This section summarizes important changes that could affect your estimated tax payments for 2008.
Work opportunity tax credit. The work opportunity tax credit has been modified and extended through August 31, 2011. See Publication 954, Tax Incentives
for Distressed
Communities, for more information.
Personal exemption and itemized deduction phaseout. The amount by which these deductions are reduced in 2008 will be one-half of the reduction that applied in 2007. These reductions
are reflected in
Worksheets 2 and 3.
Capital gain tax rate reduced. The 5% capital gain tax rate is reduced to zero. This is reflected in Worksheet 5.
Clean renewable energy bonds. The credit for clean renewable energy bonds has been extended to bonds issued before December 31, 2008.
Forgiveness of mortgage debt. A law was just passed that may allow you to exclude from income part or all of the mortgage debt forgiven on your principal
residence. This applies
for debt forgiven in 2007 through 2009. See Publication 553, Highlights of 2007 Tax Changes, for more details.
Volunteer firefighters and emergency medical responders. Certain qualified payments and other state and local tax benefits are not included in taxable income. For more information,
see Publication 553.
Insurance premiums for retired public safety officers. Beginning in 2007, if you are an eligible retired public safety officer, you may be able to exclude from your income the amount
paid for certain
insurance premiums. See Insurance Premiums for Retired Public Safety Officers, later.
Credit or exclusion for adoption benefits increased. The maximum adoption credit has increased to $11,650. The maximum exclusion from income for benefits received under an employer's
adoption
assistance program has increased to $11,650. These amounts are phased out if your modified adjusted gross income (AGI) is
between $174,730 and
$214,730. You cannot claim the credit or exclusion if your modified AGI is $214,730 or more.
Special rule for sales of principal residences by surviving spouses. A surviving spouse who sells his or her principal residence within 2 years after the spouse's date of death may be allowed
to exclude up to
$500,000 of qualified gain instead of $250,000. See Publication 553 for more information.
Earned income credit (EIC). You may be able to take the EIC if:
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A child lived with you and you earned less than $38,646 ($41,646 if married filing jointly), or
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A child did not live with you and you earned less than $12,880 ($15,880 if married filing jointly).
The maximum investment income you can have and still get the credit has increased to $2,950.
For more information, see Publication 596, Earned income Credit (EIC).
Retirement savings plans. The following paragraphs highlight changes that affect individual retirement arrangements (IRAs) and pension plans. For more
information, see
Publication 590, Individual Retirement Arrangements (IRAs).
Traditional IRA deduction limits increased. You and your spouse, if filing jointly, each may be able to deduct up to $5,000 ($6,000 if
age 50 or older at the end of the year). You may be able to take an IRA deduction if you were covered by a retirement plan
at work and your 2008
modified adjusted gross income (AGI) is less than $63,000 ($105,000 if married filing jointly or a qualifying widow(er)).
Retirement savings contributions credit. For 2008, you may be able to claim this credit if your modified AGI is not more than $26,500
($53,000 if married filing jointly, $39,750 if head of household).
Standard mileage rates. Beginning in 2008, the standard mileage rate for the cost of operating your car is:
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50½ cents a mile for all business miles driven,
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19 cents a mile for the use of your car for medical reasons,
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19 cents a mile for the use of your car for a deductible move, and
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14 cents a mile for the use of your car for charitable reasons.
Tax on child's investment income. Form 8615 will be required to figure the tax for the following children with investment income of more than $1,800.
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Children under age 18 at the end of 2008.
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The following children if their earned income is not more than half their support.
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Children age 18 at the end of 2008.
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Children over age 18 and under age 24 at the end of 2008 who are full-time students.
The election to report a child's investment income on a parent's return and the special rule for when a child must file Form
6251, Alternative
Minimum Tax—Individuals, also will apply to the children listed above.
Extended Tax Benefits.
Expired Tax Benefits.
Legislation during 2008 may extend one or more of the following benefits. For the latest information, go to www.irs.gov,
and click on
More Forms and Publications, and then on What's Hot in forms and publications.
The following tax benefits expired and, unless extended, will not apply for 2008.
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Deduction for educator expenses in figuring AGI.
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Tuition and fees deduction.
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The exclusion from income of qualified charitable distributions.
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Credit for nonbusiness energy property.
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District of Columbia first-time homebuyer credit (for homes purchased after 2007).
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Deduction for state and local general sales tax.
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The election to include nontaxable combat pay in earned income for the EIC.
The federal income tax is a pay-as-you-go tax. This means 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 Form W-4 to adjust your withholding.
When you
first begin a job, you must complete 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.
Note.
If you have not changed jobs, you 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.
Nonresident aliens.
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.
Comments and suggestions.
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
SE:W:CAR:MP:T:I
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
*[email protected]. (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.
Ordering forms and publications.
Visit
www.irs.gov/formspubs 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.
National Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903
Tax questions.
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.