Tax on Inheritances

Any money and property you receive as inheritance, you (the receiver) do pay any federal tax except if you inherit a traditional IRA. This is true even for properties inherited in foreign countries or from a foreign person. There may be state tax on the inheritances so you should check at the state web site. For most of the States there is no inheritance tax. PA state has tax on inheritances.

Inherited Property
If you inherit a property in a year other than 2010, your cost basis is the valuation (Fair Market Value) of the property at the date of the decedent's death or the FMV (Fair Market Value) on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. That is your cost basis is the "step-up" basis. If you sell the inherited property at a price up to your cost basis, you don't have any profit. However, if you sell the property at price more than the cost basis to you, then you must pay the taxes on the profit (sale price minus your cost basis). You must report the sale on schedule D of Form 1040. Profit from an inherited property is always a long term capital regardless of when you inherited it.

Federal Estate Exclusion for 2012 & 2013
In 2011 the federal estate-tax exclusion was set permanently at $5 million and is indexed for inflation. For 2012 the basic federal estate exclusion limit is $5,120,000 and the top estate-tax rate is 35%. In 2013, the basic federal estate exclusion limit is $5,250,000 and the top estate-tax rate is 40%.

Choices for 2010
For 2010, estates have two choices. Either pay no estate tax or pay 35% estate tax on assets over 5 million.
1. If you inherit property in 2010 from a estate that chose to avail unlimited estate tax exemption, the basis of inherited property remains the same as it was for the deceased owner. Your cost basis is not "step-up" but it is the "carry-over". However, you can choose to take your cost basis as "step-up" for only $1.3 million of the property. For any amount inherited over $1.3 million, your cost basis will be the smaller of the deceased owner's basis or the FMV on the date of the death. the surviving spouse will receive an additional $3 million basis "step-up".
2. If you inherit property in 2010 from a estate that is over 5 million and that paid 35% estate tax on assets over 5 million, you can claim stepped-up basis.

Inherited Traditional IRA or Retirement Fund
If you inherit a traditional IRA, you are called a beneficiary. Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. All income in a traditional IRA is taxed as ordinary income. Any capital gains within the IRA receive no special treatment that is it is treated as an ordinary gain.

You can withdraw money from inherited IRA without early withdrawal penalty even before you are 59 1/2. You should receive a Form 1099R from the trustee for the IRA. Get a copy of it from the trustee if you no longer have it. Usually there is federal withholding on the distribution, most often 20%.

Inheritance from Foreign Sources & Form 3520
Any inheritance is not a taxable income. However, since it is coming from a foreign country, the IRS wants to make sure that it is a actually a gift or inheritance. The receiver must file File 3520 Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. The form 3520 is due on the date of your return including extensions.

You file Form 3520 if you are a U.S. person who, during the current tax year, received either
a. More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests; or
b. More than $13,561 (for 2008) from foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships) that you treated as gifts.
Note: You may also be required to file Form TD F 90-22.1. Report of Foreign and Bank and Financial Accounts. http://taxipay.blogspot.com/2008/03/us-citizen-or-resident-with-foreign.html

Estate Tax and Estate Tax ReturnMost estates are not subject to the estate tax. An estate tax return generally will not be needed unless the estate is worth more than the applicable exclusion amount for the year of death. For 2006, 2007 and 2008 the exclusion amount is 2 million and for 2009 the amount is 3.5 million. For 2010, estates have two choices. Either pay no estate tax that is exclusion amount is unlimited or pay 35% estate tax on assets over 5 million. In 2011 and 2012 and estate tax exclusion amount is 5 million and the estate tax rate is 35%.

The personal representative must file an estate tax return, Form 706, if the gross estate, plus any adjusted taxable gifts and specific gift tax exemption, is more than the filing requirement for the year of death. The personal representative must also file the previous years income tax returns (if not already filed) and the final income tax return if required.

