You should consider the items in this section when figuring the amount of your tax withholding for 2009. Unless otherwise stated, see Publication 553, Highlights of 2008 Tax Changes, for more information.taxmap/pubs/p919-000.htm#en_us_publink1000147478
Definition of a qualifying child revised.(p2)
The following changes to the definition of a qualifying child have been made.
- Your qualifying child must be younger than you.
- A child cannot be your qualifying child if he or she files a joint return, unless the return was filed only as a claim for refund.
- If the parents of a child can claim the child as a qualifying child but no parent so claims the child, no one else can claim the child as a qualifying child unless that person's AGI is higher than the highest AGI of any parent of the child.
- Your child is a qualifying child for purposes of the child tax credit only if you can and do claim an exemption for him or her.
Divorced or separated parents.(p2)
A noncustodial parent claiming an exemption for a child can no longer attach certain pages from a divorce decree or separation agreement executed after 2008. The noncustodial parent will have to attach Form 8332 or a similar statement signed by the custodial parent whose only purpose is to release a claim for exemption.taxmap/pubs/p919-000.htm#en_us_publink1000146185
Differential wage payments subject to withholding.(p2)
Beginning in 2009, differential wage payments made to active members of the uniformed services are treated as wages and income tax must be withheld. For more details, see Publication 15, Employer's Tax Guide.taxmap/pubs/p919-000.htm#en_us_publink1000146186
Certain unemployment compensation excluded from income.(p2)
You can exclude from income the first $2,400 of unemployment compensation you receive.taxmap/pubs/p919-000.htm#en_us_publink1000146187
Economic recovery payment to recipients of social security, supplemental social security, railroad retirement benefits, and veterans disability compensation or pension benefits.(p2)
If you receive any of the above benefits, you will receive an economic recovery payment of $250. This is not included in your income. taxmap/pubs/p919-000.htm#en_us_publink1000146188
Qualified small business stock.(p2)
The exclusion of gain from the sale of qualifying small business stock is increased to 75% for stock acquired after February 17, 2009, and before January 1, 2011.taxmap/pubs/p919-000.htm#en_us_publink1000146189
Limit on exclusion of gain on sale of main home.(p2)
Generally, gain from the sale of your main home is no longer excludable from income if the gain is allocable to periods after 2008 when neither you nor your spouse (or your former spouse) used the property as a main home.taxmap/pubs/p919-000.htm#en_us_publink1000146190
Retirement savings plans.(p2)
The following paragraphs highlight changes that affect individual retirement arrangements (IRAs) and pension plans. For more information, see Publication 590, Individual Retirement Arrangements (IRAs).
IRA deduction expanded. You may be able to take an IRA deduction if you were covered by a retirement plan at work and your 2009 modified adjusted gross income (AGI) is less than $65,000 ($109,000 if married filing jointly or a qualifying widow(er)). If your spouse was covered by a retirement plan but you were not, you may be able to take an IRA deduction if your modified AGI is less than $176,000.
Elective salary deferrals. The maximum amount you can defer under all plans generally is limited to $16,500 ($11,500 if you have only SIMPLE plans; $19,500 for section 403(b) plans if you qualify for the 15-year rule). The catch-up contribution limit for individuals age 50 or older at the end of the year is increased to $5,500 (except for section 401(k)(11) plans and SIMPLE plans, for which this limit remains unchanged).
Retirement savings contributions credit (saver's credit). For 2009, the income limits have increased and you may be able to claim this credit if your modified AGI is not more than $27,750 ($55,500 if married filing jointly, $41,625 if head of household).
Temporary waiver of certain required minimum distribution rules. No minimum distribution is required from your IRA or employer-provided qualified retirement plan for 2009. For more information, see Publication 575, Pension and Annuity Income, or Publication 590.taxmap/pubs/p919-000.htm#en_us_publink1000146191
Increased standard deduction.(p2)
You may be able to increase your standard deduction by the following amounts.
- Certain state or local real estate taxes you pay.
- A net disaster loss attributable to a federally declared disaster.
