Please note: This is an archived article. It does not apply to current-year tax preparation. Please see our current article to read up-to-date tax information.

Tax season has started, and it is time to start thinking about preparing and filing your tax return for 2008. All returns are due on or before April 15, 2009. You may request an automatic extension of time to file. But, if you owe any tax, you must pay it by April 15, 2009. If you owe taxes and do not pay them on or before April 15, 2009, you may owe a late payment penalty in addition to the taxes you owe.

This article provides information to help you if you decide to file your own federal tax return. It provides general guidance on filing status, dependents, exemptions, and some of the major credits that may be available to you. It will also explain what qualifies as income and recent changes in tax law for 2008.

If you are not comfortable preparing your own tax return, there are many resources where you may have your taxes prepared for you at no cost. See Tax Preparation Help and Refund Anticipation Loans for more information.

If you do not have the money to pay the taxes you owe, file your return anyway. If you do not file your return when you are legally obligated to do so, the IRS has the right to collect the tax you owe and interest and penalties. There are collection alternatives available to you if you cannot pay your taxes, but these alternatives are not available if you do not file your return. These alternatives include installment plans, offers-in-compromise, and placing IRS collection activities regarding your tax account on hold, until your financial situation improves.

Filing Requirements

Whether you need to file depends on your income, your filing status, and your age. However, if you are a low-income worker or wage-earner, it is a good idea to file because you may be eligible for exemptions, deductions, and credits, which may create a refund for you. You are not entitled to a refund unless you file a return.

You must file if you had advance earned income credits withheld from your pay.

The following chart, from IRS Form 1040, sets forth the general rules for determining if you must file.

Who must file?

What income is taxable?

Some types of income are:

Compensation for services, such as wages, fees, commissions, fringe benefits

• Gross income from your own business
• Interest
• Dividends
• Rent received
• Tips
• Alimony received
• Annuities
• Advanced earnings for services to be performed in the future
• Back pay awards, from settlements or judgments (also includes unpaid life insurance premiums and unpaid health insurance premiums)
• Severance pay
• Income from an interest in an estate or trust
• Pensions
• Income from discharge of indebtedness (such as reaching an agreement with a credit card company to pay less than what is due).

If you work and earn wages, your income is generally taxable income. Many times, your employer has already withheld taxes for you and submitted these taxes to the federal and state governments. Often, the amounts withheld are too high, and the government will return the excess amount to you in a refund when you file a tax return. If you received wages during 2008, your employer must send you a Form W-2 (with the total of wages and taxes paid) by January 31, 2009.

If you receive unemployment compensation, you will receive a Form 1099-G showing the total amount you received in 2008. Unless you have elected to have taxes withheld from your weekly checks, you are responsible for reporting the income and paying income tax on the amount received.

What income is not taxable?

Non-taxable income includes:

• Value of accident/health insurance plan coverage paid by employer
• Contributions by your employer for long-term health care
• Amount of salary reduction due to contributions for FSA or HSA
• $5,250 of qualified employer-provided educational assistance
• Retirement plan contributions by employer.

Generally, you do not pay taxes on benefits that you receive from a public welfare fund, such as TANF, GA, child care grants, and housing assistance programs. SSI is not taxable income.

What type of income may or may not be taxable?

If you receive Social Security retirement benefits or disability benefits, your income is not taxable if it is the only income you received throughout the year. If you had other sources of income, from work or investments, some Social Security or disability benefits may be taxable. About one-third of people who get Social Security have to pay income taxes on their benefits. At the end of each year, you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received. You can use this statement when you complete your federal income tax return to find out if you have to pay taxes on your benefits.

Filing Status

In most cases, but not all, your marital status on the last day of the year determines your filing status for the whole year. For example, if you were married on December 31, 2008, you are considered married for the entire year. If you are divorced on December 31, 2008, you are considered unmarried for the whole year.

There are five filing statuses: (1) single, (2) married filing jointly, (3) married filing separately, (4) head of household, and (5) qualifying widow(er) with dependent child. The definitions of these terms for federal tax purposes are listed below.

1. Single (unmarried). To be single (unmarried), you must be unmarried on the last day of the year or legally separated from your spouse under a divorce or separate maintenance decree. State law governs whether you are married or legally separated or divorced. If you obtain a court decree of annulment, which holds that no valid marriage ever took place, you are considered unmarried. You must also amend (correct) returns for the past three years (or whatever years are not barred by the statute of limitations), changing your filing status to single or head of household. The form to use to amend your returns is a 1040X.
   
   What are the conditions for filing as married?
   