The personal representative is an executor, administrator or anyone who is in charge of the decedent’s property. Generally the executor is named in a decedent’s will to administer the estate and to distribute properties as the decedent has directed. The duties of personal representative are to collect all the decedent's assets, pay the creditors, and distribute the remaining assets to the heirs or other beneficiaries.

Schedule K-1 (Form 1041)As a beneficiary of a estate you may get Schedule K-1 from the personal representative of the estate. The amount shown in boxes 1 through 14 of Schedule K-1 show your share of estate's or trust's income, credits, deductions, etc. Generally, you must report items shown on Schedule K-1 the same way that the estate or trust treated the items on the return. For Form 1040 filers, page 2 of Schedule K-1 provides summarized reporting information.

Community property. In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. For this rule to apply, at least half the value of the community property interest must be included in the decedent's gross estate, whether or not the estate must file a return.

List of Articles on the U.S. Taxes
Your Filing Status
1. Filing Status for Married
2. Filing Status: Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent
3. Filing W4 Employee’s Withholding Allowance Certificate
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Adjustment and deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustments -- Retirement Plans
1. Trad IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
Status of Your Tax Refund
1. When will I get my tax refund?
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2008 Economics Stimulus Act
1. Are You Eligible for 2008 Stimulus Tax Rebate Payment?
2. 2008 Economics Stimulus Act -- Benefits to Businesses

Tax for Aliens
1. U.S. Tax Filing Requirements for Non-Residents
2. Substantial Presence Test
3. Social Security and Medicare (FICA) Taxes for Non-resident Exempt Individual
4. U.S. Tax Treaties for Professors, Teachers and Researchers
5. U.S. Tax Treaties for Students and Apprentices
6. Mandatory Reporting of Foreign Bank and Financial Accounts

13 Card Indian Rummy by Octro. Indian Rummy is a game of skill. It requires skill, memory, concentration and complete involvement in the game. It is free. You can download it on your iPhone & iPad or any Android device. On play on Facebook. http://www.octrorummy.com

Filing Status for Married

If you are married or considered married, your filing status can only be Married Filing Jointly or Married Filing Separately unless you did not live with your spouse for last 6 months and meet certain conditions.

Your spouse is never your dependent. Your spouse is never your dependent but you can file as Married Filing Jointly even if one spouse did not have any income. If you file Married Filing Separately, you can claim exemption for your spouse if the spouse did not have any income.

Married Filing JointlyIf you have income and your spouse does not have income or has a very little income, then it is better to file as Married Filing Jointly. On your tax return for 2011, you will get standard deduction of $11,600 and two exemptions of $3,700 each. If both of you have almost equal income, then it won't make much difference. Also many credits and deductions are not available if you file Married Filing Separately. So normally you should file as Married Filing Jointly, unless there is a compelling reason to file otherwise. Once you filed a joint return, you cannot choose to file separate returns for that year after the due date of the return.
Filing Joint Return with Foreign Alien Spouse. Read U.S. citizen or resident married to non-resident discussed later on.
Married Filing SeparatelyYou can also choose to file as Married Filing Separately. The filing status may benefit you if you want to be responsible only for your own tax or if it results in less tax than filing a joint return. If you file your 2011 tax return as married filing separately, you will get standard deduction of $5,800 and your exemption of $3,700. For 2010 tax return, the standard deduction is $5,700 and exemption is $3,650.

If you are your spouse do not agree to file a joint return, you may have to file as Married Filing Separately unless you qualify for head of household status. If you are filing as Married Filing Separately, if one spouse itemizes the deductions, the other spouse can't claim standard deduction. Also many tax credits and deductions are not available if you file as married filing separately.

