Top 10 Tax Questions for 2010

1. What is the Earned Income Tax Credit (EITC) and how do I know if I qualify?
2. How can I estimate my tax refund?
3. I recently bought a home. Can I claim the homebuyer tax credit?
4. I bought a car with the "Cash for Clunkers" program. How does that affect my tax return?
5. I lost my job in 2009 and collected unemployment. Does this affect my tax return?
6. I’m a waitress and I made less than $16,000 in 2009. Do I still have to file a tax return?
7. I owe money on my income taxes from last year.  Can I still get a tax refund this year?
8. My daughter is 26, just finished community college, and is living at home with me until she gets a job.  Can I still claim her as a dependent?
9. My friend isn’t getting a refund in cash, instead she is investing it and even getting savings bonds.  Why wouldn’t I want a cash refund?  And, is it true that I can purchase savings bonds with my refund?
10. I pay child support. Does that affect my taxes in any way?

1. What is the Earned Income Tax Credit (EITC) and how do I know if I qualify?

The United States federal Earned Income Tax Credit (ETIC or EIC) is a refundable tax credit that helps working people with limited income. Essentially, the EITC helps you pay less in payroll taxes. 

Your earned income and adjusted gross income (AGI) must each be less than the following amounts:

Find more information about the EITC.

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2. How can I estimate my tax refund?

How much money you get back depends on two major factors:  your income and how many dependents you have. You can use this free tax refund calculator to get an estimate of your refund or the amount you’ll owe. Make sure you stay away from "Tax Refund Loans" which charge very high rates.

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3. I recently bought a home. Can I claim the homebuyer tax credit.

Homebuyers who purchased a home in 2008, 2009 or 2010 may be able to take advantage of the first-time homebuyer credit. The credit:

• Applies only to homes used as a taxpayer's principal residence.
• Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar.
• Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

The credit is claimed using Form 5405, which you file with your original or amended tax return.  Find more information on the homebuyer’s tax credit.

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4. I bought a car with the "Cash for Clunkers" program. How does that affect my tax return?

When you applied for the “Cash for Clunkers” program, your dealership initially received between $3,500 and $4,500 in vouchers for the purchase and/or lease of your new vehicle.  The voucher value you received replaced the trade in value of your old vehicle.  The vouchers from the “Cash for Clunkers” program are NOT treated as taxable income and no taxes need to be paid. Although there is no federal tax due on the voucher received you may need to pay state sales tax on the Cash for Clunkers program if you live in the following states: Arizona, Idaho, Nebraska, New Jersey, New York, Ohio, South Carolina, South Dakota, Virginia and Washington.

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5. I lost my job in 2009 and collected unemployment. Does this affect my tax return?

According to the IRS, every person who received unemployment benefits during 2009 can deduct the first $2,400 of these benefits from their income when they file their tax return. For a married couple, each may deduct the first $2,400 of benefits they receive from their income. If you collected more than $2,400, your tax rate will vary depending on the  state where you live.  If you received unemployment benefits, you will receive Form 1099-G.

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6. I’m a waitress and I made less than $16,000 in 2009. Do I still have to file a tax return?

This depends in part on your filing status, age, and gross income.  If you are single, you must file a tax return if your gross income was at least $8,750 ($17,500 if married and filing jointly). That said, there is little harm in filing, especially because a full 50 percent of the people who chose not to file would have received money back!

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7. I owe money on my income taxes from last year.  Can I still get a tax refund this year?

If your account is current, and you’ve been making your payments on time, you will still get your tax refund. However, if your account is past due, you may not get your refund. Your refund this year is not a substitute for your payments owed from last year. If you owe any federal tax, state tax, student loans, or child support, your refund may be withheld.  The IRS will most likely automatically apply your refund to any past due amounts.

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8. My daughter is 26, just finished community college, and is living at home with me until she gets a job.  Can I still claim her as a dependent?

Your daughter, despite being unemployed, doesn't automatically qualify as a dependent. Although there are some exceptions, your child must meet the following conditions in order to be considered a dependent:

• Must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them.
• Must be (a) under age 19 at the end of the year and younger than you (or your spouse, if filing jointly), (b) under age 24 at the end of the year, a full-time student, and younger than you (or your spouse, if filing jointly), or (c) any age if permanently and totally disabled.
• Must have lived with you for more than half of the year.
• Must not have provided more than half of his or her own support for the year.
• Must not be filing a joint return for the year.
• If another person can claim your child as a dependent, you must be the person entitled to claim the child as a qualifying child.

Learn more about dependents.

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9. My friend isn’t getting a refund in cash, instead she is investing it and even getting savings bonds.  Why wouldn’t I want a cash refund?  And, is it true that I can purchase savings bonds with my refund?

Well, while a cash refund might be your best option if you have high interest credit card debt to pay off, or if you have little in your savings account, your money will do a lot more for you if you invest it.  You can invest your refund in a lot of different ways.

Starting in 2010, you CAN use your tax refund to invest in savings bonds.  Learn more about savings bonds and other options to save and invest your money.

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10. I pay child support. Does that affect my taxes in any way?

No, child support cannot be claimed by either parent. However, if your child lived with you for the greater part of the year and you are the custodial parent, you can generally claim the exemption for the child.