A Guide to Personal Income Tax Credits

Transcription

1 A Guide to Personal Income Tax Credits William Donald Schaefer Comptroller of Maryland

2 To the Taxpayers of Maryland: I am pleased to present this first edition of A Guide to Personal Income Tax Credits, a companion to the Maryland Comptroller s Guide to Business Tax Credits and the Tax Tips series. All of these publications are available on our Web site, marylandtaxes.com, or at any of our branch offices. This booklet has been prepared in response to those who have asked for a concise source of information about personal tax credits offered by the state of Maryland. It is part of an overall effort by my office to collect taxes efficiently and to make it easy for Maryland citizens to pay them. As regulations relating to these credits are changed or new credits are added we will publish revisions of A Guide to Personal Income Tax Credits. Please let us know how future editions might be improved. Sincerely, William Donald Schaefer Comptroller of Maryland 3

3 a guide to Personal Income Tax Credits This booklet provides a brief summary of tax credits available to individuals in Maryland. Some may have additional requirements or carry over or recapture provisions that are not included in this booklet. If the certification of a credit is required from an agency other than the Comptroller of Maryland, contact that agency before filing. This booklet is intended as a general guide and not to replace the advice of a tax professional. TABLE OF CONTENTS Credit Page Aquaculture Oyster Float Credit... 6 Child and Dependent Care Credit... 7 Clean Energy Incentive Credit Earned Income Tax Credit Heritage Structure Rehabilitation Tax Credit Income Taxes Paid to Other States Credit Long-Term Care Insurance Credit Neighborhood Stabilization Credit Poverty-Level Credit Preservation and Conservation Easements Credit Quality Teacher Incentive Credit See page 27 for a list of credits that are available to businesses, which are covered in A Guide to Business Tax Credits. 5

4 6 A GUIDE TO PERSONAL INCOME TAX CREDITS Aquaculture Oyster Float Credit Description: A taxpayer who purchases an aquaculture oyster float on or after July 1, 2002, may be entitled to a credit of up to $500. An aquaculture oyster float is designed to grow oysters to help restore the oyster population in certain bodies of water. To qualify for the credit: The new float must be purchased on or after July 1, The float must be specifically designed to grow oysters at or under a homeowner s pier. The float must be buoyant and assist in the growth of oysters for the width of the pier. Credit must be claimed on Maryland Form 502, 505 or 515. The credit cannot be claimed on any short forms (Forms 123 or 503). Complete Form 502CR, Part D. How the credit is calculated: The credit is 100% of the purchase price of the float or $500, whichever is less. If the credit is more than the tax liability: The unused credit may not be carried forward to another tax year. Documentation required: A copy of Form 502CR must be mailed with the Maryland return. For more information, contact: Revenue Administration Division Comptroller of Maryland Annapolis, MD (410) MD-TAXES taxhelp@comp.state.md.us

5 Child and Dependent Care Credit Description: Taxpayers who take a credit on their federal income tax returns for child or dependent care expenses may be eligible for a credit against their state income tax. This credit is in addition to the subtraction modification allowed for child and dependent care expenses for tax years 2000 and later. To qualify for the credit: The federal adjusted gross income (FAGI) must be $50,000 or less. If the taxpayer is married and filing a separate return, the FAGI must be $25,000 or less. File Maryland Form 502, 505 or 515 to claim the credit. The credit cannot be claimed on any short forms (Forms 123 or 503). Complete Form 502CR, Part B. How the credit is calculated: The credit is a percentage of the child and dependent care credit that the taxpayer is entitled to on his or her federal income tax return. The percentage will decline as FAGI increases. Once FAGI reaches the amount set forth above, no credit may be claimed. The tables on the next page are used to determine the percentage of the federal credit that can be claimed on the Maryland return. Find the decimal amount that applies to the FAGI using the appropriate table. Multiply FAGI by the decimal amount. Complete the Maryland return through the line labeled Maryland Tax, before completing Form 502CR, Part B. Nonresidents and part-year residents must prorate the credits based on the ratio of Maryland adjusted gross income to FAGI. Complete Form 502CR, following the instructions provided. continued 7

