• Additional Child Tax Credit
• Alternative Minimum Tax
• Alternative Motor Vehicle
• Archer MSA Limits Increased
• Charitable contributions
• Direct deposit
• Earned Income Credit
• Education savings bonds
• Educator expenses deduction
• Electric and alternative motor vehicles
• Exemption amounts
• Foreign Earned Income
• Health Savings Account
• Hope and Lifetime Learning Credits
• Itemized deductions
• Original Issue Discount Instruments
• Social security and Medicare taxes
• Standard deduction
• Standard mileage rates
• Tax-exempt interest reporting
• Tax rate schedules - 2006
• Tuition and fees deduction

Earned Income for Additional Child Tax Credit

For 2006, the minimum earned income amount used to figure the additional child tax credit has increased to $11,300.

Alternative Minimum Tax

The following changes to the AMT went into effect for 2006. For more information, see Form 6251, Alternative Minimum Tax � Individuals, and its instructions.

AMT exemption amount increased. The AMT exemption amount has increased to $42,500 ($62,550 if married filing jointly or qualifying widow(er); $31,275 if married filing separately).

Exemption amount for a child. The minimum exemption amount for a child under age 18 has increased to $6,050. (Before 2006, the limit applied to a child under age 14.)

Foreign Earned Income Tax Worksheet. Taxpayers claiming the foreign earned income exclusion or the housing exclusion must determine the tax on their nonexcluded income using the tax rates that would have applied had they not claimed the exclusion(s). If you filed Form 2555 or 2555-EZ, you must use the Foreign Earned Income Tax Worksheet in the Form 6251 instructions to figure the amount to enter on Form 6251, line 31.

Qualified cellulosic biomass ethanol plant property. No AMT adjustment is required for depreciation of qualified cellulosic biomass ethanol plant property that is eligible for the special depreciation allowance under section 168(l).

Alternative Motor Vehicle Credit

You may be able to claim this credit if you place an alternative motor vehicle in service for business or personal use after 2005. An alternative motor vehicle must meet certain requirements and be a new:

• Advanced lean burn technology vehicle,
• Qualified alternative fuel vehicle,
• Qualified fuel cell vehicle, or
• Qualified hybrid vehicle.

For more information, see Form 8910, Alternative Motor Vehicle Credit.

Archer MSA Limits Increased

For Archer MSA purposes for 2006, the minimum annual deductible of a high deductible health plan increased to $1,800 ($3,650 for family coverage). The maximum annual deductible of a high deductible health plan increased to $2,700 ($5,450 for family coverage). The maximum out-of-pocket expenses limit increased to $3,650 ($6,650 for family coverage).

Restrictions on Charitable Contributions

Cash contributions. All cash contributions made in tax years beginning after August 17, 2006, to any qualified charity must be supported by a dated bank record or a dated receipt. The tax year for most individual taxpayers begins on January 1.

Clothing and household items. Beginning with contributions made after August 17, 2006, no deduction is allowed for most contributions of clothing and household items unless the donated property is in good used condition or better.

Direct Deposit of Refund

If you choose to receive your refund by direct deposit, you can now have your refund split among up to three different accounts. You can have your refund deposited into savings accounts, checking accounts, and other accounts, including individual retirement arrangements (IRAs), that have valid routing and account numbers. You cannot request a deposit to an account that is not in your name.

To have your refund split among two or three accounts, you must file Form 8888, Direct Deposit of Refund to More Than One Account. You cannot split your refund to more than one account if you file Form 1040EZ-T, Request for Refund of Federal Telephone Excise Tax, or Form 8379, Injured Spouse Allocation.

To have your refund deposited to only one account, do not file Form 8888. You can designate the account directly on your tax return.

Earned Income Credit Amounts Increase

Earned income amount. The maximum amount of income you can earn and still get the credit is higher for 2006 than it is for 2005. You may be able to take the credit for 2006 if:

• You have more than one qualifying child and you earn less than $36,348 ($38,348 if married filing jointly),
• You have one qualifying child and you earn less than $32,001 ($34,001 if married filing jointly), or
• You do not have a qualifying child and you earn less than $12,120 ($14,120 if married filing jointly).

