Hi Gang!
Here is an overview and simplified look at some of the key points of the American Recovery and Reinvestment Act of 2009 (also known as the Federal Stimulus Package) and I will try to explain what it is, who gets it, when and what you have to do:
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1. Making Work Pay Credit
The explanation:
You get a single refundable credit of up to $400 if you are single and $800 if married.
The people who can benefit from it:
If you are working or self-employed. It phases out as your modified adjusted gross income (MAGI) gets to $75000 if single and $15000 if married. Full phaseout hits at $95,000/$190,000.
When do they get it and what has to be done:
The deal is a benefit delivered in 2009 and 2010 in your paycheck where you will get a reduction in income tax witholding. Should start mid-summer. Maybe sooner. Your employer should handle the details and you should see a little bit more money in each paycheck.
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2. Economic Recovery Payment
The explanation:
A one time, one shot $250 payment.
The people who can benefit from it:
People who receive Social Security, Tier 1 railroad retirement benefits, SSI or VA pension or disability benefits.
When do they get it and what has to be done:
Sometime in 2009 for individuals and for government retirees, when they file their 2009 taxes. Make sure you file 2009 tax returns in 2010 or you may not get the check if you are a retiree, even if you aren’t required to file.
The government will send the check in 2009 for individuals but you may want to contact your respective agency (Social Security, etc) for more details. Social Security Administration has their own special section on their website and their website says no later than May 2009 you should get your payment. Whoo hoo.
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3. Unemployment Compensation
The explanation:
The American Recovery and Reinvestment Act temporarily will change the taxation of unemployment benefits for the 2009 tax year only. Under the new economic stimulus law, the first $2,400 of unemployment benefits received in 2009 will not be subject to federal taxes. The exemption will be reflected on those tax returns filed in 2010.
The people who can benefit from it:
Jobless taxpayers getting unemployment compensation.
When do they get it and what has to be done:
You should get this through 2009. When you file your 2009 tax return, make sure you reduce your reported unemplyment benefits by $2400 but not below zero. Check with your local unemployment office regarding your availability of the benefits as well pleas.
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4. COBRA
The explanation:
A federal subsidy of 65% of monthly COBRA premiums for 9 months.
The people who can benefit from it:
Jbless individuals paying for COBRA insurance and involuntarily terminated between 9/1/08 and 12/31/09. Yes, it is phased out for higher income taxpayers.
When do they get it and what has to be done:
It is starting now, check with your former employers if they haven’t started notifying you of changes and if you are eligible.
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5. Earned Income Credit
The explanation:
Tax credit increase for families with 3 or more children. Additional marrage penalty relief for married couples filing joint returns.
The people who can benefit from it:
Certain qualifying individuals (based on income) and married couples filing jointly.
When do they get it and what has to be done:
When you file your 2009 and 2010 tax returns. By the way, when you file the returns, if you are doing it yourself, make sure you look up the EIC amount in the correct column of the EIC chart. If you aren’t sure don’t want to hassle, please see a tax professional. I do taxes, too by the way…
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6. Additional Child Tax Credit
The explanation:
Increased eligibility for the refundable portion of the tax credit for lower income families with children.
The people who can benefit from it:
Certain qualifying individuals (based on income) and the number of qualifying children.
When do they get it and what has to be done:
When you file your 2009 and 2010 tax returns. By the way, make sure you claim he maximum benefit under this provision.
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7. First Time Home Buyer Credit
The explanation:
An $8000 refundable tax credit for the first time homebuyer. It should really be called a homebuyer if you haven’t purchased a home in 3 years credit because that is who also can qualify.
The people who can benefit from it:
A “first-time homebuyer” is any individual (and spouse if married) who had no present ownership interest in a qualifying principal residence during the 3-year period ending on the date of purchase of the principal residence for which a first-time homebuyer credit is being claimed for the period of 12/31/08 thru 12/01/09.
Phaseouts start at $75000/$150000 and ends at $95000/$170000.
When do they get it and what has to be done:
When you file your 2008 or 2009 tax returns.
If you already filed using the $7500 credit, make sure you amend your return for the extra $500 credit once the tax software and forms have been updated.
Recapture of credit
If a first-time homebuyer credit is allowed to a taxpayer, the taxpayer’s income tax is increased by 6 2/3% of the amount of such credit for each taxable year in the 15-year “recapture period.” The recapture period begins with the second taxable year following the year of purchase for which the credit is taken.
For example, if a taxpayer is allowed a $7,500 first-time homebuyer credit in 2008 (that was the old amount), the taxpayer must recapture the credit amount by adding $500 (which is 6 2/3% of $7,500) to his income tax liability each year for 15 years, beginning in 2010.
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8. Nonbusiness Energy Property Credit
The explanation:
A tax credit up to $1500 for qualifying residential energy improvements (windows, doors, things like that).
The people who can benefit from it:
Taxpayers who invest in such energy improvements to their residential properties.
When do they get it and what has to be done:
When taxpayers file their 2009 and 2010 tax returns. Besides getting your maximum credit, be sure to reduce your credit by any nonbusiness credits claimed in prior years.
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9. Residential Energy Efficient Property Credit
The explanation:
An increased tax credit for larger residential energy efficient improvements (solar heating, geothermal pumps, etc).
The people who can benefit from it:
Taxpayers who invest in such energy improvements to their residential properties.
When do they get it and what has to be done:
When taxpayers file their 2009 – 2016 tax returns. Make sure you are getting your maximum credit.
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10. American Opportunity Credit
The explanation:
It is basically an enhanced Hope Credit that is applicable to the first four years of qualified higher education expenses. Maximum credit of $2500 of which 40% is refundable. Not bad.
The people who can benefit from it:
Individuals who pay for qualified education expenses for the first four years of higher education. Phaseout hits at $80000/$160000 and ends at $90000/$180000.
When do they get it and what has to be done:
When taxpayers file their 2009 and 2010 returns. Make sure you max out on the benefit (I will stop reminding you now since I think you are getting the message).
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11. Section 529 Plan Distribution
The explanation:
Expanded definition of qualified higher education expenses.
The people who can benefit from it:
Individuals who use their Section 529 qualified plan to purchas computer and related equipment for college. Computers are getting cheaper (especially netbooks-if you want a nice one check out my link on my buy books page on the site) but that still helps.
When do they get it and what has to be done:
When taxpayers file their 2009 and 2010 returns.
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12. Vehicle Purchase
The explanation:
A tax deduction for the state and local sales tax on a purchase of a new vehicle in 2009 costing up to $49,500.
The people who can benefit from it:
Individuals who buy a new vehicle (not used) after 2/16/09 and before 2010. Benefit starts to phase out for individuals with MAGI of $125000/$250000.
When do they get it and what has to be done:
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13. Plug-in Electric Vehicles Credit
The explanation:
Modification to the tax credit for the purchase of a qualified plug-in electric motor vehicle.
The people who can benefit from it:
If you buy a plug-in car that is qualified after 2009 – so not for this year. Credit is limited to $7500 for all plug-in vehicles. The credit begins to phase out after the manufacturer sells its 200,000th plug-in vehicle.
When do they get it and what has to be done:
You will get the benefit when you purchase the vehile in your 2010 – 2014 tax returns. When you buy a plug-in vehicle, make sure you talk to the dealer about the specifics, what vehicle number it is, etc.
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How these will conflict or dovetail with state programs depends on where you live. For example, California state sales tax may go up and that would nullify any vehicle sales tax benefit (maybe). For states that also offer EITC, you may benefit more as you will get double EITC credit. Be safe and healthy, people!
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Kim Greenblatt
The Fed Stimulus Deal Explained
