“Who can I claim as a dependent?” Income and government assistance considerations

If you’re wondering who qualifies as a dependent and if you can claim a dependent with income, there are clear-cut rules to consider. Here’s the short answer: The Internal Revenue Service (IRS) will usually let you claim your child if they work or earn an income, no matter the dependent’s income source, if certain requirements are met.

For example, many taxpayers wonder if claiming dependents that receive government assistance is permitted by the IRS. The answer is “yes.” Even if your dependent is on Supplemental Nutrition Assistance Program (SNAP benefits) or claims Social Security Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF) including Pass-through Child Support, or other government income benefits, you can still claim them on your income tax return. What you might not know are the requisites involved in claiming a dependent with income. We’ll outline the specifics next!

“Are there income thresholds for dependents?”

If you’re questioning, “What if my dependent has income?” there are additional IRS rules to consider. While the income source doesn’t matter, there are other income considerations.

• For qualifying dependents who are not a qualifying child (called “qualifying relatives” in tax law), the person’s gross income for the 2023 tax year must be below $4,700 (for 2023).
• For qualifying relatives, they must get more than half of their financial support from you.
• For qualifying children, they can’t have provided more than half of their own financial support throughout a tax year.

Essentially, it’s not about how much income a qualifying child or qualifying relative has, but how much of their income they use for support.

Additional requirements

In addition to the above income and support tests, dependents must also meet the following requirements:

For all dependents:

• Your qualifying dependent must not use Married Filing Jointly to file their tax return, unless they’re only filing to claim a refund of income taxes withheld. Also, there would be no tax liability for either the dependent or your dependent’s spouse if filing separate returns.
• Your qualifying dependent must be a U.S. citizen or U.S. resident.

For qualifying children:

• The qualifying child must be one of these:
  • Younger than you and under age 19 or under age 24, and a full-time student
  • Permanently and totally disabled
• The qualifying child must have lived with you for more than half of the year. There are exceptions for temporary absences, like when your children are away at school.

For qualifying relatives:

• The qualifying relative can’t be anyone else’s qualifying child
• The qualifying relative must be related to you as a:
  • Child, stepchild, or foster child
  • Sibling, half-sibling, or step-sibling
  • Parent or grandparent
  • Step-parent
  • Child of your sibling or half-sibling
  • Sibling of your parents
  • In-law such as daughter or son-in-law, father or mother-in-law, as well as a brother or sister-in-law
  • Or the person must live with you the entire year as a member of your household.

“Should my dependent file their own taxes, even if I claim them?”

If your child earns income but you claim them as a dependent, they may or may not be required to file a federal income tax return. However, even if they don’t have a filing requirement but their employer withholds taxes from their paycheck, they may be eligible for a tax refund. To get their refund, they should file an income tax return.

“What about tax benefits like the Child Tax Credit?”

If your dependent has earned income, can you still claim the Child Tax Credit? The answer is “yes,” but your child must first meet all of the eligibility requirements to be claimed as your qualifying child this tax year. (We referenced them earlier in this post!) In addition, they must be under 17 and have a Social Security number. If they meet these requirements, their work status or income likely won’t affect their eligibility to be claimed as a qualifying child.

Navigating dependent income taxes

While there are many nuances to tax dependents, you can still claim them even if they earn income or receive SNAP benefits or other government assistance. Yet, there are many things to keep top of mind when claiming dependent taxes, so let us help!

Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible.

The post Claiming dependents that receive government assistance or earned income — Is it possible? appeared first on H&R Block.

Education statistics reveal the total cost of going to college is reaching tens of thousands annually, leaving students and parents burdened with financing college. Fortunately, there are strategies college students and parents can use to afford the cost of higher education. With these strategies, affording higher education may be within reach, even if you think college expenses are something you could never finance on your own. Some options can even get you a free ride!

But first…

The first step to paying for college is to fill out the Free Application of Federal Student Aid (FAFSA). While the funds are distributed by the federal government, both public and private nonprofit colleges use the FAFSA to offer and distribute financial aid opportunities to students. With the FAFSA, you can receive federal aid like grants, work-study opportunities, and student loans. That said, it’s a critical financing element for those exploring how to pay for college.

Be as thorough as possible when filling out the FAFSA forms and submit FAFSA paperwork as soon as it’s available to you. Some colleges award need- and merit-based money on a first-come, first-served basis.

Ways to pay for college

Read on to learn a few tips on how to pay for college. We’ll categorize paying for college in two ways: without and with student loans. Read on as we outline your options for financing your advanced education.

How to pay for college without loans

If you’re wondering exactly how to get money for college, there are ways to cover college costs without taking out student loans.

