IOWA INCOME TAX. Volunteer Training and Reference Book

Transcription

1 IOWA INCOME TAX 2009 Volunteer Training and Reference Book 1

2 Welcome Volunteers! Last year, over 27, Iowa tax returns were efiled by VITA and AARP volunteers in Iowa. The previous year, 25,000 Iowa returns were efiled. That is a phenomenal increase, and the need for free tax preparation services continues to grow. Thank you for volunteering your time and expertise! While much of the Iowa return follows along with the federal return, there are some differences. This training manual will teach you about the Iowa income tax return, it will give you hints on how and where to enter data into TaxWise software, and there are some exercises, to help you practice what you ve learned. The training book is broken into Steps, following the IA1040 form. Each student should have a copy of the Iowa Income Tax Booklet to use as a reference for this training, AND at your free tax preparation site. Completing this training will give you confidence that each and every Iowa return you prepare is accurate, and that your clients receive any and all tax benefits to which they are entitled. ENJOY THE TRAINING! WATCH FOR THESE ICONS THROUGHOUT THE BOOK: TAXWISE WILL CALCULATE: SEE INSTRUCTION BOOKLET: OUT OF SCOPE FOR VOLUNTEERS: PRACTICE: *If you see an asterisk *, this means that the line will populate automatically from input on the federal return. While it is not recommended that the federal VITA/TCE training manual be used as a reference at your site, due to the availability of other, more useful resources, it is recommended you keep this training book at your site for use as a reference, in addition to the 2009 Iowa Income Tax Booklet. Another valuable reference is the Iowa Expanded Instructions, available only online. If you do not have internet access at your site, you may wish to print off the multi-page document. 2

3 Step 1 Name/Address/Social Security Number Name and Address will carry over from Main Information page in TaxWise. If taxpayer or spouse is 65 or older on 12/31/09, check the box located directly above the Social Security Number boxes. (there is no box to check in TaxWise; Age is entered on the Main Information page) Social Security Number(s) will carry from federal return. Be sure to answer the question, Are your name and address the same as on last year s return? When married couples have different last names, answer NO to this question. This aids in the processing of the return. Also check NO if this is the first time you are filing an Iowa return.. County number and school district information must be provided to properly calculate any school district surtax on line 55. The county and school district to enter are the ones in which you lived on December 31, 2009 (f1 will bring up a listing in TaxWise, and the listing is also on the back pages of Iowa instruction booklet). This is not necessarily the district where your children attended school. Even if you do not have children, you must enter this number. Your voter registration card is a good reference for your school district. Military personnel should enter the county number of their Iowa residence, even if the service member is not physically present in Iowa on the last day of the tax year. Health insurance for dependent children: Both questions should be answered. Step 2 Filing Status Married taxpayers have the option of either filing jointly (status 2) or filing separately (statuses 3 or *4) on the Iowa return, no matter how they filed on the Federal return. If both have income, married couples may reduce their tax liability by using filing status 3 (or 4) rather than filing status 2. You should try both statuses to see which is most advantageous. *Iowa does not follow the Federal Injured Spouse rule. A taxpayer must use filing status 4 to avoid their refund being used to pay spousal debt. Also, when using Status 4, Iowa requires the spouse s income, in addition to the spouse s SSN, to be listed in Step 2. Same-sex marriage. See attachment A: Iowa Tax Treatment of Same Sex Marriages. Step 3 Exemption Credits Each personal exemption credit is $40, with the exception of the additional $20 credit for those 65 or older and/or blind. Remember: this comes over automatically, based on the birthdates input to the Main Information page. Dependents filing their own returns should claim a $40 personal exemption credit even though they are claimed as a dependent on another person s Iowa return. This will come over automatically from the Main Information page. 3

4 Step 4 Gross Income (All taxpayers, including nonresidents, report income from all sources) *Line 1: Report the same W-2 income as shown on your Federal income tax return. *Line 2: Interest income may be different than on the Federal return. For example, interest from U.S. Savings Bonds is not taxable to Iowa. If properly entered in TaxWise, this will carry over with correct amounts to Iowa return. See SCHEDULE B EXAMPLE (below). Line 3: Dividends may be different than on the Federal return, Note: Iowa Schedule B does not need to be completed unless the taxpayer reports more than $1,500 in interest or $1,500 in dividends. In rare situations, dividends may be different than on the federal return see instructions for more detail. Line 4: Alimony Received. Same as on federal return. Line 5: Business Income/(loss) from federal Schedule C or C-EZ *Line 6: Enter 100% of any capital gain or loss as reported on line 13 of your Federal Do not subtract any Iowa capital gain deduction on this line; it is deducted on line 23. Iowa tax law follows the Federal guidelines on the exclusion of gain on the sale of a principal residence. Line 7: Other gains(losses) from federal form Line 8: IRA distributions to military personnel called to active duty may be exempt. Refer to instructions for more detail. SCHEDULE B EXAMPLE Note that since this interest is taxable on the federal but not the Iowa return, a minus sign is entered next to the interest amount in the State adjustment column. When you go to the forms tree and select IA1040 pg. 1, you will see the $500 on a line below line 2, titled US Interest. Don t be fooled! Although the interest is there, it is not being added into total income. When you print out the IA1040, the interest will not be on the form. 4