The maximum amount of adjusted gross income (AGI) you can have and still get the credit has also increased. You may be able to take the credit if your AGI is less than the amount in the above list that applies to you.

Investment income amount. The maximum amount of investment income you can have in 2006 and still get the credit increases to $2,800.

Income Limits Increased for Reduction of Education Savings Bond Exclusion

For 2006, the amount of your interest exclusion is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income (MAGI) is between $94,700 and $124,700. You cannot take the deduction if your MAGI is $124,700 or more. For 2005, the exclusion phased out between $91,850 and $121,8500.

For all other filing statuses, your interest exclusion is phased out if your MAGI is between $63,100 and $78,100. You cannot take a deduction if your MAGI is $78,100 or more. For 2005, the exclusion phased out between $61,200 and $76,200. For more information, see chapter 9 in Publication 970, Tax Benefits for Education.

Educator Expenses Deduction

If you were an eligible educator in 2006, you can deduct up to $250 of qualified expenses you paid in 2006 as an adjustment to gross income, rather than as a miscellaneous itemized deduction. This provision, which had expired for tax years after 2005, has been extended through tax year 2007. If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. However, neither spouse can deduct more than $250 of his or her qualified expenses.

Eligible educator. An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide who worked in a school for at least 900 hours during a school year.

Qualified expenses. Qualified expenses include ordinary and necessary expenses paid in connection with books, supplies, equipment (including computer equipment, software, and services), and other materials used in the classroom. An ordinary expense is one that is common and accepted in your educational field. A necessary expense is one that is helpful and appropriate for your profession as an educator. An expense does not have to be required to be considered necessary.

Qualified expenses do not include expenses for home schooling or nonathletic supplies for courses in health or physical education.

You must reduce your qualified expenses by the following amounts.

• Excludable U.S. series EE and I savings bond interest from Form 8815.
• Nontaxable qualified tuition program earnings.
• Nontaxable earnings from Coverdell education savings accounts.
• Any reimbursements you received for these expenses that were not reported to you in box 1 of your Form W-2.

How the deduction is claimed. You must file Form 1040 (or Form 1040NR) to take this deduction. The deduction is claimed on Form 1040, line 23 (or Form 1040NR, line 24), �Archer MSA Deduction.� Enter "E" on the dotted line to the left of that line entry if claiming educator expenses, or "B" if claiming both an Archer MSA deduction and the deduction for educator expenses. If entering "B," you must attach a statement with a breakdown of the amount claimed for each deduction.

Electric and Alternative Motor Vehicles

For 2006, the list of vehicles that are qualified hybrid vehicles for the Alternative Motor Vehicle Credit has been expanded. The tax credit for hybrid vehicles applies for vehicles purchased on or after January 1, 2006, and could be as much as $3,400 for those who purchase the most fuel-efficient vehicles.

See IR-2006-86, dated June 1, 2006, and the news article, Summary of the Credit for Qualified Hybrid Vehicles, for more information.

Exemption Amount Increased

The amount you can deduct for each exemption has increased from $3,200 in 2005 to $3,300 in 2006.

You may lose part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which the phaseout begins depends on your filing status. For 2006, the phaseout begins at:

• $112,875 for married persons filing separately,
• $150,500 for single individuals,
• $188,150 for heads of household, and
• $225,750 for married persons filing jointly or qualifying widow(er)s.

If your adjusted gross income is above the amount for your filing status, use the Deduction for Exemptions Worksheet in the Form 1040 instructions to figure the amount you can deduct for exemptions.

Foreign Earned Income Tax Worksheet

If you claim the foreign earned income exclusion or the foreign housing exclusion on Form 2555 or Form 2555-EZ, your must figure your tax using the Foreign Earned Income Tax Worksheet found in the Instructions for Form 1040.