1. College-specific financial aid

Colleges and universities often have a division that handles your financial aid. They receive contributions from alumni and corporate sponsorships to support low-income or high-merit students. Many apply for financial aid the moment when they apply for admission to the school. These financial aid packages can partially or fully cover tuition and fees. And in some cases, a living allowance is given.

2. Grants

Grants are small amounts of money that are considered gifts in some circumstances. Typically, they won’t cover all college expenses, but they can help offset costs. Unlike other forms of financial support, grants are generally free to the recipient, so you don’t need to pay it back as long as it’s used as intended. Schools and other grantors often reference your financial need and academic merit to determine candidacy for the grant. Some grants are paid in exchange for services such as teaching or research. In that case, they’re considered taxable income.

While there are various types of grants available, they are usually bucketed into two groups:

• Program or subject-specific grants offer money to students who take courses in priority fields or under-populated academic programs such as science and mathematics.
• Student-specific grants consider the student’s profile and financial situation. For example, some grants give support to students who will be among their family’s first generation to attend college.
• Federal government grants are another grant source to consider. The Federal Pell Grant, for example, is the largest federal grant program for undergraduate students and is awarded to students who demonstrate financial need to help them pay for college expenses. In addition to the Pell program, the federal government offers other types of federal grants. And many states also offer grant programs. You can use the Education Department’s state education contacts and information locator to find agencies in your state that administer college grants and apply to the grant programs you qualify for.

3. Work-study programs

Sometimes, financial aid is given in exchange for part-time work at the school work-study programs. Many colleges reserve several positions for students participating in these programs, and students can use funds to offset tuition costs, so it’s worth pursuing.

4. Academic and athletic scholarships

Colleges and universities want to recruit the best and the brightest individuals. This often includes athletes and academic achievers. So, if you belong to this group, you could get a scholarship to offset college costs.

Word of caution: Academic scholarships require you to remain in good standing. For this reason, you could lose your scholarships if you breach certain college rules or fall below a certain grade point average.

5. Corporate or business scholarships

Corporations or businesses often have sponsorship programs aimed at developing young talent. These companies give grants or scholarships to deserving students. Some scholarships are for the children of their employees. In other situations, in exchange for paying your college tuition, a company will ask you to sign a contract of return service. So, you are required to work for the company for a certain number of years once you graduate.

6. Student loans

As the name implies, college students borrow money to pay for their college education from public or private lending institutions. Use student loans once you’ve exhausted all other options. And if you need to borrow, take out a federal student loan before a private student loan. Federal loans have benefits that private student loans don’t, like income-driven repayment plans and student loan forgiveness programs.

Pay close attention to the interest rate on your loan. A high interest rate can increase the amount you owe over time. Also, check when the interest will start to accrue and when the payback period starts —all these can greatly affect your financial future, so borrow carefully!

(Head to Spruce for more college student budget tips.)

Word of tax wisdom: Luckily, there is a way to offset some of your student loan costs. When you start repaying your student loan, you may be able to deduct the interest paid — even if you don’t itemize deductions. The maximum $2,500 deduction is “above the line,” so you don’t have to itemize your deductions to claim this benefit. The IRS limits this duction to just one per return, so married couples who are both repaying student loans can’t deduct more than $2,500 annually on their joint return.

Learn more about the student loan interest deduction.

Get help with taxes as a college student or parent

Taxes can be tricky for any taxpayer. And filing taxes as a college student (or as a parent!)  can make things even more intimidating.! H&R Block can make tax filing for students a little easier. Whether you choose to file online or want to file your taxes with a tax professional, we’re here for you.

The post How to pay for college: 6 ways to help pay for college even when you don’t think it’s possible appeared first on H&R Block.

Have other student tax filing questions? Be sure to visit our Tax Guide for College Students and find out about student forms that can be filed for free.

Which college expenses are tax deductible?

Due to tax changes in recent years, the rules around which college expenses are tax deductible or allow you to take a credit have changed. The list below covers categories of higher education expenses you may have questions about. Take a look to see which expenses still qualify as tax deductible.

• Qualified tuition and fees are no longer tax deductible after 2020. The Tuition and Fees deduction was an adjustment to income if you incurred qualified education expenses for you, your spouse, or your dependent.
• Work-related education expenses were previously tax deductible, but this deduction is not available for employees from 2018-2025 due to changes to itemized deductions with tax reform. Before this change, you may have benefitted from a deduction if the education was required by your employer or by law. However, if you are self-employed, you may be able to deduct education expenses. The education must enhance or improve skills related to your trade or business or must be required by law.
• Student loan interest, a college expense that generally applies in an after-college scenario, is still tax deductible. This college expense tax deduction lets you reduce your taxable income by up to $2,500 for qualified student interest paid during the year. In this case, qualified means the loan was only for education expenses, not for other types of expenses. The requirements state that the student must be the taxpayer, spouse, or dependent. The student must have been enrolled at least half-time at an eligible institution, and the program must lead to a degree, certificate, or other recognized credential. Furthermore, the loan cannot be from a related person or a qualified employer plan. Find additional student loan interest deduction criteria.