Special Rules. If you choose married filing separately as your filing status, the following special rules apply:
1. Your tax rate generally will be higher than it would be on a joint return.
2. You cannot take the earned income credit.
3. You cannot take the exclusion or credit for adoption expenses in most cases.
4. You cannot take the education credits (the Hope credit and the lifetime learning credit), the deduction for student loan interest, or the tuition and fees deduction.
5. Your exemption amount for figuring the alternative minimum tax will be half that allowed to a joint return filer.
6. You cannot take the credit for child and dependent care expenses in most cases, and the amount that you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000 if you filed a joint return).
7. You cannot exclude any interest income from qualified U.S. savings bonds that you used for higher education expenses.
8. If you lived with your spouse at any time during the tax year then (a) you cannot claim the credit for the elderly or the disabled, (b) you will have to include in income more (up to 85%) of any social security or equivalent railroad retirement benefits you received, and (c) you cannot roll over amounts from a traditional IRA into a Roth IRA.
9. The following deductions and credits are reduced at income levels that are half those for a joint return: (a) The child tax credit, (b) The retirement savings contributions credit, (c) itemized deductions, and (d) The deduction for personal exemptions.
10. Your capital loss deduction limit is $1,500 (instead of $3,000 if you filed a joint return).
11. If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.

If you have filed a separate return, then you can change your filing status by filing an amended return using Form 1040X. You and your spouse can generally change to a joint return any time within 3 years from the due date of the separate return or returns.

Choosing between Married Filing Jointly and Married Filing Separately
You may want to figure your tax both on a joint return and on separate returns (using the filing status of married filing separately). Choose the method that gives the two of you the lower combined tax unless you have your own reasons.
On the joint return, both the spouses are jointly and severally liable for the tax on the return, and interest and penalties. Even when only one spouse owes the tax, both spouses are liable for the full amount. Before the due date (including extensions) either spouse may revoke the election to file a joint return. After the due date (including extensions), the joint return can not be revoked.

Head of Household
You may be able to file as head of household. If you qualify to file as head of household, your tax rate usually will be lower than the rates for single or married filing separately. You will also receive a higher standard deduction than if you file as single or married filing separately. For 2011, the standard deduction for taxpayer who files as single is $5800, while for the Head of Household it is $8,500 ($8,350 for 2010).

To file as head of household, you must meet all the following requirements.
1. You are unmarried or "considered unmarried" on the last day of the year. To be considered unmarried, you must have lived separate from your spouse during the last six months of the tax year. Your spouse is considered to live in your home even if he or she is temporarily absent due to special circumstances.
2. You paid more than half the cost of keeping up a home for the year.
3. A "qualifying person" lived with you in the home for more than half the year (except for temporary absences, such as school). However, if the "qualifying person" is your dependent parent, he or she does not have to live with you.
4. You must be able to claim an exemption for the child. However, you meet this test if you cannot claim the exemption only because the noncustodial parent can claim the child.

Spouse died during the year.   If your spouse died during the year, you are considered married for the whole year for filing status purposes.

  If you did not remarry before the end of the tax year, you can file a joint return for yourself and your deceased spouse. For the next 2 years, you may be entitled to the filing status Qualifying Window(er) With Dependent Child.
  If you remarried before the end of the tax year, you can file a joint return with your new spouse. Your deceased spouse's filing status is married filing separately for that year.

Nonresident alien spouse. You are considered unmarried for head of household purposes if your spouse was a nonresident alien at any time during the year and you do not choose to treat your nonresident spouse as a resident alien. However, your spouse is not a qualifying person for head of household purposes. Even if you are considered unmarried for head of household purposes because you are married to a nonresident alien, you are still considered married for purposes of the earned income credit (unless you meet the requirements).

Nonresident tax return. Even if you are married you can not file a non-resident tax return as married filing jointly. Your filing status is single non-resident alien or married non-resident alien. You can not claim exemption for your spouse even if the spouse's income was $0 in the year. Also you can not take exemption for a dependent. There are exceptions for the residents of Mexico, Canada and South Korea.
If you are married, you have a qualifying dependent and did not live with your spouse for last six months, you can choose to file as single non-resident alien.