6 A GUIDE TO PERSONAL INCOME TAX CREDITS Federal Adjusted Gross Income For Taxpayers Not Filing Separately At least But less than Decimal amount $0 $41, $41,001 $42, $42,001 $43, $43,001 $44, $44,001 $45, $45,001 $46, $46,001 $47, $47,001 $48, $48,001 $49, $49,001 $50, $50,001 or over.0000 Federal Adjusted Gross Income For Married Taxpayer Filing Separately At least But less than Decimal amount $0 $20, $20,501 $21, $21,001 $21, $21,501 $22, $22,001 $22, $22,501 $23, $23,001 $23, $23,501 $24, $24,001 $24, $24,501 $25, $25,001 or over.0000 continued 8

7 If the credit is more than the tax liability: The unused credit may not be carried forward to another tax year. Documentation required: A copy of Form 502CR must be mailed with the Maryland return. For more information, contact: Revenue Administration Division Comptroller of Maryland Annapolis, MD (410) MD-TAXES taxhelp@comp.state.md.us 9

8 10 A GUIDE TO PERSONAL INCOME TAX CREDITS Clean Energy Incentive Credit Description: Individuals who purchase and install solar water heating property or photovoltaic property may be entitled to income tax credits. For property placed in service after June 30, 2000, and before January 1, To qualify for the credit: Individuals must purchase and install photovoltaic property or solar water heating property during the tax year. File Maryland Form 502, 505 or 515 to claim the credit. The credit cannot be claimed on any short forms (Forms 123 or 503). Complete Form 502CR, Part G. How the credit is calculated: There are separate calculations for each credit depending on the type of property purchased. Photovoltaic property: The credit equals the lesser of 15% of the total installed cost or $2,000 for each system. Solar water heating property: The credit equals the lesser of 15% of the total installed cost or $1,000 for each system. If the credit is more than the tax liability: The unused credit may not be carried forward to another tax year. Documentation required: A copy of Form 502CR must be mailed with the Maryland return. For more information, contact: Revenue Administration Division Comptroller of Maryland Annapolis, MD (410) MD-TAXES taxhelp@comp.state.md.us

9 Earned Income Tax Credit Description: Individuals who take the federal earned income tax credit may be entitled to a credit on their Maryland income tax returns. A separate credit is allowed against both the state and local income tax liabilities. The credit will either reduce or eliminate the income tax liabilities. If the Maryland earned income tax credit is higher than the Maryland tax liability, the taxpayer may be entitled to a refund. To qualify for the credit: Qualify for, and claim, an earned income tax credit on the federal return. Refunds can be claimed even if an individual is not required to file a Maryland tax return. For the refund of any excess of the credit over the state tax liability, the individual must have at least one dependent who can be claimed as an exemption. How the credit is calculated: The credit is calculated as 50% of the earned income credit claimed on the federal return. A worksheet is included in the tax booklet (State Earned Income Worksheet) to help calculate the credit. If the credit is more than the Maryland tax liability, complete the Refundable Earned Income Credit Worksheet, which is also in the tax booklet. The refundable earned income credit is calculated as 16% of the federal earned income credit, less the state income tax liability. If this amount is zero or less, no refund is due. A Maryland resident taking a state earned income credit can also take a local income tax credit. Complete the Local Earned Income Credit Worksheet included in the tax booklet. Nonresidents and part-year residents must prorate their credits based on the ratio of Maryland adjusted gross income to federal adjusted gross income. continued 11

10 A GUIDE TO PERSONAL INCOME TAX CREDITS Do not claim the credit on Form 123 (Maryland Special Refund Request). Instead, use Forms 502, 503, 505 or 515. Enter the state, local and refundable earned income credit amounts on the three separate lines provided on the Maryland return. If the credit is more than the tax liability: The unused state credit may not be carried forward to any other tax year. The refundable portion of the state credit may be refunded for individuals with dependents. The unused local income tax credit may not be refunded or carried forward to any other tax year. Documentation required: Only the Maryland income tax return is required. For more information, contact: Revenue Administration Division Comptroller of Maryland Annapolis, MD (410) MD-TAXES Questions about the federal earned income tax credit should be directed to the Internal Revenue Service, or irs.gov. 12