What is considered a qualified education expense?

Although key education expenses like tuition and fees are no longer tax deductible, you might be able to claim a credit by using the American Opportunity Credit or the Lifetime Learning Credit. Tuition and fees may be considered qualified education expenses, but the details can vary beyond those costs.

• American Opportunity Credit – In addition to tuition and required fees, you may include expenses for books, supplies, and equipment (including computers if required as a condition of enrollment) — even if they are not paid to the school. You must satisfy all requirements for the American Opportunity Credit to be able to receive the credit for these expenses.
• Lifetime Learning Credit – Included with qualified tuition and fees, you can count costs for course-related books, supplies, and equipment (including computers) required to be paid to the educational institution. Note that although the tuition and fees deduction is no longer available, starting in 2021 the income limits for the Lifetime Learning Credit have been increased, so the credit is now available for more students.

What doesn’t count as qualified expenses?

The Internal Revenue Service has rules for what you can and cannot deduct as a qualified expense. In general, insurance, medical expenses, transportation, and living expenses are not qualified school expenses for an education credit. Likewise, non-credit courses are not qualified education expenses, unless they are part of a degree program.

For more information about eligibility and requirements for these benefits, review our article on education tax credits. For details about college savings accounts and qualified expenses, check out our information about saving for college and reducing your tax bill.

Tax tip: Keep your documentation!

Schools will provide (via mail or electronic portal) the student with a Form 1098-T, which will reflect tuition and fees amounts that the school receives in payment. You may also use payment receipts or any other kind of statements showing the payment of qualified education expenses.

Need help determining deductible college expenses?

Whether you choose to file with a tax pro or file with H&R Block Online, H&R Block can help you determine which college expenses are deductible. We’ll help you get the maximum tax benefit for your education-related expenses.

The post Qualified education expenses: Are college expenses tax deductible? What about tax credits? appeared first on H&R Block.

What’s more, the American Opportunity Credit is a partially refundable education tax credit. That means if you’ve offset your applicable taxes and there’s some of the credit left over, you could receive money back as a refund. We’ll get into those specifics a little later.

Have other student tax filing questions? Be sure to visit our Tax Guide for College Students and find out about student forms that can be filed for free. 

American Opportunity Credit rules

On top of qualified tuition and fees, books and supplies (including a computer if it’s required for enrollment or attendance) count as eligible school expenses. However, the same expenses may not be used to claim any of the other education tax credits, deductions, or exclusions.

Instead of $2,500 of qualified education expenses applying to the credit directly, the American Opportunity Credit rules work slightly differently. The expense calculations are broken into two parts.

Here’s what that looks like. If you’re an eligible student, the AOTC is a credit of:

• Up to 100% of the first $2,000 of qualified expenses
• Up to 25% of the next $2,000 of qualified expenses

As mentioned above, the American Opportunity Tax Credit is partially refundable. If you don’t have a tax liability for the year, you can get up to 40% ($1,000) back.

Let’s review an example calculation to see this in action:

Steve and Carol pay $8,000 in qualified education expenses during the tax year for their daughter’s junior year in college. Their tax liability for the tax year is $1,000. Under the American Opportunity Credit, they qualify for a credit of $2,500, $1,000 of which is refundable.

Kiddie tax exception –  If the AOTC is claimed by a child who is subject to the kiddie tax, the credit is not refundable. Note that the student doesn’t have to actually pay kiddie tax to be considered subject to the kiddie tax. A student with no unearned income can still be subject to the kiddie tax rules.

American Opportunity Credit phaseout – If your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if you’re married filing jointly), your eligibility will start to “phase out” — meaning you may only qualify for a partial credit or none at all. You cannot claim the credit if your MAGI is over $90,000 ($180,000 if you’re married filing jointly).

American Opportunity Credit requirements and eligibility

To claim the American Opportunity Tax Credit, you’ll have to meet several requirements.

Enrollment – You must be enrolled for at least one academic period that begins in the tax year in which you are claiming the AOTC. For 2023, an academic period that began during the first three months of 2024 is treated as beginning in 2023 if you paid qualified education expenses in 2023 for that academic period. You also must be:

• Enrolled in an eligible educational institution at least part time
• Enrolled in a post-secondary undergraduate program leading to one of these:
  • Degree
  • Certificate
  • Other recognized educational credential

The school decides what qualifies as full-time or half-time enrollment. Although the number can be higher or lower, most educational institutions see 12 credit hours in one semester as full-time status.

