The energy tax credit for energy-related expenditures, initiated in 1978, continues in effect through 1987. But the $300 ceiling for conservation credits and the $2,200 ceiling for renewable source installations covers the entire period from April 19, 1977, to the cut-off date.
On Form 5695 ("Energy Credits") you will find provision for entering the ceilings on deductible costs and any credit already claimed on your 1978 return.
Someplace in your personal tax file you should keep track of the amount of credit used from year to year, so that you can take advantage of any remaining balance if you have energy conservation expenses during the next six years.
Some generall rules:
The credit applies only to your principal residence (located in the U.S.), but it can be a condominium, cooperative, or even a rented apartment or house.
The equipment or modification must be a new installation; that is, you must be the first person to use it.
The residence in which the installation is made must have been substantially completed by April 20, 1977.
Energy conservation: The first of the two types of credit covers "energy conservation" expenditures. This group includes insulation; storm windows and doors; caulking and weather-stripping; a more energy-efficient furnace or furnace modification; replacement of gas pilot light with an electronic ignition system; an automatic setback thermostat; and an energy-cost-display meter.
Carpeting, drapes, interior paneling, exterior siding, and fluorescent lighting are specifically excluded from the credit even if the intent was to reduce energy use.
To qualify for this first category of tax credit the equipment must reasonably be expected to remain in use for at least three years.
The tax credit for Type I modification is 15 percent of the first $2,000 spent for energy conservation.
Renewable energy sources: The second type of credit applies to replacement of supplementary energy installations (such as solar collectors and heat exchangers, geothermal heat distribution systems, and wind energy equipment) with an expected useful life of at least five years.
Heat pumps, wood-burning systems, hydrogen-fueled equipment, greenhouses, and swimming pools used for energy storage do not qualify for the credit. (Wood-burning stoves continue to be excluded despite pressure for elimination of this restriction.)
This second type of credit amounts to 30 percent of the first $2,000 plus 20 percent of the next $8,000 spent.
If the total credit for 1979 (including any carryover from 1978) is greater than your tax liability for the year, you may carry the unused balance forward to your 1980 tax return (or later, if necessary, as far as your 1987 return). Earned Income Credit
Both the income ceiling and the maximum credit have been increased over the 1978 amounts. As the name implies, you must have had earned income (wages, salary, commission, tips, net earnings from self-employment) to qualify.
The earned income credit is generally limited to "family" taxpayers; you must be either married and filing a joint return or the head of a household.
Neither your net earned income nor your adjusted gross income can equal or exceed $10,000 (up from $8,000 in 1978). If you are married, these ceilings apply to your combined incomes. The maximum credit has been increased to $500, from the 1978 limit of $400.
If you qualify, complete the earned income worksheet on page 2 of either the 1040 or 1040a instruction booklet, in conjunction with the Earned Income Credit Table (found on page 39 of the 1040 booklet and page 27 of the 1040a instructions).
None of the other tax credits discussed here or in yesterday's article may exceed your tax liability. But if you qualify for an earned income credit which is more than your tax liability, the difference will be sent to you in the form of an IRS refund check.
You can get the refund even if no income tax was withheld from your wages, you didn't pay any estimated tax during the year, and in fact you have no liability at all.
If you qualify under these conditions, complete Form 1040a, entering "zero" on line 13; or simply complete lines 1 through 11a and the IRS will calculate the earned income credit for you.
During the last half of 1979 you could have received from your employer advance payments of a pro rata share of the earned income credit. Any advance payments received are not to be entered on the worksheet. Instead, they are accounted for on line 53 of Form 1040 or line 14b of the 1040a.
If you expect to qualify for the earned income credit for 1980 and want to receive advance payments during the year, file Form W-5 with your employer. Fuel for Off-Road Vehicles
If you operate heavy equipment or a vehicle which is neither used on a public highway nor required to be licensed for such use, you may be entitled to credit of from two to seven cents a gallon for gasoline, diesel fuel, jet fuel, and lubricating oil purchased (and paid for) during 1979. But nonbusiness use of such equipment as lawn mowers and snowmobiles is no longer eligible. Excess Social Security Tax
If you worked for more than one employer during 1979 and a total of more than $1,403.77 was withheld for social security tax (FICA), you should claim the overpayment as a credit. The claim must be supported by the W-2s attached.