U.S. citizen or resident married to non-resident. If you are a U.S. citizen or resident who is married to a non-resident alien or a foreign person, you can only file as married filing jointly or married filing separately. You can file joint return even when your spouse has never been to the U.S. If you file joint return, you must both declare your worldwide income for the year. If you or your spouse paid taxes in a foreign country, you can file Form 1116 Foreign Tax Credit or/and Form 2555 Foreign Earned Income Exclusion. (Read U.S. Citizens or Residents with Foreign Income.)

If you are filing as married filing separately, you must enter your spouse's full name in the space provided and must enter your spouse's SSN or ITIN in the space provided unless your spouse does not have and is not required to have an SSN or ITIN. In that case, write nonresident or N R A in the space for SSN.

A Qualifying person is any one who is one of the following
1. A qualifying child (such as a son, daughter, or grandchild) who lived with you more than half the year and is not married. It is not required that you must claim exemption for the child.
2. A qualifying relative who is your mother or father for whom you can claim an exemption.
3. A qualifying relative (such as a grandparent, brother, or sister) who lived with you for more than half the year and you can claim as exemption for him or her.
(Your fiance, your girl friend or your boy friend, even if you can claim them dependent, do not make you head of household.)

Common law marriage. You are considered married for the whole year if you are living together in a common law marriage that is recognized in the state where you now live or in the state where the common law marriage began. Once the common law marriage is recognized, the divorce is not common law divorce. It must be regular divorce just like in case of married persons.

More Articles:
Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Filing W4 Employee’s Withholding Allowance Certificate
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustments -- Retirement Plans
. Trad IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
Status of Your Tax Refund
1. When will I get my tax refund?
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First-Time Homebuyer Credit
Sole Propreitor, Partnership & Corporations
1. Self Employed Sole Proprietor or Independent Contractor
2. Partnerships
3. S. Corporations
State Tax Return
1. Working in Two or More States
What's New for 2009
What's New for 2009

...Complete List of Articles
Any Question?
If you have a question, send me an email: ustaxfiling@gmail.com
Forum for India Taxes: http://www.mytaxes.in/

Moving Expenses

If you move to your new home to join a new job or start a business, you can deduct the Moving Expenses as an adjustment to the income. It means that you will get this deduction even if you don’t itemize your expenses. To be deductible, you must meet the distance and time tests. Your move must be closely related to the start of work. (Exception: Different rules may apply if you are a member of the Armed Forces or a retiree or survivor moving to the United States.)

The Time & Distance Tests
The Time Test. As an employee, you must work full time in the general area of your new workplace for at least 39 weeks during the 12 months right after your move. If you are self-employed, you must work at least 39 weeks during the 12 months right after your move AND a total of at least 78 weeks during the 24 months right after your move.

The Distance Test. The new principal workplace must be at least 50 miles farther from your old home than your old workplace was. For example, if your old workplace was 3 miles from your old home, your new workplace must be at least 53 miles from that home. If you did not have an old workplace, your new workplace must be at least 50 miles from your old home.

Form 3903 Moving Expenses
Moving expenses are figured on Form 3903 line 5 and deducted as an adjustment to income on line 26 of Form 1040 or line 26 of 1040NR. You cannot deduct any moving expenses that were reimbursed by your employer.

On the Form 3903 line 1 you enter your total expenses for transportation and storage of household goods. and personal effects. On line 2 you enter your expenses for travel including lodging from your old home to your new home. On line 4, you enter the total amount your employer paid you for the expenses on lines 1 and 2 of Form 3903 that is not included in box 1 of your Form W-2 (wages). This amount should be shown in box 12 of your Form W-2 with code P.
If you incurred or paid the moving expenses in 2009 and were not reimbursed, you must claim them in 2009 even when you expect to meet 39 weeks test in 2009. If later you are unable to meet 39 weeks test, then you must file an amended tax return.

If you were reimbursed for your expenses and you use cash method of accounting, you can deduct your expenses either in the year you paid them or in the year you received the reimbursement.

