Cuylor Leverett, of Lincolnton, Ga., wanted to buy an energy-efficient vehicle to earn a federal tax credit.
Last week, he purchased a Club Car Villager 2 2 low-speed passenger vehicle from Transportation Solutions of Augusta. With the Plug-In Electric Drive Vehicle Tax Credit, he saved $4,168 off the $10,000 purchase price.
He even convinced his mother to buy one.
"You have to buy it before the end of December to take advantage of the tax credit. So that's why we went ahead and purchased now," Mr. Leverett said.
The street-legal, zero-emission vehicle carries up to four passengers and reaches a top speed of 25 miles per hour. The vehicle is allowed on roads where the posted speed limit is 35 miles per hour or slower. Mr. Leverett plans to drive it to work, grocery shopping and to dinner with friends.
Because of the recession, things are going to be different this tax season as people file their 2009 tax return -- the energy-based tax credits, for example.
"During the year, people saw an increase in their paychecks. Basically, that was because they were taking out less federal withholdings," said Mark Daniel, the director of Rhodes-Murphy Income Tax Service.
The federal government took out fewer taxes so that people could have an increase in their take-home pay. The Making Work Pay tax credit was created through the American Recovery and Reinvestment Act to provide a refundable tax credit of up to $400 for working individuals and $800 for working married couples filing joint returns, Mr. Daniel said.
"It will make up for the reduction in taxes to make your paycheck larger," he said.
This larger paycheck could also lead to problems for some taxpayers, said Alan Nance, the senior tax adviser at H&R Block on Pleasant Home Road.
Some might find that the changes have resulted in less tax being withheld than they prefer. If taxpayers are not eligible for the credit, these withholding changes could result in a smaller refund in the spring. Some could owe money rather than get a refund, according to the Internal Revenue Service.
"They will be getting a tax credit, but if the withholding is less than what the tax credit is, they may owe or get less of a refund. We're finding out the general public is not aware of that. Taxpayers should consider changing their withholding with their employers," Mr. Daniel said.
Job seekers will receive a tax exemption for unemployment benefits in 2009. The first $2,400 of unemployment benefits an individual receives are tax-free, Mr. Daniel said. Normally, unemployment benefits are taxable.
"There's also been some changes in the Earned Income Tax Credit. They now allow you to claim the credit for families with three or more children, where in the past the credit maxed out with two children. The maximum earned income credit this year rises by almost $630 because of that third child being added. We'll have a lot of our clients take advantage of that," Mr. Daniel said.
Taxpayers also will find changes with the Child Tax Credit. If taxpayers meet particular circumstances, all or part of the credit will be refundable.
"In the past, all the credit did was zero out your liability, and once your tax liability reached zero, you wouldn't get any additional credit," he said.
Energy-based tax credits don't stop with the purchase of electric vehicles. Taxpayers also can receive tax credits for energy-saving home improvements. In 2009 and 2010, they can get a 30 percent credit up to a maximum of $1,500 for purchases such as skylights, windows, certain doors, insulation, high-efficiency furnaces, water heaters and central air conditioning units, Mr. Nance said.
"That was not in place last year, but they added it back for 2009 and 2010," Mr. Daniel said.
The IRS has enhanced the tax credit for college tuition. Through the Hope Credit, taxpayers can receive a credit of up to $2,500 for four years of postsecondary education. The credit now also covers books. Previously, taxpayers could only get a credit of up to $1,800 for the first two years of college. In addition, part of the credit is now refundable, and in the past it was a nonrefundable credit, he said.
There's also a new sales tax credit for new vehicles priced up to $49,500. Also, charitable donations need to be made before the end of the year, Mr. Nance said.
Reach LaTina Emerson at (706) 823-3227 or latina.emerson@augustachronicle.com.
MAKING WORK PAY: Most wage earners have already benefitted from a larger paycheck as a result of the changes made to the federal income tax withholding tables to implement this tax credit. In 2009 and 2010, Making Work Pay provides a refundable tax credit of up to $400 for working individuals and $800 for working married couples filing joint returns.
The tax credit phases out for taxpayers who earn a modified adjusted gross income of more than $75,000 or $150,000 for married couples filing jointly.
FIRST-TIME HOME BUYER: First-time home buyers who purchased in 2008 are eligible for a tax credit of up to $7,500. This credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.
For homes purchased in 2009, the first-time home buyer credit has been increased to $8,000. The deadline has been extended, so taxpayers must purchase or enter a legal binding contract to purchase a home on or before April 30, 2010, and close on the home by June 30, 2010. For homes purchased in 2009, this credit does not have to be repaid unless the home is not the buyer's main residence within three years of the purchase.
First-time home buyers in 2009 can claim the credit on either the 2008 tax return due by April 15, 2009, or the 2009 tax return due by April 15, 2010. The credit may not be claimed before the closing date. The law also authorizes the credit for longtime homeowners buying a new home and raises the income limitations for homeowners claiming the credit.
EARNED INCOME: There is a temporary increase in the earned income tax credit with taxpayers with three or more qualifying children. The maximum credit for this new category is $5,657. These changes apply to 2009 and 2010 tax returns.
The credit phases out at $21,420 for married taxpayers filing a joint return with children and completely phases out at $40,463 for one child, $45,295 for two children and $48,279 for three or more children. For married taxpayers filing a joint return with no children, the credit begins to phase out at $12,470 and completely phases out at $18,440.
ADDITIONAL CHILD: Taxpayers who can't take full advantage of the child tax credit because the credit is more than the taxes they owe might receive a payment for some or all of the credit not used to offset their taxes. It is a refundable credit, so taxpayers may receive refunds even when they don't owe any taxes.
SALES TAX DEDUCTION FOR VEHICLE PURCHASES: Taxpayers may take a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motor vehicles. It is available on new vehicles purchased from Feb. 17 to Dec. 31, 2009, and is limited to taxes and fees paid on up to $49,500 of the purchase of an eligible vehicle.
The deduction is reduced for joint filers with modified adjusted gross incomes between $250,000 and $260,000 an other taxpayers who earn between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.
RESIDENTIAL ENERGY EFFICIENT PROPERTY CREDIT: The nonrefundable energy tax credit assists taxpayers purchasing qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. It allows for a credit equal to 30 percent of the cost of the qualified property.
PLUG-IN ELECTRIC DRIVE VEHICLE CREDIT: Taxpayers can receive a credit for qualified plug-in electric drive motor vehicles, including passenger vehicles and light trucks. Some low-speed vehicles qualify if purchased before Jan. 1, 2010. In 2009, the amount of the credit is equal to the sum of $ 2,500 plus $417 for each kilowatt-hour of traction battery capacity in excess of four kilowatt-hours. The maximum credit can range from $7,500 to $15,000.
For vehicles acquired after Dec. 31, 2009, the maximum amount of the credit will be $7,500, and this credit will no longer apply to low-speed vehicles. The credit below applies to certain low-speed vehicles acquired after this date.
PLUG-IN ELECTRIC VEHICLE: The law creates a special tax credit for two types of plug-in vehicles: low-speed electric vehicles and two- or three-wheeled vehicles. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after Feb. 17, 2009, and before Jan. 1, 2012.
Source: Internal Revenue Service
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