In adding up the total withheld, do not include more than $1,403.77 from any one employer. If a single employere withheld, by mistake, more than this allowable maximum, you must claim the refund from that employer rather than from the IRS. Income Averaging
If your income in 1979 was substantially higher than it had been in previous years, you may be able to reduce your tax liability by using the income-averaging method of computing the tax. You must meet both of these tests:
You must have been a U.S. citizen or resident during the five-year period from 1975 through 1979; and
You must have furnished at least half your own support during each of the preceeding four years. (There are exceptions to this test; these are explained in the instructions which accompany Schedule G, the income-averaging form.)
You may use income averaging for every year you qualify. Averaging for 1978 or prior years does not disqualify you from doing it again in 1979 if you meet the tests.
You must also have copies of your federal income tax returns for the years 1975 through 1978. If you can't find them, copies of returns for prior years may be obtained for a small fee from the Internal Revenue Service Center where the returns were originally filed.
The procedure for income averaging isn't as complicatd as it appears when you're able to prepare the rest of your tax return yourself, you should be able to handle income averaging without difficulty by following the step-by-step instructions.
IRS Publication 506 provides helpful information about income averaging, including details of some restrictions which might complicate the procedure -- particularly if your marital status changed during the five-year period.
If you use income averaging, you may not apply the tax ceiling on earned income described in an earlier column. So if your income adds up to more than $41,500 if single, $44,700 for the head of a household, or $60,000 if you're married or a qualifying widow (er), you should compute the tax both ways -- with income averaging, then without averaging but applying the maximum tax limitation -- to see which method produces the lower tax. Presidential Campaign Fund
Each taxpayer may earmark one dollar of his tax to help provide financing for the 1980 presidential election campaign. Payments are assigned to a general fund, to be made available to qualifying candidates for the offices of president and vice president.
This is not an additional tax on your income. It requires no payment of any kind on your part, nor will it reduce any refund you have coming. You simply are directing the government to set aside one dollar of your regular tax payment for the campaign fund.
Check the "yes" or "no" block directly under your name and address. On a joint return, each spouse has an independent choice. Estimating 1980 Tax
If you are self-employed or expect to have substantial income during 1980 that is not subject to withholding (from interest or dividends, for example), you must make special arrangements to comply with federal "pay-as-you-go" rules.
If you receive wages or retirement pay subject to withholding, you may file a new Form W-4 with your employer claiming a lesser number of allowances than authorized.
Your employer should have a set of tables showing the amount of tax to be withheld based on all the variables: payroll frequency, gross wages, marital status, and number of allowances claimed.
If you get down to zero allowances and still want more money withheld, you may specify an additional number of dollars to be withheld each payday (if your employer agrees).
If you do not have income subject to withholding, or if you cannot arrange to have enough tax withheld from your pay, you must file a declaration of estimated tax by April 15, 1980, using Form 1040-FS.
Forward one-fourth of the estimated tax deficiency with the initial declaration; then make additional payments of one-fourth by June 16, 1980; Sept. 15, 1980; and Jan. 15, 1981. (The IRS doesn't send quarterly reminders. You're responsible for remembering to send the original and follow-on payments by the due dates.)
Each stub of the payment has an area of amending your original estimate. If your estimate of tax liability changes during the year -- either up or down -- enter the new estimate on the next stub and ajdust the remaining payments to correspond to the new balance due.
If you're not liable for estimated tax on April 15 but determine later that you have become liable, file an initial 1040-ES on the next regular payment date, dividing the total amount due into the remaining number of equal payments.
If, after subtracting all payments and credits from your tax liability, there is a balance due the IRS of $100 or more, and that balance is more than 20 percent of the total tax liability, you may be subject to a penalty for underpayment of tax.
There are a number of exceptions. If the tax liability on your 1979 return fits the description above, complete Form 2210 either to justify the underpayment or to calculate the amount of any penalty due.
You are not required or expected to have more money withheld from your pay than is needed to meet your tax bill at year-end.
When completing Form W-4 for your employer, you are permitted to claim additional withholding allowances if you expect to have large itimized deductions, an adjustment for alimony payments, a credit for child care expenses, or other items that will reduce your tax.
If you have been consistently getting a large refund, or if your tax situation has changed, ask your employer for a new W-4 and worksheet. You may be able to reduce the amount withheld from your pay for taxes each payday.
But don't reduce it below the correct level, or you may find yourself subject to the penalty described above -- in addition to having a big tax bill to pay next April.