If the new workplace is outside the United States or its possessions, you must be a U.S. citizen or resident alien to deduct your expenses. Also if you qualify to deduct expenses for more than one move, use a separate Form 3903 for each move.

Standard Mileage Rate
For 2007, the standard mileage rate for using your vehicle to move to new home is 20 cents a mile. For 2008 this rate is 19 cents (Jan 1 to June 30) and 27 cents (for July 1 to Dec 31) per mile driven for moving purposes.

Moving expenses that you can deduct
You can deduct the reasonable expenses of moving your household goods and personal effects (including in-transit or foreign-move storage expenses), and traveling (including lodging but not meals) to your new home. You cannot deduct any expenses for meals. Also the cost of traveling from your former home to your new one should be by the shortest, most direct route available by conventional transportation. You can deduct moving expenses you pay for yourself and members of your household.

You can deduct any costs of connecting or disconnecting utilities required because you are moving your household goods, appliances, or personal effects. You can deduct the cost of shipping your car and your household pets to your new home. You can deduct the cost of moving your household goods and personal effects from a place other than your former home including the cost of storing and insuring household goods and personal effects within any period of 30 consecutive days after the day your things are moved from your former home and before they are delivered to your new home.
For more information, read IRS publication 521. Moving Expenses.

List of Articles
Your Filing Status
1. Filing Status for Married
2. Filing Status: Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements1
1. Filing Requirement for a Dependent
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent
3. Filing W4 Employee’s Withholding Allowance Certificate
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Adjustment and deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustments -- Retirement Plans
1. Trad IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
Status of Your Tax Refund
1. When will I get my tax refund?
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2008 Economics Stimulus Act
1. Are You Eligible for 2008 Stimulus Tax Rebate Payment?
2. 2008 Economics Stimulus Act -- Benefits to Businesses

Tax for Aliens
1. U.S. Tax Filing Requirements for Non-Residents
2. Substantial Presence Test
3. Social Security and Medicare (FICA) Taxes for Non-resident Exempt Individual
4. U.S. Tax Treaties for Professors, Teachers and Researchers
5. U.S. Tax Treaties for Students and Apprentices
6. Mandatory Reporting of Foreign Bank and Financial Accounts

OctroTalk - World's First without 3G Live Video Chat/Conference & Video Streaming for Mobile Phones -- For Nokia S60 3rd., Window Mobile Smartphone and Pocket PC and Windows Desktop. OctroTalk has instant messaging, P2P file transfer, VoIP, SIP calling, live video chat and video conference. Free Trial/Download http://www.octro.com/

Any Question?
If you have a question, send me an email: ustaxfiling@gmail.com
Forum for India Taxes http://www.mytaxes.in/

Filing Requirement for a Dependent

2009 Filing Requirements for a Dependent
If you are a dependent, then your filing requirements are different from that of a non-dependent. Also, if your parents can claim you as a dependent, then you can't file as a non-dependent even if your parents don't actually claim you. On a tax return, a dependent does not get personal exemption of $3,650. If you are a dependent and are not required to file, you should still file your tax return if you have a refund.

Filing Requirements for a Dependent under 65 and not blind (Single or Married)
If you are a dependent (single or married), you must file a return if any of the following apply.
1. Your unearned income was more than $950.
2. Your earned income was more than $5,700.
3. Your gross income was more than the larger of:
$950, or your earned income up to $5,400 plus $300, or
4. Your self employed income is $400 or more.
Exception: If a dependent is married and the spouse files a separate return and itemizes deduction, then you must file your tax return if your gross income was at least $5 or if you meet any of above requirements.

Filing Requirements for a Dependent 65 or older or blind (Married)
If you are a dependent (single or married), you must file a return if any of the following apply.
1. Your unearned income was more than $2,350.
2. Your earned income was more than $7,100.
3. Your gross income for 2009 was more than larger of:
$2,350, or your earned income up to $5,400 plus $1,400.
4. Your self employed income is $400 or more.
Exception: If a dependent is married and the spouse files a separate return and itemizes deduction, then you must file your tax return if your gross income was at least $5 or if you meet any of above requirements.

