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When do you file 8862 Form: What You Should Know

The total credit is reduced by the disallowance. When the credit reduction is complete, only the amount of credit on line 10b of Form 8862 must be claimed. For these credits, the amount of the credit reduced by the disallowance is reduced back to the amount in the original tax return. For more information, go to: Form 8862, IRS Form 8862, “The Burden on the Assessor.” There are two different tax phases—the tax liability phase and the credit phase. Tax liability phase. The tax liability, or taxable income, for each tax year is computed by adding the gross income for the tax year plus any refund of tax and any tax-exempt interest income. This is the amount that's on the taxpayer's tax return, or the amount that's shown on Form 1040, line 10 of the Form 1040 Schedule A and line 14 of Form 1040 Schedule SE. The tax liability is the total gross income for the year. The gross income for a tax year is equal to all the taxpayer's taxable income. Any income that has not been allocated to a specific category (such as interest income on an individual's joint return) is gross income. Gross income is not affected. Income you choose to exclude in the income phase is also gross income in the tax liability phase. Tax-exempt interest income or other taxable income that's shown on Schedule C or Schedule E on Form 1040, line 14 or line 15 of the Form 1040 Schedule SE, is not taxable if you itemize deductions in the tax liability phase. You're then subject to the credit phase. Your share of the income phase. Generally, income is subject to tax in three ways. 1. Direct tax. The federal income tax is imposed on individuals in the same manner as the federal payroll tax, and the states have similar tax provisions. 2. State taxes. Income, net of certain exemptions and deductions, is subject to state income tax. 3. Non-deductible contributions to a retirement plan. In most states, you must pay income tax on interest, dividends, annuities and other non-deductible personal service pension income (if the plan provides for such income). In most states, you must pay income tax on distributions from or other income, such as capital gains, that are received from any defined-benefit plan or annuity.

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