- Sales or excise taxes you pay on the purchase of certain new cars, trucks, motorcycles, or motor homes.
Standard mileage rates.(p2)
The standard mileage rate for the cost of operating your car is:
- 55 cents a mile for all business miles driven,
- 24 cents a mile for the use of your car for medical reasons,
- 24 cents a mile for the use of your car for a deductible move,
- 14 cents a mile for the use of your car for charitable reasons.
Personal casualty and theft loss.(p2)
A personal casualty or theft loss must exceed $500 to be allowed. This is in addition to the 10% of AGI limit that generally applies to the net loss.taxmap/pubs/p919-000.htm#en_us_publink1000146194
Alternative minimum tax (AMT) exemption amount increases.(p2)
The AMT exemption amount is increased to $46,700 ($70,950 if married filing jointly or a qualifying widow(er); $35,475 if married filing separately).taxmap/pubs/p919-000.htm#en_us_publink1000146195
Tax on child's investment income.(p3)
Generally, Form 8615 will be required to figure the tax for children with investment income of more than $1,900.taxmap/pubs/p919-000.htm#en_us_publink1000146196
Making work pay credit.(p3)
You can claim a refundable credit of up to $400 ($800 if married filing jointly) if you work. You can claim the credit if you are an employee or self-employed. The credit is 6.2% of your earned income, which includes nontaxable combat pay, up to the $400 (or $800) limit. The credit is phased out if your modified adjusted gross income (AGI) is more than $75,000 ($150,000 if married filing jointly). See Worksheet 12. taxmap/pubs/p919-000.htm#en_us_publink1000146197
Hope education credit expanded.(p3)
For 2009 and 2010, the maximum credit is $2,500, it is available for the first 4 years of post-secondary education, and 40% of the credit is refundable. The increased benefits will be phased out if your modified AGI is above $80,000 ($160,000 if married filing jointly).taxmap/pubs/p919-000.htm#en_us_publink1000146198
Qualified education expenses under a qualified tuition program (QTP).(p3)
During 2009 and 2010, qualified education expenses will include the purchase of computer technology, equipment, or Internet access and related services if it is 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. (This does not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature.)taxmap/pubs/p919-000.htm#en_us_publink1000146201
Earned income credit (EIC).(p3)
You may be able to take the EIC if:
- Two or more children lived with you and you earned less than $40,295 ($45,295 if married filing jointly),
- One child lived with you and you earned less than $35,463 ($40,463 if married filing jointly), or
- No children lived with you and you earned less than $13,440 ($18,440 if married filing jointly).
New for 2009 is an increase in the amount of earned income credit for taxpayers with three or more qualifying children.
You can elect to include combat pay as earned income for purposes of claiming the EIC.
The maximum investment income you can have and still get the credit has increased to $3,100.
For more information, see Publication 596, Earned Income Credit (EIC).taxmap/pubs/p919-000.htm#en_us_publink1000146202
Additional child tax credit.(p3)
The earned income threshold generally needed to qualify for the additional child tax credit is reduced to $3,000.taxmap/pubs/p919-000.htm#en_us_publink1000146203
Credit to certain government retirees.(p3)
If you are a government retiree and you did not receive an economic recovery payment as a recipient of social security, supplemental social security, railroad retirement, and veterans disability compensation or pension benefits, you are allowed a credit of $250 ($500 if both you and your spouse are government retirees and you file jointly). The credit is refundable. See Worksheet 12. taxmap/pubs/p919-000.htm#en_us_publink1000146204
Nonbusiness energy property credit.(p3)
This credit, which expired after 2007, has been reinstated. The amount of the credit has increased from 10% to 30%, limited to a $1,500 total amount for 2009 and 2010 installations. It also has been expanded to include certain asphalt roofs and stoves that burn biomass fuel. taxmap/pubs/p919-000.htm#en_us_publink1000146205
Residential energy efficient property credit.(p3)
The 30% credit for qualified solar hot water property, geothermal heat pumps, and wind energy property, is no longer limited to $2,000 per year. However, there is a $500 credit limit on qualified fuel cell property expenditures.taxmap/pubs/p919-000.htm#en_us_publink1000146206
Increased alternative fuel vehicle refueling property credit.(p3)