2009 Standard Deduction for Dependent Individual
On the 2009 tax return, the standard deduction amount that can be claimed by an Individual who is dependent can not exceed the greater of
(i) $950, or
(ii) the sum of $300 and the earned income up to $5,400.

Child's Taxable Age
There is no minimum age when a child's tax return must be filed. In other words, the day the child has taxable income (income minus deduction), child must pay the taxes. Thus infants also pay income tax. Some infants do have interest and other investment income.

If a child is under 18 and the income in 2009 is more than $950 but less than $9,500, then the parents can elect to include child's interest and dividends income in their own return. However, once a child is 18, child must file his/her own separate return. Also if a child has earned income, capital gain income, self employment income, winnings income, then the child must file his/her separate return.

More Articles
Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Filing W4 Employee’s Withholding Allowance Certificate
Income Adjustment and deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustments -- Retirement Plans
1. Trad IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
What's New for 2009
What's New for 2009

Complete List of Articles

Any Question?
If you have a question, send me an email: ustaxfiling@gmail.com
Forum on India Taxes, where you can ask question on India Taxes: http://www.mytaxes.in/

Filing W4 Employee’s Withholding Allowance Certificate

When you start a new job, your employer will ask you to fill out Form W4. You must give completed Form W4 to your employer. You may get Form W4 from your employer or download this form from the IRS site.

The purpose of the form is to tell your employer how much tax they should withhold from your pay check. The amount of income tax your employer withholds from your regular pay depends on the amount you earn and the information you give your employer on Form W4. If you claim more allowances on your W4, your employer will withhold less federal and state taxes from your pay check. And if you put less allowances on your W4 the employer will withhold more federal and state taxes from your pay check. However, the Social Security and Medicare taxes (or FICA taxes) don't depend upon the allowance on your W4; they are deducted at a fixed percentage rate. The Social Security tax is 6.2% of the first $102,000 in wages for 2008 (or $97,500 of wages in 2007) and the Medicare tax is 1.45% of all wages.

If during the year there is a change in your marital status or the exemptions, adjustments, deductions or credits you expect to claim on your tax return, you may need to give your employer a new Form W-4 to change your withholding status or number of allowances.
Information of W-4.

Form W-4 includes three types of information that your employer will use to figure your withholding.
1. Whether to withhold at the single rate or at the lower married rate. (line 3 of W-4).
2. How many withholding allowances you claim. Each allowance reduces the amount withheld. (line 5 of W-4).
3. Whether you want an additional amount withheld. (line 6 of W-4).

Claiming Exemption from Withholding
You can claim exemption from withholding (line 7 of W-4) if
1. Last year you had a right to a refund of all federal income tax withheld because you had no tax liability and
2. This year you expect a refund of all federal income tax withheld because you expect to have no tax liability.

If some one can claim you as a dependent, then you can’t claim the Exempt status if your income exceeds $900 in 2008 and includes more than $300 of unearned income.

When you write Exempt on line 7 of Form W-4 and sign the form, your employer will not withhold federal and state income tax from your pay check. They will still withhold Social Security and Medicare Taxes and other State taxes. Claiming exempt on your W-4 does not mean that you are exempt from federal tax or state tax if you have taxable income. It only means that employer will not withhold any income taxes from your paycheck.

Personal Allowances Worksheet
Form W-4 has a Personal Allowances Worksheet to help figure out the number of allowance you should claim on your W-4. The worksheet has lines A to H. The worksheet is self explanatory and easy to complete. Once you complete this worksheet as per your own information, you will get reasonably accurate figure for the allowances you should claim.