Health Savings Account (HSA) Deduction Limits Increased

For 2006, the maximum HSA deduction increased to $2,700 ($5,450 for family coverage). The maximum additional deduction for individuals age 55 or older increased to $700. For HSA purposes, the minimum annual deductible of a high deductible health plan increased to $1,050 ($2,100 for family coverage) and the maximum annual deductible and other out-of-pocket expenses limit increased to $5,250 ($10,500 for family coverage). For more information, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.

Income Limits Increased for Hope and Lifetime Learning Credits

For 2006, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $45,000 and $55,000 ($90,000 and $110,000 if you file a joint return). You cannot claim an education credit if your MAGI is $55,000 or more ($110,000 or more if you file a joint return). This is an increase from the 2005 limits of $43,000 and $53,000 ($87,000 and $107,000 if filing a joint return). For more information, see chapters 2 and 3 in Publication 970, Tax Benefits for Education.

Limit on Itemized Deductions Increases

If your adjusted gross income is above a certain amount, you may lose part of your itemized deductions. In 2006, this amount is increased to $150,500 ($75,250 if married filing separately). In 2005, the amount was $145,950 ($72,975 if married filing separately). Beginning in 2006, the amount by which these itemized deductions are reduced is only 2/3 of the amount of the reduction that otherwise would have applied. See the Instructions for Schedule A (Form 1040), line 28, for more information on figuring the amount you can deduct.

Publication 1212, Guide to Original Issue Discount (OID) Instruments

Publication 1212 will no longer be revised annually and therefore does not contain the original issue discount (OID) tables, Sections I-A through III-G. The tables are only available on the IRS website at: www.irs.gov/formspubs/article/0,,id+109875.html. They are posted to the website in late November or early December of each year.

Social Security and Medicare Taxes

For 2006, the employer and employee will continue to pay:

1. 6.2% each for social security tax (old-age, survivors, and disability insurance), and
2. 1.45% each for Medicare tax (hospital insurance).

Wage limits. For social security tax, the maximum amount of 2006 wages subject to the tax has increased from $90,000 to $94,200. For Medicare tax, all covered 2006 wages are subject to the tax.

Standard Deduction Amount Increased

The standard deduction for taxpayers who do not itemize deductions on Schedule A of Form 1040 is, in most cases, higher for 2006 than it was for 2005. The amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer.

The basic standard deduction amounts for 2006 are:

• Head of household � $7,550
• Married taxpayers filing jointly and qualifying widow(er)s � $10,300
• Married taxpayers filing separately � $5,150
• Single � $5,150

The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer may not exceed the greater of $850 or the sum of $300 and the individual's earned income.

Standard Mileage Rates

For tax years beginning in 2006, the allowable deductions for the standard mileage rate are as follows:

• Business miles. The standard mileage rate for the cost of operating your car changes to 44.5 cents a mile for all business miles driven.
• Charitable services. The standard mileage rate allowed for use of your car when you use your car to provide charitable services to a charitable organization is 14 cents a mile.
• Charitable services � Hurricane Katrina relief services. If you used your vehicle in giving services to a charitable organization to provide relief related to Hurricane Katrina, the standard mileage rate allowed for use of your car is 32 cents a mile.
• Medical reasons. The standard mileage rate allowed for use of your car for medical reasons is 18 cents a mile.
• Moving. The standard mileage rate for determining moving expenses is 18 cents a mile.

Tax-Exempt Interest Reporting

Beginning in 2006, state and local governments are required to report interest paid on tax-exempt state and local bonds on Form 1099-INT, Interest Income. This amount must be shown on your tax return and is for information only.

2006 Federal Income Tax Rate Schedules

The 2006 tax rate schedules are provided so that you can compute your estimated tax for 2006.

Tuition and Fees Deduction

You may be able to deduct qualified tuition and fees paid during the year for yourself, your spouse, or your dependent. This provision, which had expired for tax years after 2005, has been extended through tax year 2007.

