You may be entitled to an economic stimulus payment of up to $600 ($1,200 if married filing jointly). To get your payment, you only need to file a 2007 individual income tax return (Form 1040, 1040A, or 1040EZ). The IRS will determine whether you are eligible, figure the amount, and send you the payment. The IRS will begin sending the one-time payments in May 2008. The economic stimulus payment is in addition to any 2007 income tax refund, which will be made separately from this one-time payment.

Generally, the payment cannot be more than your 2007 net income tax liability (your regular tax liability plus any alternative minimum tax (AMT), minus any nonrefundable credits you claimed other than the child tax credit). However, your payment will be at least $300 ($600 if married filing jointly) if you meet either of the following two conditions:

If you meet either of these conditions, you can also get an additional $300 for each of your children who is a qualifying child for the child tax credit.

You may be eligible to get a payment of $300 ($600 if married filing jointly) even if you are not required to file a return. However, you must file a return to get your payment.

To be eligible, you and your spouse each must have a valid social security number. To get the additional $300 payment for a child, the child must have a valid social security number. You are not eligible to get a payment if you can be claimed as a dependent of another taxpayer, or if you file Form 1040NR, 1040NR-EZ, 1040-PR, or 1040-SS.

If your 2007 adjusted gross income (AGI) is more than $75,000 ($150,000 if married filing jointly), your payment will be reduced by 5% of your AGI in excess of that amount.

If you qualify to receive an economic stimulus payment, you will receive a notice shortly before the payment is made. For more information, visit the IRS website at www.irs.gov and click on “Rebate Questions?” at the top of the page.

The following changes to the AMT went into effect for 2007. For more information, see Form 6251, Alternative Minimum Tax—Individuals, and its instructions.

Car expenses and use of the standard mileage rate are explained in chapter 4 of Publication 463, Travel, Entertainment, Gift, and Car Expenses.

The following paragraphs explain the changes to the credit for 2007. For details, see Publication 596, Earned Income Credit (EIC).

The standard deduction for people who do not itemize deductions on Schedule A (Form 1040) is, in most cases, higher for 2007. The amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another person. The 2007 Standard Deduction Tables are shown in Publication 501, Exemptions, Standard Deduction, and Filing Information.

The following changes apply for 2007.

You may be able to exclude from gross income a discharge of qualified principal residence indebtedness (defined below). This exclusion applies to discharges made after 2006 and before 2010. Additionally, the basis of your principal residence must be reduced (but not below zero) by the amount excluded from gross income. To claim the exclusion, you must file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), with your tax return.

The following paragraphs explain the changes to charitable contributions for 2007. For details, see Publication 526, Charitable Contributions.

Beginning in 2007, in order to claim the tuition and fees deduction, you must complete Form 8917 and file it with Form 1040 or Form 1040A. Previously, a worksheet was provided to help taxpayers figure the amount of the deduction. See Form 8917 and chapter 6 of Publication 970, Tax Benefits for Education, for more information about the tuition and fees deduction.

For 2007, the amount of the student loan interest deduction is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified AGI is between $110,000 and $140,000. You cannot take the deduction if your modified AGI is $140,000 or more.

For all other filing statuses, your student loan interest deduction is phased out if modified AGI is between $55,000 and $70,000. You cannot take a deduction if your modified AGI is $70,000 or more. For more information, see chapter 4 in Publication 970.

For 2007, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified AGI is between $47,000 and $57,000 ($94,000 and $114,000 if you file a joint return). You cannot claim an education credit if your modified AGI is $57,000 or more ($114,000 or more if you file a joint return). For more information, see chapters 2 and 3 in Publication 970.

For 2007, the minimum earned income amount used to figure the additional child tax credit has increased to $11,750.

You may be able to deduct mortgage insurance premiums you paid after 2006 and before 2011. The mortgage insurance must be paid in connection with home acquisition debt and the mortgage insurance contract must have been issued after 2006. You can deduct mortgage insurance premiums on Schedule A (Form 1040), line 13.

For more information, see the instructions for Schedule A (Form 1040).