Withholding Tax and Your Tax Return
Withholding tax is not the same as paying tax as per your tax return. Normally on or before January 31st of the next year, your employer will send you a form W-2 Wages and Tax Statement. The form shows your total income and the amounts of various taxes withheld from your wages. The information includes Social Security tax, Medicare tax, Federal Income Tax, State Income Tax, other State taxes.

Every year, if your income exceeds the filing requirements, you must file your federal and state income tax returns on or before the due date. The due date to file 2007 income tax return is April 15, 2008. On the return you must report all your income for the year. The income includes your total wages as reported on from W2. Based on your incomes and deductions you will compute your taxable income and the federal income tax and state income tax on the income.

Now you will also figure out how much tax you have already paid, which is equal to withholdings as reported on W2 and 1099 forms, your estimated tax payments and all other tax payments. If you have paid more federal taxes than your federal tax liability as per your return, then you will get a refund. If you paid less federal taxes than your federal tax liability as per your return, then you must pay it, and you may even have to pay interest and penalty.

Penalties for False Information
You may have to pay a penalty of $500 if both of the following apply.
1. You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld.
2. You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4.

There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both.

These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. A simple error, an honest mistake, will not result in one of these penalties. For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a W-4 penalty.
More info : http://www.irs.gov/individuals/article/0,,id=139412,00.html

More Articles:
Your Filing Status
1. Filing Status for Married
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Filing W4 Employee’s Withholding Allowance Certificate
Income Adjustments -- Retirement Plans
1. Trad IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
Your Deductions
1. Itemized Deductions
2. Moving Expenses
3. Student Loan Interest Deduction
Complete List of Articles

Any Question?
If you have a question, send me an email: ustaxfiling@gmail.com
Forum on India Taxes: http://www.mytaxes.in/
Ask, Answer & Discuss.

Are You Eligible for 2008 Stimulus Tax Rebate Payment?

IRS began the transfer of economic stimulus payments from April 28, 2008. The IRS will use the 2007 tax return to determine eligibility and calculate the basic amount of the payment. The rebate payment will equal the amount of tax liability on the return (tax liability on the return Form 1040 line 46 or Form 1040A line 28) with a minimum amount of $300 and a maximum amount of $600 for individuals. The taxpayers who file a joint return and are found eligible for rebate will get a minimum amount of $600 and maximum amount of $1,200.

You must file their 2007 individual income tax return even if their income is below the filing requirement. It means that millions of people in this group who normally don’t file a tax return will need to do so this year in order to receive a stimulus payment. If you have missed the April 15, 2008 due date for filing thetax return, you must file your 2007 tax return on or before October 15, 2008 to get your stimulus rebate.

Stimulus payments will be direct deposited for taxpayers selecting that option when filing their 2007 tax returns. Those you did not opt for direct deposit will get check in mail. However, taxpayers who use Refund Anticipation Loans (RALs) or enter into any other loan or financial agreement with their tax professional cannot receive their stimulus payments by direct deposit and instead will get a paper check.

Payment Schedule
IRS has begun to transfer of economic stimulus payments from April 28, 2008, so some of you will already see payments in their bank accounts. Early filers, who opted for direct deposit will be the first to get the rebate. Mailing of paper check will begin from May 16.

If the IRS finishes processing your return by April 15, you will most likely get your payment based on this schedule. For this initial batch of stimulus payments, the payment date will be based on the last two digits of your Social Security Number.

Basic Eligibility
To be eligible, the taxpayer must have $3,000 or more in qualifying income. Individuals who have less than $3,000 of qualifying income are not eligible for the stimulus payment. For the purpose of the stimulus payments, qualifying income consists of earned income such as wages and net self-employment income as well as Social Security or certain Railroad Retirement benefits and veterans’ disability compensation, pension or survivors’ benefits received from the Department of Veterans Affairs in 2007.

However, dividends, interest and capital gains income and Supplemental Security Income (SSI) does not count as qualifying income for the stimulus payment. Also not included in qualifying income are non-veterans or non-Social Security pension income (such as those from Individual Retirement Accounts).