5 NOTES: *Line 9: Pensions and annuities. Railroad Retirement benefits are not taxable on the Iowa return, and TaxWise will not carry RRB income over from the federal return. Do not subtract Iowa pension exclusion on this line; it is deducted on line 21. Line 10: Rents, royalties, partnerships, estates, etc. Line 11: farm income(loss) from federal Schedule F. Line 12: Enter the amount of unemployment compensation benefits that was taxable on your federal return with the following modifications: a. Add back any amount of unemployment compensation excluded on your federal return. (TaxWise instructions are pending at this time) Iowa has not coupled with the exclusion of the first $2,400 of unemployment compensation. b. Do not include unemployment compensation and sickness insurance benefits paid by the Railroad Retirement Board. *Line 13: Social Security. Iowa does not tax Social Security benefits in the same manner as the Internal Revenue Service. To compute the amount of Social Security benefits that are taxable to Iowa, complete the Iowa worksheet. Social Security. TaxWise will automatically calculate the taxable portion of Line 14: Other Income. *Other Income includes Gambling winnings and Jury Duty pay and all other income reported on line 21 of the Federal Following is also other income : a. Babysitting income not reported on federal Schedule C or C-EZ. b. Bonus depreciation adjustment from the IA 4562A (Iowa has not coupled with the increased section 179 expensing nor the 50% bonus depreciation. The section 179 limit for Iowa for 2009 is $133,000) c. Capital gains from installment sales in 2009 d. College Savings Iowa or Iowa Advisor 529 Plan e. Director s fees f. Drilling g. Executor s fees h. Gambling winnings i. Partnership income and/or S corporation income j. Refundable Iowa Credits k. Refunds l. Wells (See IA Instruction booklet for more information) 5

6 Step 5 Adjustments to Income (All taxpayers, including nonresidents, report adjustments from all sources) *Line 16. Payments to a ROTH IRA are not deductible. *Line 17 One half of self-employment tax Line 18: Do not include health insurance premiums that were paid on a pretax basis or taken on Schedule A. It is typically to your advantage to take the deduction on line 18 instead of Schedule A, due to the Schedule A reduction of medical and dental expenses by 7.5% of Federal AGI. Health insurance premiums include: Medicare Part B, Medicare Part D, Long-Term Care insurance, dental, vision, accident, hospitalization, etc. Taxwise will carry this over, if properly input onto the Sch. A Detail sheet *Line 19 Penalty on early withdrawal of savings *Line 20 Alimony paid Line 21: Iowa pension exclusion is up to $6,000 (single) and $12,000 (married). To take this exclusion you or your spouse must meet one of the following conditions: years of age or older on December 31, disabled, or 3. a surviving spouse or a survivor having an insurable interest in an individual who would have qualified for the exclusion in 2009 on the basis of age or disability. (Efilers - in Taxwise software, you must check box 1 on 1099R see f1 help... in order for TaxWise to calculate the pension exclusion) Married Separate Filers (status 3 and 4): If both spouses have pension income, whether both or only one meet the eligibility requirements, the exclusion of up to $12,000 is prorated between them in the ratio that each spouse s pension relates to the total pension received by both spouses. See Instruction booklet. TaxWise will prorate the pension exclusion accordingly, between the spouses. EXAMPLE: John, age 50 is retired, and receives a pension of 15,000. John is not disabled. Mary, age 55, is not retired. Will John and/or Mary receive a pension exclusion? Yes, John s pension exclusion is $12,000, because Mary meets the age requirement. Exercise 1: Same taxpayers as in above example, but in this scenario, John again receives a pension of $15,000, and Mary is retired and receives a pension of $5,000. Figure John s and Mary s exlclusion amounts. (See Attachment B for answer) Line 22 Moving Expenses (this is out of scope for volunteers, except for Military) Line 23: This is a 100% deduction of qualifying net capital gains realized in Capital gains from the sales of stocks, bonds, and investment property do not qualify for the capital gain deduction even if sold to lineal descendants of the owners of the property. Non-farm rental property may qualify. For 2009, in determining the ten year holding period for eligibility for the Iowa capital gains exclusion, the federal holding period provisions will be used. Material participation requirements still apply. Out of Scope Line 24: There are more than 30 possible adjustments. For some of the adjustments we may see at our volunteer sites, see OTHER ADJUSTMENTS. Go online to see the Expanded Instructions for a complete listing. 6