If your AGI is above a certain amount, you may lose part of your itemized deductions. In 2007, this amount is increased to $156,400 ($78,200 if married filing separately). See the instructions for Schedule A (Form 1040), line 29, for more information on figuring the amount you can deduct.

For more information on HSAs, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.

The following paragraphs explain the changes to the credit for 2007. For details, see Publication 503, Child and Dependent Care Expenses.

New definition of earned income.    When you figure your credit, your earned income can no longer include nontaxable employee compensation, such as voluntary salary deferrals or military basic quarters allowances. Generally, only taxable compensation is included. However, you can elect to include any nontaxable combat pay in earned income to figure your credit.

  

You can choose to include your nontaxable combat pay in earned income when figuring your credit, even if you choose not to include it in earned income for the earned income credit (EIC) or the exclusion or deduction for dependent care benefits.

For 2007, the maximum adoption credit has increased to $11,390. Also, the maximum exclusion from income for benefits under your employer's adoption assistance program has increased to $11,390. These amounts are phased out if your modified AGI is between $170,820 and $210,820. You cannot claim the credit or exclusion if your modified AGI is $210,820 or more. See Form 8839, Qualified Adoption Expenses, and its instructions for more information.

For 2007, the amount of your interest exclusion is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified AGI is between $98,400 and $128,400. You cannot take the deduction if your modified AGI is $128,400 or more.

For all other filing statuses, your interest exclusion is phased out if your modified AGI is between $65,600 and $80,600. You cannot take a deduction if your modified AGI is $80,600 or more. For more information, see chapter 9 in Publication 970.

For 2007, the maximum amount of qualified long-term care premiums you can include as medical expenses has increased. You can include qualified long-term care premiums, up to the amounts shown below, as medical expenses on Schedule A (Form 1040).

The limit on the exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract increased for 2007 to $260 per day. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other periodic basis under a life insurance contract because the insured is chronically ill.

Under this limit, the excludable amount for any period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts.

See Section C of Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, and its instructions for more information.

For MSA purposes, the minimum annual deductible of a high deductible health plan increased to $1,900 ($3,750 for family coverage). The maximum annual deductible of a high deductible health plan increased to $2,850 ($5,650 for family coverage). The maximum out-of-pocket expenses limit increased to $3,750 ($6,900 for family coverage).

The following changes to the credit for prior year minimum tax went into effect for 2007. For more information, see Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts, and its instructions.

If you were an employee but your employer treated you as an independent contractor, use new Form 8919 to figure and report your share of uncollected social security and Medicare taxes due on your wages. Do not use Form 4137, Social Security and Medicare Tax on Unreported Tip Income, for this purpose. By using Form 8919, your social security and Medicare taxes also will be credited to your social security record. For more information, see Form 8919.

The maximum amount of wages subject to the social security tax for 2007 is $97,500. There is no limit on the amount of wages subject to the Medicare tax.

This credit was available only on your 2006 return. If you filed but did not request it on your 2006 return, file Form 1040X, Amended U.S. Individual Income Tax Return, using a simplified procedure explained in its instructions to amend your 2006 return. If you were not required to file a 2006 return, see the 2006 Form 1040EZ-T, Request for Refund of Federal Telephone Excise Tax.

As a result of the Tax Technical Corrections Act of 2007, the following instructional changes apply when completing the 2007 Form 1040 (or Form 1040NR). The paper and online versions of Form 1040 (and Form 1040NR) and instructions will not be revised.

Musical compositions and copyrights in musical works are generally not capital assets. However, you can elect to treat these types of property as capital assets if you sell or exchange them in tax years beginning after May 17, 2006, and:

See chapter 4 in Publication 550, Investment Income and Expenses.

If you receive an award from the IRS for information you provided after December 19, 2006, that substantially contributes to the detection of violations of tax laws by the IRS, you may be able to deduct attorney fees and court costs paid by you in connection with the award as an adjustment to income, up to the amount of the award includible in your gross income.

You may qualify to exclude from income gain from the sale of vacant land you owned and used as part of your main home that was destroyed by Hurricanes Katrina, Rita, or Wilma, if you sell the vacant land within 3 years (instead of 2 years) from the date of destruction. For more information, see Publication 523, Selling Your Home.