11 Heritage Structure Rehabilitation Tax Credit Description: A credit of up to $3 million may be allowed for substantial expenditures incurred in a 24-month period to rehabilitate a certified heritage structure located in Maryland. The credit is available for owner-occupied residential property, as well as income-producing property. Most forms of state or local government resources cannot be used to finance a rehabilitation project. To qualify for the credit: Submit a Heritage Preservation Certification application to the Maryland Historical Trust (MHT). Rehabilitate a certified heritage structure located in Maryland. Spend at least $5,000 for owner-occupied residential property. For all other property, spend more than the adjusted basis of the structure or $5,000, whichever is greater. After certification by the MHT, the approved form will be returned. A copy of Part 3 of the certification must accompany the Maryland income tax return. File Maryland Form 502, 505 or 515 to claim the credit. The credit cannot be claimed on any short forms (Forms 123 or 503). Complete the appropriate areas of Form 502H and Form 502CR, Parts H and J. How the credit is calculated: The credit is based on the lesser of $3 million or a percentage of the total expenditures incurred during the taxable year. Those percentages are: Tax year % Tax year % Tax years % Tax years 2002 and later 20% continued 13

12 A GUIDE TO PERSONAL INCOME TAX CREDITS Subsequent non-qualifying work done to the structure may require the recapture of a portion of any credits allowed in previous tax years. If an application for the rehabilitation of a commercial structure was submitted to the MHT on or before February 1, 2002, the credit allowed is 25% of approved expenditures and is not subject to the $3 million limitation. Structures other than owneroccupied single-family residential structures are considered commercial for purposes of this credit. If the credit is more than the tax liability: For most rehabilitations certified after June 30, 2001, the unused credit may be refunded. For those not eligible for a refund, the unused credit may be carried forward for the next 10 tax years. Documentation required: Copies of Form 502CR, 502H and certification from the MHT (Part 3) must be mailed with the Maryland return. For more information, contact: Maryland Historical Trust 100 Community Place Crownsville, MD (410) (800) goodrow@dhcd.state.md.us 14

13 Income Taxes Paid to Other States Credit Description: Residents of Maryland who have income taxed by another state may be entitled to a credit. To qualify for the credit: First, file a tax return with the other state which properly shows a tax liability. A credit is allowed on the Maryland return if taxes are paid on wages earned in another state (exceptions listed below) or on certain other income from any other state (business income, farm income, rental income, gain from the sale of real or other tangible property, etc.). For certain states, when the reciprocal agreement applies, no credit may be claimed for tax paid on wages only. These reciprocal states are: Pennsylvania, Virginia, West Virginia and the District of Columbia. A Maryland resident should file a return with the other state only to obtain a refund of any taxes withheld or paid as estimated taxes in error to that state. NOTE: This provision only applies when the reciprocal agreement applies. With the exception of West Virginia, a Maryland resident could be in the other jurisdiction for more than 183 days and be subject to tax on all of higher income. Maryland would allow credit. If a state has no personal income tax, a credit cannot be claimed. States without a personal income tax are: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. A credit is also allowed for tax paid to another state when a gain is recognized in the current year on the federal return, but was taxed by another state in an earlier year. The gain must have resulted from the sale of a personal residence located in another state or from an installment sale. The credit equals the amount of the gain multiplied by 4.7 percent or the personal income tax rate in the other state in the year in which the state taxes the gain, whichever is less. continued 15

14 A GUIDE TO PERSONAL INCOME TAX CREDITS Nonresident taxpayers may not claim this credit. If, for income tax purposes, the filer is treated as a resident for both Maryland and another state (known as a dual resident ), he or she must take the credit in the state of domicile. File a Maryland Form 502 (504 for fiduciaries); the credit cannot be taken on any short form (Forms 123 or 503). Complete Form 502CR, Part A. Fiduciaries must take the credit on Form 504. How the credit is calculated: Complete the return for the other state and the Maryland return (Form 502) through line 24 (Maryland tax), before completing Form 502CR, Part A. Complete Form 502CR, following the instructions provided on the form using the Maryland return and the return filed with the other state. A separate Form 502CR is required for each state. If the credit is more than the tax liability: The unused credit may not be carried forward to any other tax year. Documentation required: Copies of Form 502CR and the other state s return must be mailed with the Maryland return. For more information, contact: Revenue Administration Division Comptroller of Maryland Annapolis, MD (410) MD-TAXES taxhelp@comp.state.md.us 16