7 Line 25: Total Adjustments *Line 26: Net Income Low-income exemption from tax is determined here. TW will calculate this. Exemption thresholds: $9,000 for Single, $13,500 all other filing status. New exemption threshold for taxpayers or spouse 65 or older on 12/31/09 is $24,000 and $32,000 if other than single. (If preparing a paper return, write low income exemption to the left of net income and enter zero on line 57. Complete remainder of return) OTHER ADJUSTMENTS (excerpt from Expanded Instructions) Iowa 529 Education Savings Plans: If you, your spouse, or any other interested party participate in College Savings Iowa 529 Plan (Iowa Educational Savings Plan Trust) or the Iowa Advisor 529 Plan, each may deduct an amount contributed not to exceed $2,800 per beneficiary. These are Iowa Section 529 Plans. Please note: A rollover from another state's 529 plan qualifies toward the deduction for Iowa income tax. Disability income exclusion: You may exclude from Iowa tax a portion of the disability pay you received in 2009 if you meet ALL of the following conditions: You received disability pay, and You were not yet 65 when your tax year ended, and You retired on disability and were totally and permanently disabled when you retired, and On January 1, 2009, you had not yet reached the age when your employer s retirement program would have required you to retire. If you meet all of these conditions, obtain form IA You MUST complete and attach form IA 2440 to take this exclusion. A doctor s statement must accompany each year s return attesting to the taxpayer s complete and permanent disability. In-home health care: To the extent included in Iowa gross income, deduct any state Supplementary Assistance payments received for unskilled in-home health-related care services to a family member. Student Loan Interest Deduction: Enter the same figure that is allowed on your federal 1040, line 33, or line 18 of federal 1040A. Tuition and fees deduction: Important: The Iowa Legislature has adjourned its 2009 session. At the time of the printing of the 2009 Iowa Instruction Booklet, Iowa has not adopted the 2008 federal law provisions related to extenders. The federal extender provisions include: Educator Expenses (Line 24; IA 1040) Tuition and Fees (Line 24; IA 1040) Itemized Deduction for State Sales / Use Tax Paid (Line 4; IA Schedule A) 7

8 Step 6 Federal Tax Addition and Deduction Line 27: Federal refunds received in 2009 are entered here. Do Include: Recovery Rebate credit shown on 2008 federal return and received in 2009, and any portion of the federal refund received due to the motor vehicle fuel tax credit Do not include the Federal refund in the following situations: Do not include any part of the refund received from Earned Income Credit, Additional Child Tax Credit, or First-Time Home-Buyer Credit You are filing an Iowa return for 2009 for the first time because you moved into Iowa during the year. A refund of federal tax received in 2009 is not reported if the tax was not deducted from Iowa income in a prior year. The refund was received from a year in which you did not take a deduction for the payment of Federal tax because your income was less than the minimum amount for paying Iowa tax or your tax for that year was calculated using the alternate tax computation. You were a nonresident for the tax year of the refund and were not required to file an Iowa return for that year. The $250 federal payment made to Social Security recipients, veterans, and Railroad retirees in 2009 When a married couple files separately on a combined return for Iowa, but filed jointly on their Federal return the prior year, the refund received in 2009 must be divided between the spouses in the ratio of the spouses Iowa net incomes in the year for which the refund was issued. (Note: You must have a copy of taxpayer s prior-year return to make this calculation) Example: Prior Year Line 26: Net Income Spouse: $25,000 Net Income Taxpayer: $30,000 Amount of prior-year federal refund: $1, Add net income together - $25,000 + $30,000 = $55, Divide spouse net income by total net income = Percentage of spouse income to total income $25,000/$55,000 = 45.5% - spouse net income is 45.5% of total net income 3. Prior year federal refund to be reported on line 27 x % = spouse s portion of reportable federal refund $1,000 x 45.5% = $455 enter on Line 26 column B 4. Total refund minus spouse portion = taxpayer portion $1,000 - $455 = $545 enter on Line 26 column A Exercise 2: Prior-Year Line 26 column B: $12,000, Column A: $18,000 Prior year federal refund to be reported on line 27: $950 What are the amounts to be entered on: Line 27 Column B Line 27 Column A (see attachment B for answers) For more information on pro-rating on the Iowa return, see Attachment C. 8