If you own a cooperative apartment, you generally receive the same tax treatment as other homeowners. However, some special rules apply to you. In order for you to deduct your share of the corporation's deductible real estate taxes, the cooperative housing corporation in which you own shares must meet certain conditions. Those conditions were expanded for tax years ending after December 20, 2007. For those conditions, see Special Rules for Cooperatives in Publication 530, Tax Information for First-Time Homeowners.

If you are an employee of the intelligence community, you may be able to exclude from income a gain from selling your main home, even if you did not live in it for the required 2 years during the 5-year period ending on the date of sale. You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on qualified official extended duty as an employee of the intelligence community at a duty station located outside of the United States. This choice applies to any sale of a main home after December 20, 2006. For more information, see Members of the uniformed services or Foreign Service or employees of the intelligence community under Period of Ownership and Use in Publication 523.

If you are a judicial officer and you sell property at a gain after December 20, 2006, according to a certificate of divestiture issued by the Judicial Conference of the United States (or its designee) and purchase replacement property (permitted property) within 60 days after the sale, you may elect to defer part or all of the realized gain. This election also applies to sales by certain persons related to the judicial officer and to sales by trustees of certain trusts in which the judicial officer or related person has a beneficial interest.

You may have to pay a penalty if, after May 25, 2007, you file an erroneous claim for refund or credit. The penalty is equal to 20% of the disallowed amount of the claim, unless you can show a reasonable basis for the way you treated an item. The penalty will not be figured on any part of the disallowed amount of the claim that relates to the earned income credit or on which the accuracy-related or fraud penalties are charged.

If your check or money order for payment of tax is not honored by your bank (or other financial institution) and the IRS does not receive the funds, you still owe the tax. In addition, you may be subject to a dishonored check penalty equal to 2 percent of the amount of the check. However, if the check is less than $1,250, then the penalty is the lesser of $25 or the amount of the check.

The IRS has published a list of positions that are identified as frivolous. The penalty for filing a frivolous tax return is $5,000. A frivolous return is one that does not include enough information to figure the correct tax or that contains information clearly showing that the tax you reported is substantially incorrect. You will have to pay the penalty if you filed this kind of return because of a frivolous position on your part or a desire to delay or interfere with the administration of federal income tax laws. Also, the $5,000 penalty applies to other specified frivolous submissions. For more information and a list of positions identified as frivolous, see Notice 2008-14, 2008-4 I.R.B. 310, available at
www.irs.gov/irb/2008-04_IRB/ar12.html.

For 2008, you generally can claim a recovery rebate credit of up to $600 ($1,200 if married filing jointly). Generally, the credit cannot be more than your 2008 net income tax liability (your regular tax liability plus any AMT, minus any nonrefundable credits you claimed other than the child tax credit). However, your credit will be at least $300 ($600 if married filing jointly) if you meet either of the following two conditions:

If you meet either of these conditions, you can also get an additional $300 for each of your children who is a qualifying child for the child tax credit.

To be eligible, you and your spouse each must have a valid social security number. To get the additional $300 credit for a child, the child must have a valid social security number. You are not eligible to get a payment if you can be claimed as a dependent of another taxpayer, or if you file Form 1040NR, 1040NR-EZ, 1040-PR, or 1040-SS.

If your 2008 AGI is more than $75,000 ($150,000 if married filing jointly), your credit will be reduced by 5% of your AGI in excess of that amount.

The following changes to the AMT went into effect for 2008.

For tax years beginning after 2007, the 5% maximum tax rate on qualified dividends and net capital gain (the excess of net long-term capital gain over net short-term capital loss) is reduced to 0%. This reduction applies for both regular tax and AMT. The 15% maximum tax rate on qualified dividends and net capital gain has not changed.

The following paragraphs explain the changes to the credit for 2008.

The standard deduction for people who do not itemize deductions on Schedule A (Form 1040) is, in most cases, higher for 2008 than it was for 2007. The amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another person. The 2008 Standard Deduction Tables are shown in Publication 505, Tax Withholding and Estimated Tax.

