NorCalSavant

In an earlier post I had briefly described the personal-finance benefits of American Recovery and Reinvestment Act of 2009 or the stimulus package signed by President Obama for kick starting the moribund economy. Here is a rundown of individual benefits in the stimulus package in a little bit greater detail.

Making Work Pay Tax Credit: Eligible workers would get 6.2% of their income back subject to a maximum of $400 for single filers and $800 for joint filers.  The credit begins to phase out for those making more than $75,000 ($150,000 for couples), and is not available to those making more than $95,000 ($190,000 for couples).  Those who have taxes withheld from their paychecks will see their withholding reduced.  Others can claim the credit on their taxes to be filed next year.  The Act provides for the tax credit in 2009 and 2010.  It is a refundable tax credit, so if they owed taxes are less than the credit, the difference is refunded to the tax filer.

What about those who are not wage earners today?  The stimulus package includes a one-time $250 payment to those receiving railroad retirement benefits, U.S. veterans disability compensation or pension benefits, and Social Security retirement income, disability income or supplemental security income.  It also includes a similar $250 payment in 2009 to certain government retirees who are not eligible for Social Security benefits.

Source - http://www.flickr.com/photos/yomanimus/102798907/

First-time Homebuyer Credit: First-time homebuyers who purchase a home this year until December 1 can get a refundable tax credit valued at 10% of the purchase price up to $8,000 for married filing jointly or $4000 for married individuals filing separately.  You are considered a first-time homebuyer if you did not own any other main home during the three-year period ending on the date of purchase.  The credit can be used in the 2008 tax return by using Form 5405.  The tax credit is phased out for individuals with adjusted gross income between $75,000 and $95,000 ($150,000 and $170,000 for joint filers).  Best of all, there is no payback requirement on this payment, unlike the $7,500 credit applicable to house purchases after April 8, 2008, and on or before Dec. 31, 2008.

Alternative Minimum Tax Exemption: The Act increases the AMT exemption to $70,950 for married couples and $46,700 for individuals (up from $69,950 and $46,200 in 2008).

Temporary Suspension of Taxation of Unemployment Benefits: The first $2,400 of unemployment tax compensation received during 2009 won’t be subject to income tax.

New Car Sales Tax Deduction: The state and local sales and excise taxes paid on up to $49,500 of the purchase price of a new vehicle purchased from February 17, 2009 to the end of year can be deducted from income for tax calculations even if Schedule A is not used for itemizing deductions.  The deduction is phased out for incomes between $125,000 and $135,000 ($250,000 and $260,000 for joint filers).  Those who choose to take the state and local sales tax deduction in lieu of state and local income tax deduction in their tax return cannot also take the new car sales tax deduction.

Health Insurance Continuation Subsidy: Laid off workers get a subsidy of 65% on their COBRA continuation premiums for up to nine months.  The job loss must be between Sept. 1, 2008, and Dec. 31, 2009.  Those who lost their jobs between September 1, 2008 and February 17, 2009, but did not choose COBRA because of high costs, get an additional 60 days to choose COBRA and receive the subsidy.  The subsidy phases out for incomes between $125,000 and $145,000 ($250,000 and $290,000 for those filing joint returns).

Education Related Credits and Benefits: American Opportunity education tax credit is replacing the Hope Credit for 2009 and 2010.  It would give a $2,500 partially (40%) refundable credit to cover each of four years of college instead of a nonrefundable credit of up to $1,800 for each of the first two years of college in the original Hope credit.  Also, withdrawals from 529 college savings plans can now be used to purchase computers and computer technology including educational software and Internet access charges in 2009 and 2010.  The tax credit is phased out for incomes between $80000 and $90000 ($160000 and $180000 for joint filers).  Furthermore, the cost of course materials like textbooks is now included as part of qualified tuition and related expenses eligible for the credit.

Earned Income Tax Credit: The Act increases the earned income tax credit to 45% from 40% of the working families’ first $12,570 of earned income.  The phase out of the credit would begin now at $21,420 instead of $19,540 for married couples filing jointly.

Child Tax Credit: The Act makes the refundable child tax credit available to low-income taxpayers by extending the credit to 15% of the earned income in excess of $3000 in 2009 and 2010 instead of the $8,500 floor applicable in 2008.

A summary of key provisions of the American Recovery and Reinvestment Act of 2009 is available from the Senate Finance and House Ways and Means Committees.  The IRS web page here includes information related to the Act.

Related posts:

1. Home Buyer Tax Credits 2009 Act 2 I am back to the blog after spending months being extremely busy looking to buy a house.  We finally bought...