9 (Step 6 - Federal Tax Addition and Deduction, continued) Line 28: Self-employment/Household Employment Tax Line 29: Add lines 27 and 28 Line 30: Total: Add lines 26 and 29 *Line 31: Federal Tax Withheld *Line 32: Federal Estimated Taxes paid in 2009 *federal and state estimated tax payments are entered on the F/S Worksheet Line 33: Enter the amount of additional Federal income tax paid during 2009 for tax year 2008 and any other years before The amount of additional Federal income tax paid is deductible only if Iowa income tax returns were required to be filed for the year for which the additional Federal income tax was paid. Include only the actual Federal tax payments made in 2009, but DO NOT include penalties and interest. To find out how much tax was paid, taxpayer may request a transcript from IRS by calling ~ for account information Press 2 ~ for account information Press 2 (again) ~ Enter SSN ~ Press 3 to request a transcript ~ Press #1 to request a transcript which shows payments and adjustments, enter year you are requesting. You can order up to 10 transcripts for any year after 1962! Transcripts are free of charge. Line 34: Deduction for federal taxes. Add lines 31, 32 and 33 Line 35: Balance. Subtract Line 34 from line 30 NOTES: Step 7 Itemized or Standard Deduction Taxpayer can itemize for Iowa even if he/she did not for Federal (and many do!). Always enter information on federal Schedule A in TaxWise, rather than IA Sch. A. Why? Some taxpayers may not qualify to itemize on federal, but since the Iowa standard deduction is relatively small, may qualify on the state return. Everything should flow over from the federal Schedule A. If you should need to file the Iowa return on paper, you should print out the Iowa Sch. A to attach to the return. For guidance on the following topics, see Expanded Instructions: Taxpayers with bonus depreciation/section 179 must use Iowa Schedule A. School Tuition Organization and Charitable Conservation Tax Credit Contributions: Do not include as an itemized deduction any contributions for which a credit is claimed on line 53 of the IA Injured Veterans Grant Program Contributions: These contributions do not qualify as itemized deductions. *Line 37: Vehicle Registration Fee Deduction (Note: Vehicle registration deduction worksheet, p. 5 of the Iowa instruction booklet, is used to calculate the amount of tax which may be deducted on the Schedule A, federal and state). See page 10 VEHICLE REGISTRATION FEE DEDUCTION AND WORKSHEET and Exercise. 9

10 VEHICLE REGISTRATION FEE DEDUCTION AND WORKSHEET If you itemize deductions, a portion of the annual automobile registration fee you paid in 2009 may be deducted as personal property tax on your Iowa Schedule A, line 6, and federal Schedule A, line 8. This deduction is for annual registration fees paid based on the value of qualifying automobiles and multipurpose vehicles. Multipurpose vehicles are defined as motor vehicles designed to carry not more than 10 people, and constructed either on a truck chassis or with special features for occasional off-road operation [Iowa Code section 321.1(44)]. Annual registration fees on the following vehicles are not deductible: pickups (model year 2009 or older), motor trucks, work vans, ambulances, hearses, non-passenger-carrying vans, campers, motorcycles, or motor bikes. See 2009 Expanded Instructions online for additional details, including information about model year 2010 and newer pickups. Newer Vehicles: Use the following worksheet to calculate the deductible amount of registration fees paid in 2009 for qualifying automobiles (model year 1999 or newer) and multipurpose vehicles (model year 1993 or newer). Line 37 vehicle Registration Deduction Worksheet: 1. Enter the actual annual registration fee paid Take the weight of your vehicle and divide it by 250. The weight is found on your registration Subtract line 2 from line 1. This is the deductible amount for line Older Vehicles: For qualifying automobiles (model year 1998 or older) and multipurpose vehicles (model year 1992 or older) the deductible amount is 60% of the registration fees paid in EXAMPLE: Lola purchased an automobile from Jennifer. The actual fee Lola paid to register the automobile at the courthouse was $150. The weight of the automobile is 3,000 pounds. The deductible amount is calculated as follows: 1. Annual registration fee: 1. $ Weight of vehicle/250 = Subtract line 1 from line 2: $138 Exercise 3: Taxpayer has a 2006 Honda Civic, which weighs 2,900 lbs, and registration fee paid in 2009 was $249. Calculate the deductible part of the expense, using the table below. 1. Enter the annual registration fee paid. 2. Take the weight of your vehicle and divide it by Subtract line 2 from line 1. This is the deductible amount.. (See attachment B for answers.) 10