15 Long-Term Care Insurance Credit Description: Purchasers of a long-term care insurance contract for themselves or for certain members of their family may be eligible for a credit of up to $500 for each insured. To qualify for the credit: The insured cannot have been covered by long-term care insurance before July 1, This tax credit must not have been claimed for the insured by the taxpayer or by anyone else in any tax year. The insured must be one of the following: the taxpayer or the taxpayer s spouse, parent, stepparent, child or stepchild. The insured must be a Maryland resident. File Maryland Form 502, 505 or 515 to claim the credit. The credit cannot be claimed on any short forms (Forms 123 or 503). Complete Form 502CR, Part E. How the credit is calculated: The credit is 100% of the premium paid for each long-term care contract during the tax year. Each credit cannot exceed certain amounts based on the age of the insured. Age Maximum credit for 2002* 40 or less $ to 50 $ and over $500 *adjusted annually Complete Form 502CR. continued 17

16 A GUIDE TO PERSONAL INCOME TAX CREDITS If the credit is more than the tax liability: The unused credit may not be carried forward to any other tax year. Documentation required: A copy of Form 502CR must be mailed with the Maryland return. For more information, contact: Revenue Administration Division Comptroller of Maryland Annapolis, MD (410) MD-TAXES taxhelp@comp.state.md.us 18

17 Neighborhood Stabilization Credit Description: Purchasers of homes in the Waverly section of Baltimore City, or in the Hillendale or Lansdowne sections of Baltimore County, may qualify for a tax credit. The credit is based on a property tax credit allowed by either Baltimore City or Baltimore County over a 10-year period. To qualify for the credit: The home must have been purchased during the period from July 1, 1996, through June 30, In Baltimore County, the home must have been purchased during the period July 1, 1996, through June 30, The home must be the taxpayer s primary residence. To be eligible for a property tax credit, the purchaser must apply for the credit with Baltimore City or Baltimore County within six months of purchase. File Maryland Form 502, 505 or 515 to claim the credit. The credit cannot be claimed on any short forms (Forms 123 or 503). Enter the amount certified by Baltimore City or Baltimore County on Line 1, Part H of Form 502CR. How the credit is calculated: The property tax credit is a percentage of the property taxes paid each year on the home. The income tax credit is equal to 100% of the property tax credit allowed during the tax year. Years after purchase Percentage deductible each year 1 to 5 40% 6 35% 7 30% 8 25% 9 20% 10 15% 11 and over 0% continued 19

18 A GUIDE TO PERSONAL INCOME TAX CREDITS The credit can be claimed in any tax year a property tax credit was allowed. Complete Form 502CR. If the credit is more than the tax liability: The unused credit may be refunded. Documentation required: A copy of the certification from Baltimore City or Baltimore County for the tax year and a copy of Form 502CR must be mailed with the Maryland return. For more information, contact: Revenue Administration Division Comptroller of Maryland Annapolis, MD (410) MD-TAXES taxhelp@comp.state.md.us Neighborhood Housing Services of Baltimore (for Baltimore County) 1055 Taylor Avenue Baltimore, MD (410) phull@nhsbaltimore.com 20

19 Poverty-Level Credit Description: If a person s income is below the poverty level, he or she may be entitled to an income tax credit. There are both state and local povertylevel credits. To qualify for the credit: Both earned income and federal adjusted gross income (plus any additional modifications) must be below certain amounts. Number of Exemptions Tax Year 2002 on Federal Return Income Level 1 $ 8,860 2 $11,940 3 $15,020 4 $18,100 5 $21,180 6 $24,260 7 $27,340 8 $30,420 For each additional exemption, add $3,080 to the income level. Do not claim the credit on Form 123 ( Maryland Special Refund Request) Instead, file on Forms 502, 503, 505 or 515. How the credit is calculated: Complete the Maryland return through the line labeled Maryland tax, before completing the Poverty Level Credit worksheets. Complete the State Poverty-Level Credit Worksheet and the Local Poverty-Level Credit Worksheet in the tax booklet. A nonresident or a part-year resident must prorate the credits based on the ratio of Maryland adjusted gross income to FAGI. The state and local credit amounts are entered on separate lines of the Maryland return. continued 21

20 A GUIDE TO PERSONAL INCOME TAX CREDITS If the credit is more than the tax liability: The unused credits may not be carried forward to any other tax year. Documentation required: Only the Maryland income tax return is required. For more information, contact: Revenue Administration Division Comptroller of Maryland Annapolis, MD (410) MD-TAXES 22