Who can claim the deduction. You can take this deduction only if all of the following apply.

• You paid qualified tuition and fees in 2006 for yourself, your spouse, or your dependent(s).
• Your filing status is any status except married filing separately.
• Your modified adjusted gross income (AGI) is not more than: $80,000 if single, head of household, or qualifying widow(er); $160,000 if married filing jointly. Use lines 1 through 3 of the Tuition and Fees Deduction Worksheet to figure your modified AGI. You, or your spouse if filing jointly, cannot be claimed as a dependent on someone's (such as your parent's) 2006 tax return.
• You are not claiming an education credit for the same student. See the instructions for Form 8863.
• You were a U.S. citizen or resident alien for all of 2005 or you were a nonresident alien for any part of 2006 and you are filing a joint return.

How the deduction is figured. Use the Tuition and Fees Deduction Worksheet to figure your deduction.

Exception. Use Worksheet 6-1 in Publication 970 instead of the worksheet below to figure your tuition and fees deduction if you file Form 2555, 2555-EZ, or 4563, or you exclude income from sources within Puerto Rico.

Qualified tuition and fees. Qualified tuition and fees are amounts paid in 2006 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution during 2006. Tuition and fees paid in 2006 for an academic period that begins in the first 3 months of 2007 can also be used in figuring your deduction. Amounts paid include those paid by credit card or with borrowed funds. An eligible educational institution includes most colleges, universities, and certain vocational schools.

Qualified tuition and fees do not include amounts paid for the following items.

• Room and board, insurance, medical expenses (including student health fees), transportation, or other similar personal, living, or family expenses.
• Course-related books, supplies, equipment, and nonacademic activities, except for fees required to be paid to the institution as a condition of enrollment or attendance.
• Any course involving sports, games, or hobbies, unless such course is part of the student's degree program.

Qualified tuition and fees must be reduced by the following benefits.

• Excludable U.S. series EE and I savings bond interest from Form 8815.
• Nontaxable qualified tuition program earnings.
• Nontaxable earnings from Coverdell education savings accounts.
• Any scholarship, educational assistance allowance, or other payment (but not gifts, inheritances, etc.) excluded from income.

How the deduction is claimed. You must file Form 1040 to take this deduction. The deduction is claimed on Form 1040, line 35, �Domestic production activities deduction.� Enter "T" on the line to the left of that line entry if claiming the deduction for tuition and fees, or "B" if claiming both a deduction for domestic production activities and the deduction for tuition and fees. For those entering "B," you must attach a statement with a breakdown of the amount claimed for each deduction.

More information. See chapter 6 of Publication 970 for more information about this deduction.

Tuition and Fees Deduction Worksheet

Before you begin:

• Figure any write-in adjustments to be entered on the dotted line next to Form 1040, line 36.
• Be sure you read the Exception under How the deduction is figured to see if you can use this worksheet instead of Worksheet 6-1 in chapter 6 of Publication 970.

1. Enter the amount from Form 1040, line 22.

1._______________

2. Enter the total from Form 1040, lines 23 through 33, jury duty pay included on line 34, plus any write-in adjustments you entered on the dotted line next to line 36.

2._______________

3. Subtract the amount on line 2 from the amount on line 1. If the result is more than $80,000 ($160,000 if married filing jointly), you cannot take the deduction for tuition and fees.

3._______________

4. Tuition and fees deduction . Is the amount on line 3 more than $65,000 ($130,000 if married filing jointly)?

• If yes , enter the total qualified tuition and fees you paid in 2006. Do not enter more than $2,000. Also, include this amount on Form 1040, line 35 (see, How the deduction is claimed).
• If no, enter the total qualified tuition and fees you paid in 2006. Do not enter more than $4,000. Also, include this amount on Form 1040, line 35 (see, How the deduction is claimed)

4._______________

Note. Do not include this amount in figuring any other deduction on your return (such as on Schedule A, C, E, etc.).