11 (Step 7 Itemized or Standard Deduction, continued) Iowa Schedule A - potential differences from Federal Schedule A: 1. Federal bonus depreciation/section Health insurance premiums (this is a front-page, line 18 deduction) 3. Mortgage Interest Credit Deduction 4. Neither the itemized deductions for Iowa state income tax paid nor state sales nor use tax is allowed. 5. The deduction for the one-time registration fee for qualified new vehicles is not allowed. *Line 38: Iowa Income Tax if included in line 5 of federal Schedule A. *Line 39: Balance. Subtract Line 38 from Line 37 Line 40: Other Deductions. Include the following: Adoption expenses may be different than Federal Expenses incurred for care of a disabled relative *Mileage deduction for charitable purposes (note this is an additional deduction it is the difference between the fed rate and state rate of 39 cents). In TaxWise, enter total charitable mileage on the Federal Sch. A. The difference between the federal rate of 14 cents and the state rate of 39 cents 25 cents will automatically carry over to line 40, but remember that you MUST put the total charitable mileage on federal Schedule A for this deduction to calculate. SEE OTHER DEDUCTIONS FOR MORE INFORMATION *Line 41: Tax year 2009, standard deduction is: Filing Status 1: $1,780 ~ Filing Status 3 & 4:$1,780 for each spouse ~ Filing Status 2, 5 or 6: $4,390 *Line 42: Taxable Income: Subtract line 41 from line 36 NOTES: 11

12 OTHER DEDUCTIONS. Enter the total of all other deductions: Note: You cannot take deductions on this line if you take the standard deduction on your Iowa return. a. Expenses Incurred for Care of a Disabled Relative: Expenses, not to exceed $5,000, incurred in caring for a disabled relative in your home may be deducted. The expenses which may be claimed are those for the care of a person who is your grandchild, child, parent or grandparent. The disabled person must be unable, by reason of physical or mental disability, to live independently and must be receiving or be eligible to receive medical assistance benefits under Title XIX of the U.S. Social Security Act. An itemized schedule of expenses must be included with the return and may include items such as food, clothing, medical expenses not otherwise deductible, and transportation for medical reasons (18 /mile). Expenses not directly attributable to the care of the relative, such as rent, mortgage payments, interest, utilities, house insurance, and taxes cannot be included. Only expenses which are not reimbursed may be claimed. A statement from a qualified physician certifying that the person with the disability is unable to live independently must be submitted with the return the first year a deduction is taken and every third year thereafter. Married Separate Filers: The total deduction claimed by both spouses for each relative with a disability may not exceed $5,000. This deduction must be divided between husband and wife in the ratio of their respective net incomes. See IA 1040, line 26. b. Adoption Expenses: If you adopted a child during the tax year, you may be eligible for an additional itemized deduction for a portion of the adoption expenses paid in This deduction is taken in the year that the expenses are paid even if the child is not placed in your home during that year or if the adoption does not occur. A deduction is allowable for expenses including medical costs relating to the child s birth, any necessary fees, and all other costs connected with the adoption procedure. Attach a separate schedule listing the adoption expenses. Subtract 3% of your total Iowa net income entered on line 26 from the total of qualifying adoption expense. If married, 3% of the combined net income must be subtracted. Only the amount which exceeds 3% of your total Iowa net income may be deducted. Married Separate Filers: This deduction must be divided between husband and wife in the ratio of their respective net incomes. See IA 1040, line 26. c. Mileage Deduction Charitable Purposes. Iowa allows you an additional deduction for automobile mileage driven for charitable organizations. Calculate the deduction as follows: 1. Number of miles x 39 /mile 2. Less charitable mileage deduction entered on federal or Iowa Schedule A 3. Equals additional mileage deduction for charitable purposes. 12

13 Step 8 Tax Calculation *Line 43: Alternate tax, a low-income benefit. Not for single filer. Threshold for taxpayer or spouse 65 or older on 12/31/09 is $32,000. See Instruction Booklet page 6 for instructions to calculate alternate tax. Lines 44 & 45 Line 46: Total tax (add lines 43, 44 and 45) Line 47: *Total Exemption Credit amounts, from step 3 side 1 Line 48: Tuition and textbook credit; no income limit to take this credit. Taxpayer must provide you the amount. Maximum credit is 25% of first $1,000 paid for qualifying expenses for each qualifying child. Applies to dependents K-12. Some items may or may not qualify, so be sure to check TUITION AND TEXTBOOK CREDIT. Line 53: Form IA 148 Tax Credits Schedule must be completed. See Expanded Instructions. *Line 55: School district surtax This will calculate based on the School District Code you entered on page 1 of the Iowa The surtax is calculated on the amount of Total tax before contributions on line 54. See pages 16 and 17 of Instruction booklet for surtax percentages Line 58: Contributions: Taxpayer may enter a dollar amount in any of the four categories: 1) Fish/Wildlife 2) State Fair 3) Firefighters/Veterans 4) Child Abuse Prevention. The contribution amount increases total tax amount. NOTES: 13