The credit for alternative fuel vehicle fueling property increases to 50%. For property placed in service during 2009 and 2010 at your main home, the credit limit increases to $2,000.taxmap/pubs/p919-000.htm#en_us_publink1000146207
Credit for qualified plug-in electric vehicles.(p3)
The electric vehicle credit is now limited to plug-in electric vehicles. The maximum credit for a qualified vehicle acquired after February 17, 2009, is $2,500. taxmap/pubs/p919-000.htm#en_us_publink1000146208
Plug-in conversion credit.(p3)
A new credit is available for converting a motor vehicle to a qualified plug-in electric drive motor vehicle. The maximum credit is $4,000, and will be claimed as part of the alternative motor vehicle credit.taxmap/pubs/p919-000.htm#en_us_publink1000146209
Build America tax credit bonds.(p3)
The credit available to taxpayers from Build America bonds must be included in income as interest. Any unused credit is refundable.taxmap/pubs/p919-000.htm#en_us_publink1000146210
First-time homebuyer credit.(p3)
You may be able to claim a refundable credit of up to $8,000 if you are a first-time homebuyer and buy a principal residence after December 31, 2008, and before December 1, 2009.taxmap/pubs/p919-000.htm#en_us_publink1000146211
Increased health coverage tax credit.(p3)
For individuals who are eligible trade adjustment assistance (TAA) recipients, alternative TAA recipients, or eligible Pension Benefit Guaranty Corporation pension recipients, the credit for the cost of health insurance increases. This credit also is available to eligible TAA recipients who are not currently enrolled in a training program.taxmap/pubs/p919-000.htm#en_us_publink1000146212
Decreased estimated tax payment for certain small businesses.(p3)
For certain small businesses, your required estimated tax payment for the year is the lesser of 90% of your 2008 tax or 90% of your estimated 2009 tax. This rule applies to the following businesses:
- Your business had an average of fewer than 500 employees for the previous calendar year.
- More than 50% of your gross income from the previous year was income from your small business.
- Your adjusted gross income (AGI) for the previous year was less than $500,000 ($250,000 if married filing separate returns in the current year).
Photographs of missing children.(p4)
The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year.
As a wage earner, you pay federal income tax by having it withheld from your pay during the year. This is your "withholding." Your withholding is based on the number of allowances you claim when you file Form W-4, Employee's Withholding Allowance Certificate, with your employer.
The purpose of this publication is to help you check your withholding and, if necessary, prepare a new Form W-4 to adjust your withholding. When you first start a new job, you must fill out a Form W-4 and give it to your employer to establish your initial withholding. You can adjust your withholding by giving a new Form W-4 to your employer at any time.taxmap/pubs/p919-000.htm#en_us_publink10006641
If you have not changed jobs, you generally do not have to give your employer a new Form W-4 each year unless you need to adjust your withholding.
For more detailed information about Form W-4, see chapter 1 of Publication 505, Tax Withholding and Estimated Tax.taxmap/pubs/p919-000.htm#en_us_publink10006642
Before completing Form W-4, nonresident alien employees should see the instructions for Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. Also see chapter 8 of Publication 519, U.S. Tax Guide for Aliens, for important information on withholding.taxmap/pubs/p919-000.htm#en_us_publink100049162
We welcome your comments about this publication and your suggestions for future editions.
You can write to us at the following address:
Internal Revenue Service
Individual Forms and Publications Branch
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.
You can email us at *firstname.lastname@example.org
. (The asterisk must be included in the address.) Please put "Publications Comment" on the subject line. Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products.
to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received.
Internal Revenue Service
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If you have a tax question, check the information available on www.irs.gov
or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.
This section explains why, when, and how to check your withholding to see if you will have enough, but not too much, tax withheld for 2009. Also, you may want to use the withholding calculator on www.irs.gov
You should try to have your withholding match your actual tax liability. If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. If too much tax is withheld, you will lose the use of that money until you get your refund.
Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability. See Figure 1 (next page) for examples.
Figure 1. Personal and Financial Changes
Birth or adoption of child
Loss of an exemption
Purchase of a new home
|Wage income||You or your spouse start or stop working, or start or stop a second job|
|Increased or decreased income not subject to withholding||Interest income|
IRA (including Roth IRA)
|Increased or decreased adjustments to income||IRA deduction|
Student loan interest deduction
|Increased or decreased itemized deductions or tax credits||Medical expenses|
Gifts to charity
Child tax credit
The earlier in the year you check your withholding, the easier it is to get the right amount of tax withheld.
You should check your withholding when any of the following situations occur.
- You receive a paycheck stub (statement) covering a full pay period in 2009, showing tax withheld based on 2009 tax rates.
- You prepare your 2008 tax return and get a:
- Big refund, or
- Balance due that is:
- More than you can comfortably pay, or
- Subject to a penalty.
- There are changes in your life or financial situation that affect your tax liability. See Figure 1 above.
- There are changes in the tax law that affect your tax liability. See Tax Law Changes, next.
You must give your employer a new Form W-4 to adjust your withholding within 10 days of any event that decreases the number of withholding allowances you can claim, or requires you to change to single status.
If there are tax law changes that increase your tax for 2009 and you do not increase your withholding, you may have to pay tax when you file your return. If there are changes that decrease your tax for 2009 and you do not decrease your withholding, you may get a larger refund. You can get this money back earlier by reducing your withholding.
For information about changes in the law for 2008 and 2009, get Publication 553, Highlights of 2008 Tax Changes, or visit the IRS website at www.irs.gov.
Click on More Forms and Publications,
and then on What's Hot in forms and publications.
You can use the worksheets and tables in this publication to see if you are having the right amount of tax withheld.
Follow these steps.
- Fill out Worksheet 1 (see page 13) to project your total federal income tax liability for 2009.
- Fill out Worksheet 9 (see page 20) to project your total federal withholding for 2009 and compare that with your projected tax liability from Worksheet 1.
If you are not having enough tax withheld, line 6 of Worksheet 9 will show you how much more to have withheld each payday.
If you are having more tax withheld than necessary, line 5 of Worksheet 9 refers you to How Do I Decrease My Withholding, later.taxmap/pubs/p919-000.htm#en_us_publink10006652
If not enough tax will be withheld, you should give your employer a new Form W-4 showing either a reduced number of withholding allowances or an additional amount to be withheld from your pay. See How Do I Increase My Withholding, on page 6.
There is a good chance you are not having enough tax withheld if:
- You have more than one job at a time,
- Your spouse also works,
- You have income not subject to withholding, such as capital gains, rental income, interest, and dividends, or
- You owe other taxes such as self-employment tax or household employment taxes.
If your employer cannot withhold enough additional tax from your pay, you may need to make estimated tax payments. This might be the case if your pay is low and you have substantial nonwage income, such as interest, dividends, capital gains, or earnings from self-employment. For more information on estimated tax payments, see chapter 2 of Publication 505. taxmap/pubs/p919-000.htm#en_us_publink10006653
If too much tax is withheld, you may receive a large refund when you file your return. If you would prefer to receive the money during the year, you should see if you qualify to have less tax withheld. If so, give your employer a new Form W-4 showing more withholding allowances.
There is a good chance you are having too much tax withheld if:
- You got a big refund for 2008 and your income, adjustments, deductions, and credits will remain about the same this year,
- Your income will remain about the same as last year, but your adjustments, deductions, or credits will increase significantly, or
- You got a refund last year; your income, adjustments, and deductions will remain about the same as last year; but you will qualify for one or more tax credits this year that you did not qualify for last year.
Adjustments to income are listed on Form 1040 and Form 1040A near the bottom of page 1. Itemized deductions appear on Schedule A (Form 1040). Credits appear on page 2 of Form 1040 and Form 1040A. See also Figures 1 (page 5) and 2 (page 8).