However, the standard for half-time workload cannot be lower than the standard established by the Department of Education.

Years of study – The student must not have completed the first four years of post-secondary education as of the beginning of the taxable year. This definition is also determined by the school.

Claiming the AOTC previously – You can only claim the American Opportunity Tax Credit four times per student. The Hope Credit, a predecessor of the American Opportunity Credit available through 2009, will also count in the four available uses of the American Opportunity Credit.

AOTC qualifying expenses

Tuition, enrollment fees, and related expenses to the program of study typically count as a qualified educational expense for the AOTC. This includes the cost of things like:

• Books
• Supplies
• Equipment
• Student activity fees (if paid to the institution as a condition of enrollment or attendance)

The tax credit does not cover higher education expenses associated with:

• Room and board
• Transportation
• Medical insurance

You are allowed to pay for qualified education expenses with borrowed funds like student loans or credit cards. However, you can’t claim the credit if you paid for qualifying expenses with scholarships, federal grants (like the Pell Grant), employer-provided assistance, or funds from a 529 savings plan — unless the scholarship, grant, assistance, or 529 interest are treated as taxable income.

What can affect your eligibility for the American Opportunity Credit?

There are a few situations which may exclude you from taking the credit. You can’t take the AOTC if any of the following apply:

• Your filing status is married filing separately (MFS).
• You are claimed as a dependent on another person’s tax return (such as the taxpayer’s parents’ return).
• You (or your spouse) were a nonresident alien for any part of the year and the nonresident alien did not elect to be treated as a resident alien for tax purposes.
• You used the same expenses to claim the Lifetime Learning Credit.
• You used the same expenses to treat a scholarship, grant, or employer-provided educational assistance as tax-free.
• You received a refund of all expenses.
• The eligible student did not have an SSN or ITIN on or before the due date for filing the tax return for the tax year.

Tax tip: Lifetime Learning Credit may be another option.

If any of the above has disqualified you, don’t despair. The Lifetime Learning Credit may be available to students who don’t meet American Opportunity Credit eligibility. This can include students who are enrolled for college credit less than half-time or have already completed four years of post-secondary education.

American Opportunity Credit tax forms

If you paid qualified educational expenses during a specific tax year to an eligible institution, then you will receive Form 1098-T. Colleges are required to send the tax form by January 31 each year, so you should receive it shortly after that. Some colleges may make it available to you electronically.

The Internal Revenue Service (IRS) requires that you complete tax form 8863 and file it with Form 1040 when filing your annual income tax return.

The American Opportunity Credit vs. The Hope Credit

The Hope Credit was a nonrefundable credit which qualifying students could claim for their first two years of post-secondary education. The American Opportunity Tax Credit replaced the Hope Credit in tax year 2009. By replacing the previous education credit, the AOTC expanded the tax benefits available to students paying for higher education and its related expenses.

Get help claiming the American Opportunity Credit

Whether you choose to file with a tax pro or file with H&R Block Free Online, we can help you file the forms related to the American Opportunity Credit.

The post What is the American Opportunity Credit? appeared first on H&R Block.

The Internal Revenue Service (IRS) has specific rules for claiming tax dependents, including a residency test for any qualifying dependent relative or qualifying child. Take a minute to learn the basics — we’re here to walk them through so you can understand income tax guidelines a bit better!

Claiming a dependent on taxes: Which relationships qualifies?

As mentioned above, the person doesn’t have to live with you to qualify as a tax dependent on your income taxes. To be a dependent, the person will fall into one of two categories:

• As a Qualifying Child. This could be your child as follows:
  • Child, stepchild, or adopted child,
  • Eligible foster child,
  • Sibling, half sibling, step sibling,
  • A descendent of the above individuals.
• As a Qualifying Relative. This could be your relation as follows (provided any relations established by marriage aren’t ended by death or divorce):
  • Child, stepchild or adopted child, eligible foster child, or descendant of any of these.
  • Sibling, half sibling, stepsibling, grandparent, or other direct ancestor.

A Qualifying Relative can’t be a foster parent. They also can’t be your Qualifying Child (QC) or the QC of another taxpayer. 

Claiming a dependent on taxes: Residency nuances

As you can see above, when it comes to income taxes, the IRS recognizes a host of blended family situations. But what about international family situations? Can you claim a non-resident as a dependent on your taxes? In short, the answer is “no.” (The person you claim must be a U.S. citizen or resident, a U.S. national, or a resident of Canada or Mexico.)

Knowing that dependent-related tax benefits only apply if the person qualifies as your dependent, it’s a good idea to double-check the details.