14 TUITION AND TEXTBOOK CREDIT (from Expanded Instructions) Taxpayers who have one or more dependents attending Kindergarten through 12 th grade in an accredited Iowa school may take a credit for each dependent for amounts paid for tuition and textbooks. Dependents must have attended a school in Iowa that is accredited under section , not operated for a profit and adheres to the provisions of the U.S. Civil Rights Act of The credit amount is 25% of the first $1,000 paid for each dependent for tuition and textbooks. In the case of divorced or separated parents, only the spouse claiming the dependent can claim the amounts paid by that spouse for tuition and textbooks for that dependent. Expenses for textbooks or other items for home schooling, tutoring, or schooling outside an accredited school do not qualify for the credit. Tuition means any charges for the expense of personnel, buildings, equipment and materials other than textbooks, and other expenses that relate to the teaching of only those subjects legally and commonly taught in Iowa s public elementary and secondary schools. Textbooks means books and other instructional materials used in teaching those same subjects. This includes fees, books and materials for extracurricular activities. Examples of extracurricular activities: sporting events, speech activities, musical or dramatic events, driver s education (if paid to a school), awards banquets, homecoming, prom (clothing does not qualify), and other school related social events. The cost of the following items are eligible for the credit: Books: books and other instructional materials used in teaching subjects legally and commonly taught in Iowa s public elementary and secondary schools, including those needed for extracurricular activities Clothing: non-street costumes for a play or special clothing for a concert not suitable for everyday wear Driver s Education: only if paid to the school Dues, Fees and Admissions: includes those paid for extracurricular activities such as activity fees; booster club dues; fees for track and cross-country; activity ticket or admission for high school athletic events; fees for a physical education event such as roller skating Materials: includes materials for extracurricular activities, such as sporting events, speech activities, musical or dramatic events, awards banquets, homecoming, prom, and other school-related social events Music: rental of musical instruments for school or band; music/instrument lessons at a school; sheet music used in a school; valve oil; cork grease; music books and reeds used in school bands or orchestras Shop class and mechanics class: cost of required basic materials Shoes: football, soccer and golf shoes; cleats for football shoes; track spike shoes Travel: non-travel fees for field trips if the trip is during school hours Tuition: the school must be accredited; amounts paid are not allowed if they relate to teaching of religious tenets or doctrines of worship Uniforms: band, hockey and football uniforms The cost of the following items are NOT eligible for the credit: Books: yearbooks Clothing: clothes which can be used for streetwear, such as T-shirts for extracurricular events such as track and science; clothing for a play or concert that is suitable for everyday wear; prom dresses and tuxedos Dues, Fees and Admissions: sports-related socials; special education programs like career conferences; special testing like SAT, PSAT and Iowa talent search tests Music: purchase of musical instruments; cost of music lessons outside of school; sheet music for private use Religion: Amounts paid are not allowed if they relate to teaching of religious tenets or doctrines of worship. Shoes: basketball shoes and other shoes suitable for everyday wear Shop class and mechanics class: optional expenditures for wood or materials or for repair of personal vehicles Travel: travel expenses for trips Tuition: any amount for food, lodging, clothing or transportation of a student Calculate the total qualified expenses per dependent and multiply the amount - not to exceed $1,000 - by 25% (.25). Enter the total allowable credit on line 48. Retain records of your calculation, showing the name of each dependent, school(s) attended, and an itemized list of qualifying expenses. Example: Students Patty and Mark have qualifying expenses of $1,400 and $700 respectively. Their parents can take a credit of $250 (25% of $1,000 maximum) for Patty and 14 $175 (25% of $700) for Mark, for a total credit of $425.