21 Preservation and Conservation Easement Credit Description: Donors of a perpetual easement to the Maryland Environmental Trust or the Maryland Agricultural Land Preservation Foundation may be entitled to an income tax credit. An easement must preserve open space, natural resources, agriculture, forest land, watersheds, significant ecosystems, view sheds or historic property. To qualify for the credit: An appraisal by a certified real estate appraiser of the fair market value of the property must be done before and after the donation. The easement must have been accepted and approved by the Maryland Board of Public Works after June 30, File Maryland Form 502, 504, 505 or 515 to claim the credit. The credit cannot be claimed on any short forms (Forms 123 or 503). Complete Form 502CR, Part F, to calculate any credit. Fiduciaries will complete the preservation and conservation easements worksheet in the tax return booklet for Form 504. How the credit is calculated: The credit is the difference between the value of the property before and after the donation, less any amounts received for the easement. For any taxable year, each owner is entitled to a credit equal to the lesser of $5,000 or the state income tax for that year. Complete the Maryland return through the line labeled Maryland tax, before completing Form 502CR, Part F. If the credit is more than the tax liability? Any unused credit may be carried forward for up to 15 years, subject to $5,000 or state income tax limitations. continued 23

22 A GUIDE TO PERSONAL INCOME TAX CREDITS Documentation required: A copy of Form 502CR must be mailed with the Maryland return. For more information, contact: Maryland Environmental Trust 100 Community Place Crownsville, MD (410) dnr.state.md.us/met Maryland Agricultural Land Preservation Foundation 50 Harry S. Truman Parkway Annapolis, MD (410) conradja@mda.state.md.us 24

23 Quality Teacher Incentive Credit Description: Public school teachers who pay tuition during the tax year for graduate-level courses to maintain certification may be entitled to an income tax credit. To qualify for the credit: An individual must be employed by a county board of education, including Baltimore City, and be a classroom teacher in a public school. The teacher must hold a standard professional certificate or an advanced professional certificate. The teacher must have completed one or more graduate-level courses with a grade of B or better. The courses taken must be required to maintain certification. The cost of the courses must exceed any amount reimbursed by the county. File Maryland Form 502, 505 or 515 to claim the credit. The credit cannot be claimed on any short forms (Forms 123 or 503). Complete Form 502CR, Part C. How the credit is calculated: The credit is 100% of the unreimbursed amount of tuition paid, or $1,500, whichever is less. A credit of up to $1,500 is allowed for each individual. On a joint return, up to $3,000 is allowed if each spouse qualifies for the credit. Complete Form 502CR. continued 25

24 A GUIDE TO PERSONAL INCOME TAX CREDITS If the credit is more than the tax liability: The unused credit may not be carried forward to any other tax year. Documentation required: A copy of Form 502CR must be mailed with the Maryland return. For more information, contact: Revenue Administration Division Comptroller of Maryland Annapolis, MD (410) MD-TAXES taxhelp@comp.state.md.us 26

25 Business Tax Credits Information about business tax credits named below can be found in A Guide to Business Tax Credits. The guide is available on the Internet at marylandtaxes.com, by calling MDTAXES ( ) or at any one of the Comptroller s branch offices located through marylandtaxes.com. Businesses that Create New Jobs Credit Clean Energy Incentive Tax Credit Commuter Benefits for Employees Tax Credit Electric and Gas Utility Tax Credit Employer-Provided Long-Term Care Insurance Credit Employment of Individuals with Disabilities Tax Credit Employment Opportunity Tax Credit Enterprise Zone Tax Credit Long-Term Employment of Qualified Ex-Felons Tax Credit Heritage Structure Rehabilitation Tax Credit Job Creation Tax Credit Maryland-Mined Coal Tax Credit Neighborhood Partnership Program Tax Credit One Maryland Economic Development Tax Credit Research and Development Tax Credit Telecommunications Property Tax Credit Water Quality Improvement Credit Work-Based Learning Program Credit 27

26 A GUIDE TO PERSONAL INCOME TAX CREDITS For additional copies, questions or comments, contact TTY users call via Maryland Relay at 711 in Maryland or To request accommodations for a disability before visiting a branch office or for information in an alternate format, please contact us. This booklet is also available on the Internet at marylandtaxes.com 28