You can claim a person who lives outside the U.S. for part of the year on your taxes if they meet certain criteria. For example, if you have a 16-year-old child who is a U.S. citizen and lives with you most of the year, but travels and lives for three months in India, you can claim them.

On the other hand, you couldn’t claim your grandmother who lives in India full-time and isn’t a U.S. citizen or resident, even though you provide financial support for her.

Does a dependent have to live with you?

Let’s cover the details around the question we posed at the start of this post. Specifically, whether a dependent has to live with you to claim them. You can claim certain relatives if they fall in the list below.

A person related to you in any of the following ways doesn’t have to live with you all year as a member of your household to meet this test.

• Your child, stepchild, or foster child, or a descendant of any of them (for example, your grandchild). (A legally adopted child is considered your child.)
• Your brother, sister, half brother, half sister, stepbrother, or stepsister.
• Your father, mother, grandparent, or other direct ancestor, but not foster parent.
• Your stepfather or stepmother.
• A son or daughter of your brother or sister.
• A son or daughter of your half brother or half sister.
• A brother or sister of your father or mother.
• Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.

Any of these relationships established by marriage remain even if the marriage ends by death or divorce.

Who qualifies as a dependent? Other considerations

There are additional rules for a person to qualify as your dependent, either as a Qualifying Child or Qualifying Relative, for income tax purposes. For someone to be considered as a dependent this tax year, all of these must be true:

• The person must not file a joint tax return unless they are only filing to claim a refund of estimated taxes or income tax Also, there would be no tax liability for either the person or the person’s spouse if filing separate tax returns.
• The person can’t be claimed as a dependent of any other taxpayer.
• The person must be a:
  • U.S. citizen
  • U.S. national
  • Resident of the United States, Canada, or Mexico

To be a Qualifying Child, the child:

• Must live with the taxpayer for more than half the year.
• Can’t provide more than half of their own total support for the year.
• Must be younger than you, the taxpayer (or spouse if Married Filing Jointly) and under age 19 at the end of the year, or under age 24 at the end of the year and a full-time student, or they can be any age if totally and permanently disabled.

There are no gross income requirement to be a Qualifying Child.

To be a Qualifying Relative,

• The relative must meet the gross income test. The person must have gross income less than $4,700 for the 2023 tax year ($5,050 for 2024),
• You must provide more than half of person’s total support for the year, and
• The relative must meet the other requirements to be a qualifying relative.

There are no age requirements to be a Qualifying Relative.

Potential tax benefits for dependents

Claiming a Qualifying Child or Qualifying Relative means you may be able to claim specific tax benefits. Follow along as we outline each of them.

Qualifying Child:

You may be eligible to claim the Child and Dependent Care Credit, Head of Household filing status, or Other Dependent Credit, as well as the Earned Income Tax Credit.

Qualifying Relative:

You may be eligible to claim the Child and Dependent Care Credit, Head of Household filing status, and Other Dependent Credit.

Navigating IRS dependent rules

Looking for more help with navigating IRS tax dependent rules. Whether you choose to file online or want to file your taxes with a tax professional, we’re here for you. You can count on H&R Block to help you navigate the rules of claiming a tax dependent family member on your taxes and even spot other tax deductions or tax credits that may be available to you!

The post Does a dependent have to live with you to qualify as a tax dependent? appeared first on H&R Block.

What is a tax extension?

Each tax season, some taxpayers will ask, “How do I get an extension for my taxes?” But they might be thinking of the taxes owed and not the tax return itself.

This question calls attention to a key distinction about what a tax extension is — and what it is not. A tax extension is a request for additional time to file your federal income tax return. But take note: Filing an tax extension only gives you more time to finish the paperwork, not more time to pay your tax bill.

What is the tax extension deadline?

Your tax payment is still due on the tax deadline, which typically falls on April 15 or on the next business day if it falls on a weekend or holiday. For the 2023 tax year (taxes filed in 2024), tax extensions submitted by April 15 moves the filing deadline to October 15.

• If you know you’ll be getting a refund, you won’t need to worry about paying when you are filing an extension for taxes. The earlier you file your return, the earlier you’ll receive your refund.
• If you think or know you’ll owe, you should estimate what you’ll owe (see below) and pay the estimated tax amount due when you file Form 4868.

Is there a penalty for filing a federal tax extension?

Filing a tax extension is not a bad thing. There is no penalty for filing a tax extension. However, not paying on time or enough, or failing to file altogether, may cost you.