15 Step 9 Credits *Line 60: Find appropriate box on W-2 for Iowa withholding. *Line 61: Estimate and voucher payments made for tax year 2009 (these amounts were entered on the FS/Tax Paid Schedule in TaxWise. Line 62: Motor Fuel Credits Line 63: Out of State Tax Credit Line 64: Child and Dependent Care Credit or Early Childhood Development Tax Credit. Only one of these credits may be claimed. Only taxpayers with net income less than $45,000 are eligible to take one of these credits. See CHILD AND DEPENDENT CARE CREDIT or EARLY CHILDHOOD DEVELOPMENT TAX CREDIT and/or the Instruction Booklet. *Child and Dependent Care credit will calculate automatically based on the federal return. Non-residents and part-year residents: The Child and Dependent Care Credit must be adjusted using the following steps: Step 1: Divide Iowa net income (line 26, IA 126) by all-source net income of you and spouse (line 26, IA 1040) The ratio cannot exceed 100%, Step 2: Multiply Step 1 by the amount of credit calculated in the worksheet, line 3, Step 3: Enter this amount on line 64 of the IA Non residents and part-year residents: No adjustment is required to the Early Childhood Development tax Credit. CHILD AND DEPENDENT CARE CREDIT or EARLY CHILDHOOD DEVELOPMENT TAX CREDIT. Only one of the following two credits may be taken: Child and Dependent Care Credit OR Early Childhood Development Tax Credit. Only taxpayers with a net income of less than $45,000 are eligible to take one of these credits. If you are married, your net income and the net income of your spouse must be combined to determine if you qualify, even if your spouse does not file an Iowa return. These credits are refundable. Even though you may not be required to file an Iowa return, you may wish to do so in order to claim a refund for one of these credits. You may be eligible for the Child and Dependent Care Credit even though you were unable to take it on your federal return. EARLY CHILDHOOD DEVELOPMENT CREDIT: If you are choosing the Early Childhood Development Tax Credit, you may take the credit equal to 25% of the first $1,000 of qualifying expenses paid in 2009 for each dependent from the ages of three through five. Expenses that qualify include the following: Services provided by a preschool, as defined in Code section 237A.1 Books that improve child development, such as textbooks, music and art books, teacher s editions and reading books Instructional materials required to be used in a lesson activity, such as paper, notebooks, pencils and art supplies Lesson plans and curricula Child development and educational activities outside the home, such as drama, art, music and museum activities and the entrance fees for such activities Early childhood development expenses that do NOT qualify include: Food, lodging, or membership fees relating to child development and educational activities outside the home Services, materials, or activities for the teaching 15 of religious tenets, doctrines, or worship, if the purpose of these expenses is to instill those tenets, doctrines or worship

16 (Step 9 Credits, continued) *Line 65: Iowa Earned Income Credit. 7% of Federal. Iowa EIC is refundable. See instructions in booklet for adjustment to credit for nonresidents and part-year residents. Line 66: Other Refundable Credits Form IA 148 Tax Credits Schedule must be completed. For a detailed listing of the credits, see the Expanded Instructions. Step 10 - Refund or Amount You Owe *Line 70: Amount to be refunded: If paper filing, mailing address is below line 70. Line 71: Amount to be applied to your 2010 estimated tax. *Line 72: Amount of tax you owe. *Line 73: Penalty for underpayment of estimated tax. Note to Volunteers: Do not allow the software to assess this penalty. If penalty is due, taxpayer will receive a bill from Iowa Department of Revenue. To ensure no penalty is calculated, you should default 1 dollar onto the IA 2210, on the line which asks you to enter the 2008 tax line 9. Line 74: Penalty and Interest volunteers do not use this line. *Line 75: Total Amount due. If paper filing, mailing address is below line Direct deposit of Iowa refunds is available only on electronically filed returns and can be deposited in only one account. epay (direct debit) -- file and pay electronically. For more information log on at epay is for final individual/corporation income tax payments and also available for estimate individual/corporation payments Step 11 through Step 13 Step 11: Political Checkoff Step 12: Next Year would you like to receive a booklet? Not available to electronic filers Step 13: Please Sign Here. Most returns are filed electronically, so taxpayer will not sign the return, but will sign the IA