   For federal tax purposes, marriage means only a legal union between a husband and wife. One of the following conditions must also be met:
• You are married and living together as husband and wife;
• You are living together in a common law marriage that is recognized in the state where you now live or in the state where the common law marriage began;
• You are married and living apart, but not legally separated under a decree of divorce or separate maintenance; or
• You are separated, but not under a final court decree of divorce.

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

1. Married Filing Jointly. If you are married, you and your spouse can choose to file as married filing jointly. On a joint return, you report your combined income and deduct your combined expenses. You can file a joint return even if only one of you had income. If you and your spouse decide to file a joint return, your taxes may be lower than if you choose a different filing status. Also, your standard deduction may be higher, and you may qualify for tax benefits and credits that do not apply to all other filing statuses.
   
   If we file as married filing jointly, who is responsible for taxes owed?
   
   If you choose this filing status, you and your spouse are both jointly and individually responsible for any taxes that are owed. This means that, even if your spouse earned the money, the IRS can seek payment of any taxes due not just from your spouse, but from you as well. There are ways to be relieved of this responsibility—known as innocent spouse relief, relief by separation of liability, and equitable relief. An article on the relief available and how to apply for the relief can be found in IRS Publication 971.
   
   Finally, if you file a joint return with your spouse and are due a refund, but think that the refund may be applied to a past-due debt of your spouse (such as child support arrears or old tax liabilities), you may file an Injured Spouse Form 8379. The IRS will then divide the refund and send your share of the refund to you while keeping only your spouse’s share to apply to your spouse’s debts.
   
   
2. Married Filing Separately. If you are married, you and your spouse can choose to file as married filing separately. This filing status may benefit you if you only want to be responsible for your own tax or if it results in a lower tax rate. If you and your spouse cannot agree to file a joint return, use this status unless you qualify as head of household.
   
   Usually, if you are married and you choose this filing status, your tax is higher than if you file jointly. Also, you can only report your own income, personal exemption, and credits. You can only claim an exemption for your spouse if your spouse had no income and was not the dependent of another person. Finally, there are certain restrictions if you choose this filing status: in most cases, you cannot take the credit for child and dependent care expenses; you cannot take the earned income tax credit; you cannot take the education credits; if you lived with your spouse during any part of the year, you cannot claim the credit for the elderly or disabled—you will have to include as income any Social Security or equivalent railroad retirement benefits you received, and you cannot roll over amounts from a traditional IRA into a Roth IRA. If your spouse itemizes deductions, you cannot claim the standard deduction.
   
   The following credits and deductions are reduced at income levels that are half of those for a joint return: the child tax credit, the retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions.
   
   
3. Head of Household. The head of household filing status can be used if you are unmarried or considered unmarried on the last day of the year, you paid more than half of the cost of keeping up a home for the year, and a “qualifying person” lived with you in your home for more than half of the year. If the qualifying person is your dependent parent, he or she does not have to live with you.
   
   The tax rate for head of household will generally be lower than rates for single or married filing separately. The standard deduction will be higher as well.
   
   Can you qualify as head of household?
   
   

   IF the person is your	AND	THEN that person is
   Qualifying child (such as a son, daughter, or grandchild who lived with you more than half the year and meets certain other tests)	He or she is single	A qualifying person, whether or not you can claim an exemption for the person.
   	He or she is married and you can claim an exemption for him or her	A qualifying person.
   	He or she is married and you cannot claim an exemption for him or her	Not a qualifying person.
   Qualifying relative who is your father or mother	You can claim an exemption for him or her	A qualifying person.
   	You cannot claim an exemption for him or her	Not a qualifying person.
   Qualifying relative other than your father or mother (such as a grandparent, brother, or sister who meets certain tests)	He or she lived with you more than half the year, and you can claim an exemption for him or her	A qualifying person.
   	He or she did not live with you more than half the year	Not a qualifying person.
   	You cannot claim an exemption for him or her	Not a qualifying person.

   
   Note: If you are divorced, you may have a separate agreement with your ex-spouse concerning who can claim an exemption of children.
   
   
4. Qualifying Widow(er) with Dependent Child. You may be eligible to use qualifying widow(er) with dependent child as your filing status for two years following the year your spouse died. For example, if your spouse died in 2005 and you have not remarried, you may be able to use this filing status for 2006 and 2007. Using this filing status allows you to use the lower joint return rates and the highest standard deduction amount, but you cannot file a joint return. To use this filing status, the child or children must live in your home all year, and you must have paid more than half the cost of keeping up the home (rent, electricity, etc.).
   
   What are the tests to be a qualifying child or relative?
   