• If you don’t pay the full amount you owe, the IRS will charge you interest on the unpaid tax balance until you pay the full amount.
• If you don’t pay at least 90% of the amount you owe, you might also be subject to a late payment penalty. The penalty is usually half of 1% of the amount owed for each month, up to a maximum of 25%.
• If you don’t file either your return or Form 4868 by the tax filing deadline for the given taxy year, you’ll be subject to a late filing penalty. The penalty is usually 5% of the amount you owe for each month, up to a maximum of 25%.

After you file the extension, you’ll have until October 15 to gather your documents and finish your filing.  When you complete your return, you should include the amount you’ve already paid in the payments section of your Form 1040.

How to file a tax extension: Can you file a tax extension online?

Form 4868 is the IRS form you complete to receive an automatic extension to file your return. You can file a tax extension online in one of several ways with H&R Block. While you won’t be filling out the paper Form 4868 line-by-line, your tax extension information will be sent online to the IRS.

Here’s how to get an extension on your taxes with H&R Block*

If you’re not ready to file your tax return, don’t let Tax Day go by without filing for an income tax extension.

• File your tax extension online on your own – Start with an existing H&R Block Online account or create a new one to submit your extension. To get started, once you are logged in, look for the “File an extension” link under the Tax Filing Resources header on the Overview tab. Our program will ask you all the relevant questions, so you can file your extension with the IRS.
• File your tax extension with a tax pro – Make an appointment with an H&R Block tax pro to submit your tax extension. You can work with on of our tax professionals in-person, virtually or by drop off.

Not sure you’ll be able to pay your tax bill? The IRS offers payment options to help you pay off your bill (see IRS payment plans).

Don’t live in the United States? Find out how to file an extension when you’re living abroad from our Expat Tax Services team.

* Fees may apply.

The post IRS tax extension: How do I file an extension for taxes? appeared first on H&R Block.

Understanding the tax rules, including the mortgage interest deduction limit, is key to taking this income tax deduction. Learn more about deducting mortgage interest in this post.

Who qualifies for the mortgage interest tax deduction?

First, let’s answer the question, “How does mortgage interest work?” When you repay a home mortgage loan each month, you pay a principal amount, plus interest. While money paid toward principal isn’t deductible, the interest is.

If you itemize deductions on Schedule A, you can deduct qualified mortgage interest paid on a qualifying residence, including your:

• Main home, or
• Second home

Homeowners must be legally responsible for repaying the loan to deduct the mortgage interest. Also, the interest must be paid on a debt that is an acquisition indebtedness, which is a debt incurred or assumed to acquire, construct, reconstruct, or substantially improve real property that is secured by the debt.

You can increase your mortgage interest deduction by making extra mortgage payments yearly. For example, if you pay your January mortgage in December, you’ll have one extra month’s interest to deduct. However, you can deduct only what qualifies as home mortgage interest for that year. This might work in your favor when it comes to mortgage points (a fee you can pay to help lower your mortgage interest rate). And if the loan proceeds are used to substantially improve the main residence, the points are fully deductible in the year the mortgage is refinanced

What qualifies as mortgage interest?

As a taxpayer, you can fully deduct most interest paid on home mortgages if all the Internal Revenue Service’s (IRS) requirements are met. You must separate qualified mortgage interest from personal interest. Mortgage interest is usually deductible, but personal interest isn’t.

Mortgage interest deduction limit

The deduction for mortgage interest is allowed for home acquisition debt. (A home mortgage is also called acquisition debt.  These debts are used to buy, build, or improve your main or secondary home.)

If you’re questioning, “How much mortgage interest can I deduct on my taxes?” you can fully deduct the home mortgage interest you pay on acquisition debt as long as the debt isn’t more than the following amounts within a tax year:

• $750,000 of mortgage debt if the loan was finalized after Dec. 15, 2017
• $1 million of mortgage debt if the loan was finalized on or before Dec. 15, 2017

These limits are halved if you’re Married Filing Separately. (Note: The lower debt limit is effective 2018 through 2025 and will revert back to $1 million after 2025 (barring legislation passing.))

You can’t deduct the interest you pay on home equity loans or home equity lines of credit if the debt is used for something other than home improvements. This includes things like using it to pay for college tuition or to pay down credit card debt.

An example: In 2020, Chris bought his main home for $500,000. A few years later, he owed $400,000 on the original mortgage and took out a $60,000 home equity loan. He used the money to build a sunroom and install an indoor pool. His home is now worth $700,000. He then took out another $130,000 home equity loan and bought a sailboat.

On his 2023 tax return, it’s better for him to itemize his deductions vs. claiming the standard deduction. That said, he can deduct the home mortgage interest he pays on:

• $400,000 left on the original mortgage (acquisition debt)
• $60,000 sunroom and pool loan (acquisition debt)

He can’t deduct any interest related to the home equity loan for the sailboat.