17 APPENDIX A: Iowa Tax Treatment of Same-Sex Marriages Beginning April 24, 2009, Iowa law permits same-sex couples to be married. Varnum v. Brien Differences exist between Iowa law and federal law that affect income tax collections or an employer s withholding responsibilities. Individual federal agencies are the proper authorities to give guidance on matters that do not affect Iowa taxation. Definitions Iowa law uses the terms husband, wife, spouse, and marriage. It is not necessary for the actual text of the law to be changed before the ruling is carried out. The terms husband, wife and spouse should be considered gender-neutral to reflect both opposite sex and same-sex couples. The term marriage now also includes same-sex marriages. Tax Filing Status: Iowa vs. Federal Beginning with tax year 2009, same-sex spouses should file their Iowa income tax returns as married persons, either jointly or separately. Federal law does not recognize same-sex marriages. As a result, same-sex spouses must still file separately for federal purposes. Some parts of Iowa s tax law are based upon federal tax law, including the starting point, adjusted gross income. There are also some state deductions that are based on similar federal deductions. Same-sex spouses may need to perform special calculations to ensure they report the correct amounts on their Iowa tax returns. Marital status is usually determined as of the close of the taxable year and applies for the entire taxable year. Iowa will recognize same-sex marriages for taxable years that end on or after April 24, 2009, but will not recognize same-sex marriages for taxable years ending prior to April 24, Return Filing Options for Same-sex Spouses For federal purposes, spouses in a same-sex marriage should file either as single filers, or as head of household. See 1 USCS 7, I.R.C See also I.R.S. Pub For Iowa purposes, same-sex spouses have three options for filing their Iowa income taxes: A married filing jointly Iowa return; A married filing separately Iowa return; or A married filing separately on a combined Iowa return. Same-sex spouses who file their federal taxes as head of household will generally not be eligible to file their Iowa taxes as head of household. Iowa s use of the term head of household is based upon the federal definition, which generally allows the status only for unmarried people. Since same-sex spouses are married under Iowa law, with few exceptions, they are no longer able to file as head of household on their Iowa taxes. Note to Volunteers: Currently, we have no guidance on how to handle the input and efiling of such returns in TaxWise; however, as information becomes available, it will be shared with all volunteers. 17

18 ATTACHMENT B: Answers to Exercises Exercise 1: A: John s exclusion is $9,000/Mary s exclusion is $3,000 Here is how it s figured: Total pension: $20,000 Ratio of John s pension to total: $15,000/$20,000 = 75% John receives 75% of the total exclusion amount; Mary receives 25% of the total exclusion amount. 75% x $12,000 = $9,000 25% x $12,000 = $3,000 TaxWise figures this exclusion, IF box 1 on the 1099R is checked when taxpayer is eligible. Exercise 2: What are the amounts to be entered on: Line 27 Column B_$380_ Line 27 Column A _$570 Exercise 3: 1. Enter the annual registration fee paid. $ Take the weight of your vehicle and divide it by 250 $11.60 (round up to $12) 3. Subtract line 2 from line 1. This is the deductible amount.. $237 18

19 ATTACHMENT C: HOW TO PRORATE Taxpayers using filing status 3 or 4 may be required to prorate (divide) certain entries on the IA 1040, such as taxable Social Security benefits, federal income tax refunds, estimated federal tax payments, itemized deductions, etc. Example 1: How a husband and wife would prorate a federal refund: 2008 federal refund received in 2009 from a jointly-filed return: $1,000 Husband has net income of $15,000 on the 2008 IA Wife has net income of $30,000 on the 2008 IA Total net income: $45,000 on the 2008 IA Divide wife s net income by total income. The result is the percent of total income earned by the wife. (Wife s net income) $30,000 (Total of husband s and wife s net income) $45,000 = 66.7% 2. Then take $1,000 X 66.7% = $667. (total refund X wife s % income) This is the wife s portion of the refund, reported on line 27 in her column. 3. Subtract to find the husband s portion: $1,000 - $667 = $333. Enter this on line 27 in the other column. These two amounts are entered on line 27 of the 2009 IA Note: Round to the nearest one-tenth of a percent. Ex: 66.74% becomes 66.7% and 66.75% becomes 66.8% Example 2: How to prorate taxable Social Security income TaxWise does this for you! Husband receives Social Security benefits of $30,000 Wife receives Social Security benefits of $20,000 Total benefits are $50, Divide the husband s benefits ($30,000) by the total benefits ($50,000). $30,000 $50,000 The result is the percent of total benefits earned by the husband: 60% 2. Complete the Iowa Social Security worksheet to determine what amount is taxable to Iowa. In this example, the total taxable Social Security benefits comes to $8, Prorate the $8,000 between husband and wife. - Multiply $8,000 by 60%, which equals $4,800. This is the husband s portion of taxable Social Security benefits to be entered on line Subtract to find the wife s portion: $8,000 - $4,800 = $3,200. Enter this on line 13 in the other column. Example 3. Federal estimated tax payment proration Husband has income of $75,000 that is not subject to federal withholding. Wife has income of $8,000 that is not subject to federal withholding. Their total income not subject to federal withholding is $83,000. Their estimated federal tax payments for this year totaled $18, Divide the husband s income by the total. The result is the percent of income earned by the husband. $75,000 $83,000 = 90.36% (90.4%) This is the husband's percentage of income not subject to federal withholding 2. Multiply $18,000 X 90.4% = $16,272. This is husband s portion of the estimated tax payments. Enter on line Subtract to find the wife s portion ($18,000 - $16,272 = $1,728). Enter on line 32 in the other column. 19