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Taxmap/pub17/p17-194.htm#TXMP2b32b4d8 Refundable Credits

Refundable Credit

The following credits are refundable and are treated as payments of tax.

• Credit for excess social security tax or railroad retirement tax withheld.
• Credit for tax on undistributed capital gain.
• Health coverage tax credit.

Taxmap/pub17/p17-194.htm#TXMP4db98f99 Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld

Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld

Most employers must withhold social security tax from your wages. If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax.

If you worked for two or more employers in 2004, you may have had too much social security or RRTA tax withheld from your pay. You can claim the excess social security or RRTA tier 1 tax as a credit against your income tax. The following table shows the maximum amount of wages subject to tax and the maximum amount of tax that should have been withheld in 2004.

Type of tax	Maximum wages subject to tax	Maximum tax that should have been withheld
Social security or RRTA tier 1	$87,900	$5,449.80
RRTA tier 2	$65,100	$3,189.90

All wages are subject to Medicare tax withholding.

Use Form 843, Claim for Refund and Request for Abatement, to claim a refund of excess RRTA tier 2 tax. See Publication 505, Tax Withholding and Estimated Tax, for details.

Taxmap/pub17/p17-194.htm#TXMP448a1ffc One employer.

One employer.

If any one employer withheld social security or RRTA tax that exceeded the amounts in the preceding table, you cannot claim the extra amount withheld by that employer as a credit against your income tax. Your employer must adjust this for you.

Taxmap/pub17/p17-194.htm#TXMP4c13cbae Joint return.

Joint Return

If you are filing a joint return, you cannot add the social security or RRTA tax withheld from your spouse's wages to the amount withheld from your wages. Figure the credit separately for you and your spouse to determine if either of you has excess withholding.

Taxmap/pub17/p17-194.htm#TXMP6cad5136 How to figure the credit if you did not work for a railroad.

How to figure the credit if you did not work for a railroad.

If you did not work for a railroad during 2004, figure the credit as follows:

1.	Add all social security tax withheld (but not more than $5,449.80 for each employer). Enter the total here
2.	Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 62
3.	Add lines 1 and 2. If $5,449.80 or less, stop here. You cannot claim the credit
4.	Social security tax limit	5,449.80
5.	Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 66 (or Form 1040A, line 43)

Taxmap/pub17/p17-194.htm#TXMP75b213ab
Example.

You are married and file a joint return with your spouse who had no gross income in 2004. During 2004, you worked for the Brown Shoe Company and earned $52,000 in wages. Social security tax of $3,224 was withheld. You also worked for another employer in 2004 and earned $40,200 in wages. $2,492.40 of social security tax was withheld from these wages. Because you worked for more than one employer and your total wages were more than $87,900, you can claim a credit of $266.60 for the excess social security tax withheld.

1.	Add all social security tax withheld (but not more than $5,449.80 for each employer). Enter the total here	$5,716.40
2.	Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 62	-0-
3.	Add lines 1 and 2. If $5,449.80 or less, stop here. You cannot claim the credit	5,716.40
4.	Social security tax limit	5,449.80
5.	Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 66 (or Form 1040A, line 43)	$266.60

Taxmap/pub17/p17-194.htm#TXMP32b07c17 How to figure the credit if you worked for a railroad.

How to figure the credit if you worked for a railroad.

If you were a railroad employee during 2004, figure the credit as follows:

1.	Add all social security and tier 1 RRTA tax withheld (but not more than $5,449.80 for each employer). Enter the total here
2.	Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance included in the total on Form 1040, line 62
3.	Add lines 1 and 2. If $5,449.80 or less, stop here. You cannot claim the credit
4.	Social security and tier 1 RRTA tax limit	5,449.80
5.	Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 66 (or Form 1040A, line 43)

Taxmap/pub17/p17-194.htm#TXMP5207744e How to claim the credit.

Enter the credit on Form 1040, line 66. You cannot claim the credit on Form 1040A or Form 1040EZ.