   

   Tests to be a qualifying child	Tests to be a qualifying relative
   The child must be your son, daughter, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. The child must be (a) under age 19 at the end of the year, (b) under age 24 at the end of the year and a full-time student, or (c) any age if permanently and totally disabled. The child must have lived with you for more than half of the year.1 The child must not have provided more than half of his or her own support for the year. If the child meets the rules to be a qualifying child of more than one person, you must be the person entitled to claim the child as a qualifying child.	The person cannot be your qualifying child or the qualifying child of anyone else. The person must either (a) be related to you in one of the ways listed under Relatives who do not have to live with you in IRS Publication 501, or (b) live with you all year as a member of your household (and your relationship must not violate local law).2 The person's gross income for the year must be less than $3,500.3 You must provide more than half of the person's total support for the year.4
   There is an exception for certain adopted children. There are exceptions for temporary absences, children who were born or died during the year, children of divorced or separated parents, and kidnapped children. There is an exception if the person is disabled and has income from a sheltered workshop. There are exceptions for multiple support agreements, children of divorced or separated parents, and kidnapped children.

If you cannot use any of the above listed filing statuses, you must file as single.

Can I change my filing status?

Once you file a joint return, you cannot change your mind and change the return to a separate return. But if you file a separate return, you can generally change to a joint return any time within three years of the due date of the returns.

It is important to select the correct filing status, since it affects your exemptions, standard deductions, and other credits.

Exemptions

Exemptions reduce your taxable income. Generally, you can deduct $3,500 for each exemption you claim. You are generally allowed one exemption for yourself, one for your spouse and one for each of your dependents. (If you are a nonresident alien, other than a resident of Canada or Mexico, you can only use an exemption for yourself. You are not allowed to claim exemptions for dependents.) If you can be claimed as a dependent by another person, you cannot take a personal exemption, even if the other person does not actually claim you as a dependent. Your spouse is never considered your dependent.

A dependent is a “qualifying child” or a “qualifying relative.” See the What are the tests to be a qualifying child or relative? chart.

If you can claim an exemption for your dependent, the dependent cannot claim his or her own exemption if he or she files a tax return. You cannot claim a married person as a dependent if he or she files a joint tax return.

You cannot claim a person as a dependent unless that person is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico for some part of the year.

You must list the Social Security number for any dependent for whom you claim an exemption. Without a Social Security number, the exemption may be disallowed and your refund may be reduced. If the dependent does not have a Social Security number, you should apply for one by filing a Form SS-5 with the Social Security Administration. If you do not have the Social Security number by the time you need to file your return, use Form 4868 to ask the IRS for an automatic extension of time to file the return. If your dependent is not eligible for a Social Security number, your dependent must apply for an individual taxpayer identification number using Form W-7.

Deductions

Deductions reduce your taxable income and reduce the tax you must pay. Itemized deductions include mortgage interest paid throughout the year, real property taxes paid, charitable contributions, and unreimbursed business expenses.

You should use the standard deduction if it is higher than the total of your itemized deductions. The standard deduction depends on your filing status and whether you are 65 or older or blind. The standard deduction is $10,900 for married filing joint return; $8,000 for head of household; $5,450 if you file married filing separately or single. The amount of the deduction you can use is listed on your tax return form.

Credits

Credits may increase your tax refund and lower the amount of tax you owe the IRS. Each credit has different rules and works differently. Some credits simply reduce and possibly eliminate the tax you owe. Other credits may actually put money in your pocket. You must file your tax return to claim a credit.

The Earned Income Tax Credit is a refundable credit that is only available to you if you are a United States citizen or resident alien with a Social Security number and if you have earned income. You may receive as much as $4,824 for this credit, which may either eliminate any tax you owe the IRS or may result in an increased refund to you. If you receive a Social Security number after you file your tax return and you qualify for the credit, you may go back up to three years to claim the credit by filing an amended tax return. This is true even if you used an Individual Taxpayer Identification Number (ITIN) or invalid Social Security number on your previous returns.

You must have earned income to apply for this credit. This includes income from wages, tips, and self-employment. The following are not considered to be earned income: unemployment benefits, child support, Social Security benefits, pensions, alimony, welfare benefits, food stamps, job training benefits, and interest.

You must use the filing status single, married filing jointly, head of household, or qualifying widower. You cannot use married filing separately. You must file a Form 1040 to claim this credit. You are not allowed to use Form 1040EZ or Form 1040A.

You cannot claim the Earned Income Tax Credit if you have investment income, such as dividends, interest, or rents, of more than $2,950 for the taxable year 2008.