The amount you can deduct for each exemption has increased to $3,500 for 2008.

You lose part of the benefit of your exemptions if your AGI is above a certain amount. The amount at which the phaseout begins depends on your filing status. For 2008, the phaseout begins at:

Beginning in 2008, you can lose no more than ⅓ of the dollar amount of your exemptions. In other words, each exemption cannot be reduced to less than $2,333.

See Publication 505 for more information on figuring the amount you can deduct.

For 2008, the amount of the student loan interest deduction is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified AGI is between $115,000 and $145,000. You cannot take the deduction if your modified AGI is $145,000 or more.

For all other filing statuses, your student loan interest deduction is phased out if modified AGI is between $55,000 and $70,000. You cannot take a deduction if your modified AGI is $70,000 or more. For more information, see chapter 4 in Publication 970.

Beginning in 2008, the following changes apply to the Hope and lifetime learning (education) credits. For more information, see chapters 2 and 3 in Publication 970.

For 2008, the minimum earned income amount used to figure the additional child tax credit has increased to $12,050.

If your AGI is above a certain amount, you may lose part of your itemized deductions. In 2008, this amount is increased to $159,950 ($79,975 if married filing separately). Beginning in 2008, the amount by which these itemized deductions are reduced is only ⅓ of the amount of the reduction that otherwise would have applied. See Publication 505 for more information on figuring the amount you can deduct.

For sales after 2007, the maximum exclusion on the sale of a main home by an unmarried surviving spouse is $500,000 if the sale occurs no later than 2 years after the date of the other spouse's death. However, this rule applies only if the requirements for joint filers relating to ownership and use were met immediately before the date of such death, and during the 2-year period ending on the date of such death, there was no sale or exchange of a main home by either spouse which qualified for the exclusion.

For 2008, the maximum adoption credit has increased to $11,650. Also, the maximum exclusion from income for benefits under your employer's adoption assistance program has increased to $11,650. These amounts are phased out if your modified AGI is between $174,730 and $214,730. You cannot claim the credit or exclusion if your modified AGI is $214,730 or more.

For 2008, the amount of your interest exclusion is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified AGI is between $100,650 and $130,650. You cannot take the deduction if your modified AGI is $130,650 or more.

For all other filing statuses, your interest exclusion is phased out if your modified AGI is between $67,100 and $82,100. You cannot take a deduction if your modified AGI is $82,100 or more. For more information, see chapter 9 in Publication 970.

For 2008, the maximum amount of qualified long-term care premiums you can include as medical expenses has increased. You can include qualified long-term care premiums, up to the amounts shown below, as medical expenses on Schedule A (Form 1040).

The limit on the exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract increases for 2008 to $270 per day. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other periodic basis under a life insurance contract because the insured is chronically ill.

Under this limit, the excludable amount for any period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts.

For Archer MSA purposes for 2008, the minimum annual deductible of a high deductible health plan increases to $1,950 ($3,850 for family coverage). The maximum annual deductible of a high deductible health plan increases to $2,900 ($5,800 for family coverage). The maximum out-of-pocket expenses limit increases to $3,850 ($7,050 for family coverage).

The following changes to the credit for prior year minimum tax go into effect for 2008.

For tax years beginning after 2007 and before 2011, gross income does not include:

A qualified volunteer emergency response organization is any volunteer organization organized and operated to provide firefighting or emergency medical services for persons in a state or local jurisdiction and required by written agreement with that state or local jurisdiction to furnish such services.

The maximum amount of wages subject to the social security tax for 2008 is $102,000. There is no limit on the amount of wages subject to the Medicare tax.

The social security and Medicare wage threshold for household employees is $1,600 for 2008. This means that if you pay a household employee cash wages of less than $1,600 in 2008, you do not have to report and pay social security and Medicare taxes on that employee's 2008 wages. For more information, see Social security and Medicare wages in Publication 926, Household Employer's Tax Guide.

In addition to those mentioned earlier, the following tax benefits have expired and will not apply for 2008.