Splitting the home mortgage interest deduction

What if you share a mortgage with another person? How do you split the home mortgage interest deduction with your spouse? You can each split the mortgage interest you paid if the above requirements are met. If one person in a party doesn’t itemize deductions, the other can’t deduct the full amount of the mortgage interest unless they actually paid it.

Mortgage interest deduction exceptions

Here are some exceptions to the home mortgage interest deduction:

• Suppose a first or second home is used for personal and rental use. In that case, you can allocate the deduction limited to the part of the home allocated for residential living or follow the special variation home rules for the second home. Learn more about navigating income tax on rental properties.
• If part of your home is used as a home office, then that portion should be allocated as a business expense as a home office deduction, not the mortgage interest deduction.

How to claim the mortgage interest deduction

If you’re wondering how to claim the mortgage interest tax deduction, there are a few pointers to consider.

1. Itemize your taxes

As mentioned above, you claim the mortgage interest deduction only if you itemize vs. take the standard deduction when you do your taxes. You’ll use Tax Form 1040 (Schedule A) to itemize tax deductions.

2. Get your IRS Form 1098

You will get Form 1098 if you pay $600 or more mortgage interest throughout the tax year from your bank lender in late January or early February. This tax form details how much you paid in mortgage interest in a year. Your lender also sends a copy of that 1098 to the IRS. Use this form in the event of an IRS tax inquiry or audit.

Use Schedule E (1098) for rental property interest.

3. Calculate your mortgage interest deduction

You will need to calculate your deduction by figuring how much interest will qualify for the deduction. Remember the rules above for what kinds of interest payments qualify for deduction.

4. Report the deduction on Form 1040

You will report the deduction on Form 1040, Schedule A.

Navigating the mortgage interest deduction

It pays to take mortgage interest deductions, but it requires a little extra legwork to claim. If you’re looking for help claiming the mortgage interest deduction or other valuable tax deductions, H&R Block can help. Whether you make an appointment with one of our knowledgeable tax pros or choose one of our online tax filing products, you can count on H&R Block to help you with your tax preparation and get your max refund or lower what you owe in income tax.

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Why the filing status after death of a spouse matters

Why is your filing status important? The status you use determines your income tax rate and standard deduction. If you’re a recent widow or widower, you should file your taxes using the filing status that offers the most tax benefits and provides the lowest tax bill.

Your options for your tax filing status, if your spouse dies, will change depending on how long ago they passed away. For example, you can generally use Married Filing Jointly within the year your spouse passes. Then in the next two years, you can file your tax return as a Qualifying Surviving Spouse if you meet certain requirements.

Filing status options after the death of a spouse

Let’s review the various filing statuses you may use for your tax return if your spouse dies and your eligibility to use them.

Married Filing Jointly

You can still use Married Filing Jointly with your deceased spouse for the year of death — unless you remarry during that tax year.

Remarriage

If you remarry in the year of your spouse’s death, you can’t file a joint return with your deceased spouse. However, you can use Married Filing Jointly with your new spouse. You and your new spouse can also each use Married Filing Separately. If a final 1040 return is also required for your deceased spouse, use the Married Filing Separately status. Learn more about different filing requirements for a deceased taxpayer and Form 1041 (often used for those filing taxes for the deceased).

Due to the Tax Cuts and Jobs Act rules expiring, for tax years after 2025, a surviving spouse with no gross income can be claimed as an exemption on your deceased spouse’s separate return or your new spouse’s separate return. However, if you file jointly with your new spouse, you can claim a tax exemption only on that joint return. If the deceased spouse was a dependent on someone else’s tax return, then the surviving spouse can’t claim the exemption on a joint return.

Qualifying Surviving Spouse filing status (formerly Qualifying Widower filing status)

The Qualifying Surviving Spouse status (formerly known as the Qualifying Widow or Qualifying Widower tax status), can be claimed for the two tax years after the death of your spouse. However, you can’t use it for the year your spouse passed away.

To qualify for the Qualifying Surviving Spouse filing status, you must meet these four requirements:

• You qualified for Married Filing Jointly with your spouse for the year they died. (It doesn’t matter if you actually filed as Married Filing Jointly.)
• You didn’t remarry.
• You have a child, stepchild, or adopted child you claim as your tax dependent. This doesn’t apply to a foster child.
• You paid more than half the cost of maintaining your home. This must be the main home of your dependent child for the entire year, except for temporary absences.

Qualifying Surviving Spouse status entitles you to use both of these:

• Married Filing Jointly tax rates — However, you’re not entitled to file a joint return after the year of death.
• The same standard deduction amount as Married Filing Jointly — Only use this if you don’t itemize deductions.

