The recently enacted “American Recovery and Reinvestment Act of 2009” contains a wide-ranging tax package that includes tax relief for many of us. Following are some highlights of the new law.
Valerie Rumbough1) The “Making Work Pay” credit provides an individual tax credit in the amount of 6.2 percent of earned income, not to exceed $400 for single returns and $800 for joint returns in 2009 and 2010. The credit is phased out at adjusted gross income (AGI) in excess of $75,000 ($150,000 for joint filers).
Workers may see around $13 a week less withheld from their paychecks starting around June, and around $9 per week next year. There is a one-time payment of $250 to some retirees and disabled and retired veterans. There is also a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. Both the payment and credit are a reduction to any allowable Making Work Pay credit.
2) Federal income tax is temporarily suspended on the first $2,400 of 2009 unemployment benefits.
3) For families with three or more children, the refundable child tax credit eligibility is increased in 2009 and 2010 by lowering the threshold to $3,000 (from $8,500 in 2008).
4) A $2,500 higher education tax credit is now available for the first four years of college. The credit is based on 100 percent of the first $2,000 of tuition and related expenses (including books) and 25 percent of the next $2,000 paid during the tax year, subject to a phase-out for AGI in excess of $80,000 ($160,000 for joint filers). The credit is 40 percent refundable, and temporarily replaces the Hope credit. A provision permits computers and computer technology to qualify as qualified education expenses in 529 education plans for tax years beginning in 2009 and 2010.
5) The first-time homebuyer credit enacted last year has been enhanced. The new law provides for a credit of up to $8,000 (or 10 percent of the home price, whichever is less) and eliminates the repayment obligation if the home is purchased between Jan. 1 and Nov. 30, 2009. The credit phases out for taxpayers with AGI in excess of $75,000 ($150,000 for joint filers).
6) Taxpayers can deduct state and local sales taxes paid on the purchase of a new automobile and some other vehicles. The tax break phases out starting with taxpayers earning $125,000 per year ($250,000 for joint filers). The deduction is allowed to both those who itemize their deductions as well as to non-itemizers. However, the deduction cannot be taken by a taxpayer who elects to deduct state and local sales taxes in lieu of state and local income taxes.
7) The AMT exemption amounts for 2009 is increased to $46,700 for individuals and $70,950 for joint returns, and allows the personal credits against the AMT. For more information and to find out if you qualify for any of these items, contact your CPA. Let’s all pray that this will be what the economy needs during this difficult time in our history.