Final Version of American Recovery Bill Passes Congress
Making Work Pay Tax Credit
A new, temporary tax credit worth up to $400 for the years 2009 and 2010. The credit is worth 6.2% of an individual's earned income (wages and self-employment), with a maximum credit of $400 per person. The credit is reduced for individual filers making $75,000 in modified adjusted gross income or more, or $150,000 for joint filers. The credit is completely phased out for individuals making $95,000 or more, or $190,000 for joint filers. The IRS will likely revise the tax withholding tables so that taxpayers can see a tax benefit this year. Self-employed persons will see this as a tax credit on their tax returns, altough they could take advantage of the credit now by reducing their estimated tax payments. For the purposes of this tax credit, modified adjusted gross income means total AGI modified to remove the foreign earned income exclusion.
Economic Recovery Payment
A one-time-only tax credit of $250 for Social Security recipients, retired railroad workers, and disabled veterans. This credit is good for 2009 only. There's no word yet on how this tax credit will be distributed, but tax publisher CCH expects the IRS to distribute rebate checks to affected individuals, similar to last year's economic stimulus checks. Any economic recovery payment received will reduce the amount available under the Making Work Pay Tax Credit.
Congress raised the exemption amounts applicable to the AMT for 2009, and allows otherwise non-refundable personal tax credits to offset both the regular tax and the alternative minimum tax for 2009 only.
First Time Homebuyer Tax Credit
A refundable tax credit that was set to expire on June 30, 2009, is now extended to November 30, 2009. The credit amount has also been raised from $7,500 to $8,000. The credit does not need to be repaid as long as the owner continues to reside at the property for at least 36 months. The new version of the law is effective for real estate purchased on or after January 1, 2009. The new provisions are not retroactive to homes purchased in 2008.
Sales Tax Deduction for New Cars
A one-year-only deduction for 2009, individuals who purchase a new vehicle (including motor homes) can deduct sales tax or excise taxes as an above-the-line deduction. The deduction is limited to the sales or excise tax applicable to the first $49,500 in the vehicles purchase price, and the deduction phases out at an adjusted gross income of $125,000 (or $250,000 for joint filers).
Revised Hope Education Credit
The existing HOPE education credit has been renamed the American Opportunity Tax Credit. The credit is worth up to $2,500 on the first $4,000 of qualifying educational expenses, which will include course materials as well as tuition. The credit now applies to all four years of undergraduate college education, not just the first two years of college as under the previous HOPE credit. The credit is also available to more taxpayers than the previous HOPE credit, with a new phase-out range of $80,000 to $90,000 (or $160,000 to $180,00 for joint filers). Up to 40% of the credit is refundable. The credit applies to the years 2009 and 2010 only.
Increased Child Tax Credit
The refundable portion of the child tax credit is increased for 2009 and 2010. The refundable portion of the child tax credit is calculated as 15% of earned income in excess of $3,000, up to the total amount of the tax credit.
Increase in the Earned Income Credit
For 2009 and 2010 only, the maximum earned income credit is 45% on the first $12,570 of earned income for families with three or more qualifying children. Previously, the earned income credit maxed out with two qualifying children.
Nontaxable Unemployment Compensation
For 2009 only, the first $2,400 of unemployment compensation will be excluded from federal income taxes. Unemployment above that amount will be taxable.
Increased Transit Benefits
Up to $230 in monthly transit benefits are non-taxable, up from $120 previously. Transit benefits include employer-paid or pre-tax employee-paid amounts for public transit passes, van pools, and employer-provided parking.
Section 529 Plans Can Pay for Computers
Distributions from Section 529 Plans are non-taxable as long as the money is used to pay for qualifying higher education expenses, such as tuition. Congress has expand the list of qualifying higher education expenses to include computers, software, and Internet access. This expanded definition of education expenses applies only to 529 plans and does not apply to other education tax benefits.
Extended COBRA Benefits for the Unemployed
Individuals who were laid off between September 1, 2008, and January 1, 2010, can elect to pay 35% of their COBRA premiums instead of 100%. Employers will be required to pitch in the remaining 65%, but will receive a tax credit to offset their federal tax deposits.
Expanded Energy Tax Credits
The stimulus package expands both the residential energy efficient property credit and the nonbusiness energy property credit: both are tax credits that encourage homeowners to make energy-efficient improvements to their properties. The energy property credit is now worth 30% the cost of certain energy-efficient equipment, up to a total of $1,500 in qualifying purchases for 2009 and 2010. The lifetime cap on the credit of $500 is eliminated.
The maximum tax credit limits have also been removed from the energy efficient property credit for the following types of equipment: solar hot water property, geothermal heat pumps, and wind energy property. Fuel cell property has a maximum credit of $500 total, which is different than the previous limit of $500 per half kilowatt of capacity.
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Comments
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