wages. Because you worked for more than one employer
and your total wages were more than $55,500, you can claim a credit of $279.00
for the excess social security tax withheld. There is no tax credit for the
Medicare tax withheld since your total wages did not exceed $130,200. A filled-
in worksheet follows.

     1. Add all social security tax withheld
        (but not more than $3,441.00 for
        each employer) .............................   $3,720.00
                                                      __________
     2. Enter any uncollected social security
        tax on tips or group-term life
        insurance shown on any 1992
        Form(s) W─2 ................................      -0-
                                                      __________
     3. Add lines 1 and 2 ..........................    3,720.00
                                                      __________
     4. Social security tax limit ..................    3,441.00
                                                      __________
     5. Subtract line 4 from line 3. (If less
        than zero, enter zero) .....................      279.00
                                                      __________
     6. Add all Medicare tax withheld (but
        not more than $1,887.90 for each
        employer) ..................................      870.00
                                                      __________
     7. Enter any uncollected Medicare tax
        on tips or group-term life insurance
        shown on any 1992 Form(s) W─2 ..............       -0-
                                                      __________
     8. Add lines 6 and 7 ..........................      870.00
                                                      __________
     9. Medicare tax limit .........................    1,887.90
                                                      __________
     10. Subtract line 9 from line 8 (If less
         than zero, enter zero) ....................       -0-
                                                      __________
     11. Credit. Add lines 5 and 10. Enter the
         result here and on Form 1040, line 58
         (or Form 1040A, line 28d or Form
         1040EZ, line 6) ..........................      279.00
                                                      ==========

Enter the $279.00 as a credit against your income tax on line 58 (Form 1040),
line 28d (Form 1040A), or line 6 (Form 1040EZ).


Credit from a Regulated Investment Company

You must include in your income any amounts that an investment company
allocated to you as capital gain distributions, even if you did not actually
receive them. If the investment company paid a tax on the capital gain, you
are allowed a credit for the tax since it is considered paid by you. The
company will send you Form 2439 telling you the undistributed capital gains
amount and the tax paid, if any. You claim the credit by entering the amount
on line 59, Form 1040, and checking Box a. Also attach Copy B of Form 2439 to
your return. See Capital Gain Distributions in Chapter 9 for more information
on undistributed capital gains.

Credit on Diesel-Powered Highway Vehicles

If you purchased a diesel-powered highway vehicle, you may be entitled to a
one-time credit if:

∙  You are the first owner of the vehicle, and

∙  You do not intend to resell the vehicle.

Amount of credit. The credit is $102 if you purchased a diesel-powered
automobile or $198 if you purchased a diesel-powered light van or truck.

How to claim the credit or refund. To claim the credit or refund, complete
line 1 of Form 4136 and attach it to Form 1040. Enter the credit on line 59,
Form 1040, and check Box b.

For more information, see the discussion of Diesel-Powered Cars, Vans, and
Light Trucks in Publication 378.