The tax incentives in the stimulus package can be broken down into two broad categories: individuals and business. Let's take a look at the individual incentives first.

 

 

 

 

 

Starting later this year, eligible wage earners will see an increase in their take-home pay. The new law provides a credit against income tax in an amount equal to the lesser of 6.2 percent of the individual's earned income or $400 ($800 for married couples filing jointly). The credit applies in full for individuals whose modified adjusted gross income (MAGI) does not exceed $75,000 or $150,000 in the case of married couples filing jointly. The Making Work Pay credit will be applied retroactively to January 1, 2009 and prospectively to December 31, 2010. One delay in getting the credit to wage earners is the need for the IRS to revise the payroll tax withholding tables. Some observers predict that the IRS will not be able to revise the tables until June. We will keep you posted of developments.

 

Individuals receiving Social Security benefits, disabled veterans and others on fixed incomes will receive one-time payments of $250. If the individual also qualifies for the Making Work pay credit, his or her credit will be reduced by the $250 payment.

 

In 2008, Congress enacted the first-time homebuyer tax credit. Unlike other credits, this one had to be repaid, making it unattractive to many taxpayers. The new law removes the repayment requirement for homes purchased by first-time buyers between January 1, 2009 and December 1, 2009. The enhanced credit equals 10 percent of the purchase price of a home up to $8,000 ($4,000 for married individuals filing separately).  The credit phase-outs that start for taxpayers with AGI in excess of $75,000 ($150,000 for joint filers) continues to apply to both years.

 

Automobile sales, like new home sales, have plummeted in recent months. In response, Congress has created an above-the-line deduction for state and local sales taxes or excise taxes paid on qualified purchases of new motor vehicles. This deduction is temporary and is also prospective from the date of enactment of the new law. It will expire at the end of 2009. Income thresholds and other limitations apply. Any deduction will be phased out for any tax year in which the purchaser has AGI exceeding $125,000 ($250,000 for joint filers).

 

Every year, bills are introduced in Congress to abolish the alternative minimum tax (AMT). This year is no different but because the federal budget deficit, Congress cannot eliminate the AMT without finding an equivalent source of revenue. However, there is some good news. The new law increases the AMT exemption amounts and allows taxpayers to take most personal credits to reduce AMT liability for 2009.

 

The current $1,000 child tax credit is one of the most popular incentives in the Tax Code. The new law increases the refundable portion of the child tax credit for 2009 and 2010. Taxpayers are eligible for a refundable credit equal to 15 percent of their earned income in excess of $3,000 subject to certain restrictions and phase-outs.

 

Many individuals are surprised to learn that unemployment benefits are taxable. The new law excludes up to $2,400 in unemployment compensation from a recipient's gross income in 2009.

 

The Tax Code includes a number of incentives to help bring down the cost of education. The new law expands the current Hope education credit (and renames it the American Opportunity Tax Credit). More individuals will be able to take advantage of this credit because of expanded income phase-outs (to $80,000/$160,000 joint filers). The new law also raises the maximum credit, extends it over four years of post-secondary school education, and makes 40 percent of the credit refundable. In a related development, the new law also permits beneficiaries of qualified tuition plans (known as "529" plan) to use tax-free distributions to pay for computers and computer technology.

 

 

Individuals who take public transportation to work or van pool may benefit from enhanced transit incentives in the new law. Congress increased the income exclusion amount for transit passes and van pooling from $120 per month to $230 per month for 2009 (starting in March 2009) and through 2010 with an inflation adjustment. However, these benefits must be offered by your employer to take advantage of them.

 

 

The earned income tax credit (EITC) is a refundable tax credit targeted to lower and middle income wage earners and families. When the EITC exceeds the amount of taxes owed, it generates a refund. The new law enhances the EITC for taxpayers with three or more qualifying children and helps eliminate an existing "marriage penalty" across the board.

 

The new law enhances several energy tax incentives that reward taxpayers for installing energy-efficient property and alternative sources of energy in their homes. Among the types of energy-efficient property that may qualify for a tax break are certain heat pumps, furnaces, windows and doors. There's also a tax break for purchasers of plug-in electric vehicles.

 

The scope of the American Recovery and Reinvestment Act is very broad.  Please don’t delay in contacting our office to learn more about how these new tax incentives may benefit you. We're ready to help you maximize your tax savings!