Note: The Qualifying Surviving Spouse standard deduction is the same as Married Filing Jointly. Although there are no additional tax breaks for widows, using this filing status means your standard deduction will be double the Single filer status amount.

Filing as Single

Unless you qualify for another tax filing status, you’ll usually file as Single in the year after your spouse dies. You might not qualify as a Surviving Spouse if your child is a foster child. In that case, you should use Head of Household status.

Get help with determining your filing status if your spouse dies

When a spouse passes, you have a lot to worry about – let taxes should not be one of them. If you need help understanding your filing requirements and status options, one of our knowledgeable tax pros can help. Whether you choose to file with a tax pro. Or you can file with H&R Block Online if you’re wanting to file yourself. Either filing method, you can rest assured that we’ll get you the most tax benefits possible.

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Note: This post outlines NJ income tax details. It does not cover sales tax information.

NJ income tax details

While other types of state taxes—like sales tax and use tax—are a fixed percentage,  NJ income tax operates as a progressive tax system, meaning the rate goes up or down based on your New Jersey Adjusted Gross Income.

What are the NJ tax rates?

The New Jersey income tax brackets vary between 1.4% and 10.75%, depending on your filing status and adjusted gross income. For a New Jersey resident that files their tax return as:

• Single or Married Filing Separately have seven possible tax brackets.
• Married Filing Jointly or Head of Household have eight possible tax brackets.

We outline the NJ tax rates for these brackets below.

New Jersey tax rate for Single and Married Filing Separate filing statuses:

New Jersey tax rate for Married Filing Jointly and Head of Household statuses:

You can also find tax rate tables for the New Jersey tax rates from the New Jersey Department of Taxation.

More help with New Jersey tax filing

Don’t want to prepare your New Jersey tax return solo? Get help filing tax forms with H&R Block. You can file with H&R Block Online or with a tax pro in an office or from your home with H&R Block Virtual. With this service, we’ll match you with a tax pro with New Jersey state tax expertise. Then, you will upload your tax documents, and our tax pros will complete your NJ taxes.

The post New Jersey state tax: Rates and other income tax information appeared first on H&R Block.

Some people go online the first week in January and prepare their tax return using the information on their last paycheck stub because they don’t want to wait to receive their W-2 from their employer! The income information is similar, so what gives… Can you file taxes without a W-2 or with a paystub?

“Can I file my taxes with my last check stub?”

The devil is in the details here between can and should. Can you use your last check stub to file taxes? In a way, yes, but — only to file a preliminary tax return (more on that below). Your last check stub is not the officially recognized document to file your income tax return, according to the Internal Revenue Service.  That said, the real answer to “Can I file your taxes with my last pay stub?” is “No, you can’t file a return using your last pay stub.”

Last pay stub vs. W-2: What’s the harm?

So, what’s the big difference? Let’s take a closer look. A pay stub, or pay statement, summarizes an employee’s gross pay, tax information and deductions, and net pay. You, as the employee, can use your pay stub to verify important income data like your gross pay, tax withholding, any tax deductions, and net pay. Your pay stub can help you estimate your tax liability and plan your tax filing needs ahead of tax season.

But it falls short of providing what you need to do your taxes.

Your last paycheck stub is not guaranteed to be an accurate statement of your annual earnings, and it could be missing some tax information that you need to file a full income tax return. If you file a return with inaccurate or missing information, you could be required to file an amended tax return. That could cost you more in tax preparation fees and could increase the amount of time it takes for the IRS to issue a refund.

Ways to get your W-2

Here’s a little bit of good news. Employers must send Form W-2, an important wage and tax statement that reports your taxable wages and the taxes withheld from your wages to the IRS, to employees by January 31. However, many employers now provide electronic W-2s that can be accessed earlier in the month.

You could also check out H&R Block’s W-2 Early Access (temporarily unavailable) service to see if your employer participates.

Filing using a W-2 is seamless, providing the information you need to file your return. But what if the form is lost or missing? If you are worried that your W-2 is missing, we have more tips on contacting your employer or the IRS to get the information you need.

Filing taxes with your pay stub and Form 4852

If the tax filing deadline is approaching, you’ve contacted your employer and the IRS, and you’re still waiting for your W-2, you can use your pay stub to help fill out IRS Form 4852: Substitute for Form W-2, Wage and Tax Statement. You’ll enter an estimate of your wages and tax withholding which is usually found on your final pay stub for the year. You must also notify the IRS and explain your efforts to obtain your late W-2. Then, attach Form 4582 to your tax return.

Get help filing your taxes with H&R Block

We know that filing income taxes can be overwhelming, especially if you’re missing or waiting on important forms. For this reason, we’re here to help you along the process.

Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible to keep that hard-earned income in your pockets!

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