Taxmap/pub17/p17-194.htm#TXMP76487431 Credit for Tax on Undistributed Capital Gain

Undistributed Capital Gain Tax Credit

You must include in your income any amounts that regulated investment companies (commonly called mutual funds) or real estate investment trusts (REITs) allocated to you as capital gain distributions, even if you did not actually receive them. If the mutual fund or REIT paid a tax on the capital gain, you are allowed a credit for the tax since it is considered paid by you. The mutual fund or REIT will send you Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, showing the undistributed capital gains and the tax paid, if any. Claim the credit for the tax paid by entering the amount on line 69, Form 1040, and checking box a. Attach Copy B of Form 2439 to your return. See Capital Gain Distributions in chapter 9 for more information on undistributed capital gains.

Taxmap/pub17/p17-194.htm#TXMP25ec2aca Health Coverage Tax Credit

HCTC

There is a health coverage tax credit available to certain individuals who receive a pension benefit from the Pension Benefit Guaranty Corporation (PBGC) or are eligible to receive certain Trade Adjustment Assistance (TAA) or who are eligible for the Alternate Trade Adjustment Assistance (ATAA) program. You qualify for this credit if you:

1. Are an eligible individual,
2. Pay for qualified health insurance covering an eligible coverage month for yourself or for yourself and qualifying family members,
3. Do not have other specified coverage, and
4. Are not in prison.

You qualify for this credit on a month-by-month basis. If you qualify, you can claim a credit equal to 65% of the premiums you pay for qualified health insurance.

You can either take this credit on your tax return or have it paid on your behalf in advance to your insurance company. Your payments and any payments paid on your behalf in advance are treated as having been made on the first day of the month for which they are made. If the credit is paid on your behalf in advance, that amount will reduce the amount of the credit you can claim on your tax return. If you received National Emergency Grant (NEG) payments during 2004 for qualified health insurance, that amount will also reduce the amount of the credit you can claim.

You are not entitled to the credit for a month, if on the first day of that month, you are either: Covered by Medicare, or Covered by a group health plan available through your or your spouse's employer if the employer contributes 50% or more of the premium.

For a definition of an eligible individual, see the following discussion. For definitions of the terms in (2) and (3) earlier, including qualified health insurance and other specified coverage, see Publication 502.

Taxmap/pub17/p17-194.htm#TXMP0aed8fb3 Eligible Individual

You are an eligible individual for any month during which one of the following is true.

1. You receive a TAA for individuals under the Trade Act of 1974 for at least one day in the month.
2. You would receive a TAA but do not because you have not yet exhausted your unemployment benefits, and are covered under a TAA certification.
3. You are a worker receiving a supplemental wage allowance under section 246 of the Trade Act of 1974 for such month.
4. You are at least 55 years old as of the first day of the month and are receiving pension benefits from the PBGC.

Once you qualify under (1) or (2) above, you remain eligible for the first month that you otherwise cease to be eligible.

Taxmap/pub17/p17-194.htm#TXMP6f5172d9
Example.

You receive a TAA for individuals during May, but do not receive another for the rest of the year. You are eligible for the health coverage tax credit for both May and June.

You are not an eligible individual if an exemption can be claimed for you on another person's tax return.

Taxmap/pub17/p17-194.htm#TXMP761b7002 ATAA workers.

If you are eligible for the Alternative Trade Adjustment Assistance (ATAA) program, you are eligible for this credit for a period not to exceed two years if you:

1. Are covered by a qualifying certification,
2. Are reemployed not more than 26 weeks after the date of separation from the adversely-affected employment,
3. Are at least 50 years of age,
4. Do not earn more than $50,000 a year in wages from reemployment,
5. Are employed on a full-time basis, and
6. Do not return to the employment from which you were separated.

Taxmap/pub17/p17-194.htm#TXMP043f6868 How To Claim the Credit

To claim the credit, complete Form 8885 and attach it to your Form 1040. Include your credit in the total for Form 1040, line 69, and check box c. You cannot claim the credit on Form 1040A or Form 1040EZ.

You must attach invoices and proof of payment for any amounts you include on line 2 of Form 8885 for which you did not receive an advance payment. For details, see Publication 502 or Form 8885.