Additional Payments for Parents and Others with Qualifying Children
Parents and anyone else eligible for a stimulus payment will also receive an additional $300 for each qualifying child. To qualify, a child must be eligible under the Child Tax Credit and have a valid Social Security number. For child tax credit, the child must be under age 17 at the end on the year.

Limitation
To be eligible for a stimulus payment, taxpayers must have valid Social Security numbers. Both individuals listed on a married filing jointly return must have valid Social Security numbers. The taxpayer without a valid Social Security number or with an ITIN, ATIN or any other identification number issued by the IRS is not eligible for this payment.

Eligibility for the stimulus payment is subject to maximum income limits. The payment, including the basic amount and the amount for qualifying children, will be reduced by 5 percent of the amount of income in excess of $75,000 for individuals and $150,000 for those with a Married Filing Jointly filing status.
Also ineligible are individuals who can be claimed as dependents on someone else’s return.

Special Circumstances for Recipients of Social Security, Railroad Retirement and Certain Veterans Benefits
Individuals who receive Social Security benefits, Railroad Retirement benefits and certain veterans’ benefits may have to follow special filing requirements in order to receive the basic amount. The IRS has released a special version of a Form 1040A that highlights the simple, specific sections of the return that can be filled out by people in these categories to qualify for a stimulus payment.

Those who have already filed a 2007 return reflecting qualifying income of $3,000 or more do not have any additional filing requirements. Those who have already filed a 2007 return showing less than $3,000 in qualifying income and did not list their Social Security, Railroad Retirement or certain veterans benefits should file a Form 1040X to list those non-taxable benefits and qualify for a payment.

Those who are not required to file a 2007 return but whose total qualifying income including Social Security, certain Railroad Retirement and certain Veterans benefits would equal or exceed $3,000 should file a return reporting these benefits on Line 14a of Form 1040A or Line 20a of Form 1040 to establish their eligibility. The form lines just mention Social Security, but use these lines even if your only benefits were Railroad Retirement or veterans’ benefits.

Filing Form 1040A
1. Write the words “Stimulus Payment” across the top of the form.
2. On Form 1040A line 7, include the self-employed or a partner income amount you would enter on Schedule SE, line 3.
3. On Form 1040A line 14a (Social security benefits) include social security, tier 1 railroad retirement, and veterans disability and death benefits.

Is my stimulus payment taxable or refundable?
No it is non-taxable income and you don’t have to refund it back. But you will report the amount you received in your 2008 tax return. If you did not receive full amount of $600 now, then you may get the balance amount when you file your 2008 return, and you become eligible for the tax rebate.

The 2008 tax instructions will include a worksheet to help those who did not qualify for a payment or those who received a reduced amount determine if they can obtain a benefit when they file their 2008 tax returns next year.
For more information on Stimulus Tax Rebate, read Frequently Asked Questions

List of Articles
Your Filing Status
1. Filing Status for Married
2. Filing Status: Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed
3. Filing W4 Employee’s Withholding Allowance Certificate
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Mandatory Reporting of Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Student Loan Interest Deduction
3. Itemized Deductions
Income Adjustments -- Retirement Plans
1. Trad IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
Status of Your Tax Refund
1. When will I get my tax refund?
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2008 Economics Stimulus Act
1. Are You Eligible for 2008 Stimulus Tax Rebate Payment?
2. 2008 Economics Stimulus Act -- Benefits to Businesses

Tax for Aliens
1. U.S. Tax Filing Requirements for Non-Residents
2. Substantial Presence Test
3. Social Security and Medicare (FICA) Taxes for Non-resident Exempt Individual
4. U.S. Tax Treaties for Professors, Teachers and Researchers
5. U.S. Tax Treaties for Students and Apprentices
6. The U.S. Visas

Visit forum on India Taxes: http://www.mytaxes.in/ and
ask a question on India Taxes