A qualifying child for the Earned Income Tax Credit is not the same as a qualifying child for purposes of filing status. A qualifying child for the EITC must meet each of the following relationship, age, residence, self-support, and citizen/resident tests. All of these tests must be satisfied in order for a child to qualify.

• The relationship test is satisfied if the child you are claiming is your son, daughter, adopted child, stepchild, grandchild, or great-grandchild. You may also claim your brother, sister, step-brother, step-sister, niece, nephew, or descendants of these relatives, or an eligible foster child, as long as the child was placed with you by an authorized placement agency.
  
  
• The age test is satisfied if the child is under age 18 at the end of the year or a full-time student under age 24. To be a full-time student, the child must be enrolled in school full-time for at least five months of the year.
  
  
• The residence test is satisfied if the child lived with you in the United States for more than half the year.
  
  
• The self-support test is satisfied if the child cannot provide more than half of his or her own support.
  
  
• The citizen/resident test is satisfied if the child has a valid Social Security number.

Remember: If you qualify for the federal EITC, you qualify for the New Jersey EITC and should file a state income tax form to claim the credit.

To be eligible for the federal and NJ EITC, those filing must have earned income from wages or self-employment. For the 2008 tax year, employed individuals must have adjusted gross income of less than:

• $38,646 ($41,646 if married filing jointly) with two or more qualifying children;
  
  
• $33,995 ($36,995 if married filing jointly) with one qualifying child; or
  
  
• $12,880 ($15,880 if married filing jointly) with no qualifying child/children.

To be eligible for the NJ EITC, a taxpayer must both file for and receive the federal credit, and file a New Jersey resident income tax return. You must file the returns, even if you are not required to file a return because your income is considered too low to be required to file or owe taxes.

The Child Tax Credit may be available to you if you have a child who was under the age of 17 at the end of 2008. You must use a Form 1040, 1040A, or 1040NR (not Form 1040EZ). The child tax credit will not affect your ability to receive food stamps, public housing, welfare, or SSI.

To qualify for the credit, you must be raising the child as your own. The child can be your son, daughter, stepson, stepdaughter, adopted child, brother, sister, niece, nephew, grandchild, or eligible foster child (one placed with you by a court or authorized placement agency). You must be able to get a dependent exemption on your return for the child and the child must be a citizen or resident alien with a Social Security number. If the child does not have a Social Security number when you file the return, you should apply through the Social Security Administration for a number and use Form 4868 to request an automatic extension of time to file your tax return until you get the child’s Social Security number.

For each child you claim, $1,000 is deducted from the taxes owed to the government. Generally, the credit does not pay you a refund; it simply lowers your taxes. However, depending on your income, you may qualify for the Additional Child Tax Credit. If you qualify for this credit, you will receive a refund if the child tax credit reduces the taxes you owe and generates a refund. You must use IRS Form​ 8812 to claim the additional child tax credit.

The Child and Dependent Care Tax Credit provides a credit to you by reducing your taxes by a percentage of the money you spent on child and adult care because you needed to go to work. You must have at least one dependent under the age of 13, or a dependent spouse or child who is physically or mentally disabled. The amount of the credit will depend on your income and the amount of money you spent on eligible care during the year. The child or adult for whom you are claiming the credit needs to be a U.S. citizen or alien resident with a Social Security number. You also need a Social Security number to claim the credit. If you file your return using an ITIN, you are not able to claim this credit. You cannot use Form 1040EZ to claim this credit.

Tax Changes for 2008

The Recovery Rebate Credit is for taxpayers who did not receive an economic stimulus rebate in 2007 based on the information on their 2007 return, or for taxpayers who received less than the full amount of the economic stimulus rebate based on the information on their 2007 return. If you did not receive your stimulus rebate because the government kept it and applied it to taxes you owed for earlier years, this does not apply to you. The IRS has not released the details on how to apply for the Recovery Rebate Credit as of the date of the printing of this article, but will do so by the time filing season starts.

The First-Time Homebuyer Credit is part of the Housing and Economic Recovery Act of 2008. You must be a first-time homeowner (not having an interest in a primary residence in the prior three years) and you must have purchased your home between April 9, 2008, and July 1, 2009. The credit is a refundable credit equal to the lesser of $7,500 for joint filers or $3,750 for single or married filing separately filers or 10% of the purchase price of the principal residence. The credit must be taken in the year of the purchase. The credit must be repaid to the government over 15 years, but with no interest, as follows:

• The taxpayer will have to repay $500 each year over 15 years.
  
  
• If the home is transferred to a spouse under the terms of a divorce, the spouse who receives the home is responsible for the future repayments.
  
  
• The taxpayer will have to file a return to repay the $500, even if the taxpayer does not have to file a return.

Increased Standard Deduction for Real Property Taxes. Generally, if you do not itemize your deductions and take the standard deduction, you are not allowed to deduct the real property taxes that you paid. However, for 2008, if you take the standard deduction, you will be able to deduct up to $1,000 (for married filing jointly, $500 for single and married filing separately) paid for real property taxes.

Releasing Child Dependent Exemption to Noncustodial Parent has new rules this year. The release must be accomplished by either the IRS Form 8332 or by a written declaration—attached to the release—that it is unconditional. There must be no conditions, such as that the noncustodial parent is current with support payments. A court order is not sufficient unless its wording conforms to Form 8332 and is unconditional. The Form 8332 or written declaration must be attached to the noncustodial parent’s tax return each year the child is claimed on the return.

The Mortgage Forgiveness Debt Relief Act was passed by Congress on December 29, 2007, and allows you to exclude any income realized by you as a result of either a modification of the terms of your mortgage or a foreclosure on your principal residence. Usually, when a debt is forgiven or cancelled by a lender, the debt that is forgiven is considered income to you and is taxable. Now, however, if your mortgage is modified or cancelled due to foreclosure from 2007 to 2013, you need to use Form 982 to report the amount of income that was cancelled, but that income is not taxable income and you do not have to pay tax on it. Your lender will send you a Form 1099-C, Cancellation of Debt, by January 31, 2009, and the amount shown in box 2 of Form 1099-C should be reported on Form 982 and attached to your return. The rules regarding this credit are complicated, because it involves determining the basis of the property and whether your debt is recourse or non-recourse, so it is probably best to seek help when completing this form.

The Saver’s Credit allows low-income taxpayers to offset part of the first $2,000 that is voluntarily contributed to IRAs and 401(k) plans. This credit can increase your refund or reduce tax owed. The credit is based on your filing status, adjusted gross income, tax liability, and the amount contributed to the qualifying retirement program. You have until April 15, 2009, to either open a new IRA or add money to an existing plan and still get the credit. If you are unable to set aside money to qualify for the credit in 2008, you may want to have your employer start withholding contributions as early as possible in 2009 so that you can claim the credit on your 2009 tax return.

Other Tax Information

ITINs, or Individual Taxpayer Identification Numbers, should be used to file your return if you cannot legally obtain a Social Security number. ITINs are used for tax reporting purposes only. They are not general identification numbers and will not authorize you to work in the United States or receive Social Security benefits. However, if you are able to legally obtain a Social Security number in the future, the income that you have reported using the ITIN may be used to establish and increase Social Security benefits.

The IRS keeps all its return information strictly confidential. This means that if you use an ITIN to file a return because you have worked in the United States but do not have a Social Security number, that information will not be shared with any other federal or state agency, including immigration.

To obtain an ITIN, you need to complete a Form W-7, Application for IRS Individual Taxpayer Identification Number. The form is available at or by calling 1-800-TAX-FORM. You must provide certain identification documents which are listed on the application form.

Privacy of Tax Information is a major priority of the IRS. When you file a return, the IRS does NOT share your information—either your immigration status or your financial data—with other federal agencies, including the U.S. Department of Homeland Security and the U.S. Citizenship and Immigration Services. The IRS has publicly stated that it is determined to keep all taxpayer information confidential. There are a few situations where the IRS is forced to share taxpayer information, but these situations are rare.

Resources available to low-income taxpayers are described in the Tax Preparation Help and Refund Anticipation Loans.

Notarios are attorneys in many Latin American countries. However, in the United States, a notary public is not a lawyer, an accountant, or a licensed qualified tax preparer and cannot give legal advice or prepare tax returns. In the United States, a notary public can only administer oaths and witness signatures.

Unfortunately, scam artists, using the title notario, have preyed on immigrants with limited English skills and little understanding of the American legal system by misrepresenting themselves as lawyers or tax preparers. Beware of “notarios” who represent that they provide legal services or tax preparation services under a state law or city ordinance because they might be involved in the unauthorized practice of law or unauthorized preparation of tax returns.

One Last Point

Read and understand your return before you sign and file it! You are ultimately responsible for everything on your return, whether you had it prepared for you or you prepared it yourself. When you sign and file your return, you are stating that you have reviewed every line of the return and you agree with everything on the return. Be careful! If you do not understand an entry made by a preparer, make sure you ask questions until you understand how and why the preparer completed the return, and only sign the return if you agree with it. If you cannot prepare your return by yourself, go to one of the free sites. The tax laws in the United States are complex and the tax forms are confusing; that is why there are so many free programs to help you.

This information last reviewed: Nov 2, 2011