The recently enacted "American Recovery and Reinvestment
Act of 2009" (2009 Economic Stimulus Act) includes a
wide-range of tax incentives, many of which are retroactive
to the beginning of the year. This week I'll share the
changes impacting individuals. Then, be sure to look for
email next week when I share the changes impacting
businesses.
Here's What Individual Taxpayers Need to Know about the New
Tax Law:
Expanded First-Time Credit for First-Time Home Buyers
Last year, Congress provided taxpayers with a refundable
tax credit that was equivalent to an interest-free loan
equal to 10% of the purchase of a home (up to $75,000) by
first-time home buyers. It applied to homes purchased on
or after April 9, 2008 and before July 1, 2009. Taxpayers
receiving this tax credit were required to repay any amount
received under this law back to the government over 15
years in equal installments or earlier if the home was
sold. The credit phases out for taxpayers with adjusted
gross income in excess of $75,000 ($150,000 in the case of
a joint return).
The new tax law enhances the credit by eliminating the
repayment obligation for taxpayers that purchase homes on
or after January 1, 2009. It also extends the credit
through the end of November 2009, and bumps up the maximum
value of the credit from $7,500 to $8,000.
Expanded and Revised Higher Education Tax Credit
The new law creates a $2,500 higher education tax credit
that is available for the first four years of college. The
credit is based on 100% of the first $2,000 of tuition and
related expenses, including books, paid during the tax year
and 25% of the next $2,000 of tuition and related expenses
paid during the tax year.
The credit is subject to a phase-out for AGI in excess of
$80,000 ($160,000 for married couples filing jointly).
Forty percent of the credit is refundable.
This new credit temporarily replaces the Hope credit.
Computers as an Education Expense
The new law permits computers and computer technology,
including internet access, to qualify as qualified
education expenses in 529 education plans for tax years
beginning in 2009 and 2010.
Tax Break for New Car Purchasers
The new law allows taxpayers to deduct state and local
sales taxes paid on the purchase of a new automobile,
including light trucks, SUVs, motorcycles, and motor homes.
The tax break phases out starting with taxpayers earning
$125,000 per year ($250,000 for joint returns).
The deduction is allowed to both those who itemize their
deductions as well as to those who do not. 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.
Alternative Minimum Tax(AMT)Patch
To hold the number of taxpayers subject to the AMT at bay,
the new law increases the AMT exemption amounts for 2009 to
$46,700 for individuals and $70,950 for joint returns, and
allows the personal credits against the AMT.
Making Work Pay Credit
The new law 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 married couples filing
jointly). The credit can be claimed as a reduction in the
amount of income tax that is withheld from a paycheck, or
through a credit on a tax return. Under the credit, workers
can expect to see perhaps $13 a week less withheld from
their paychecks starting around June. Next year, the extra
take-home pay will go down to around $9 per week
Economic Recovery Payment
The new law provides for a one-time payment of $250 to
retirees, disabled individuals and Social Security
beneficiaries and SSI recipients receiving benefits from
the Social Security Administration and Railroad Retirement
beneficiaries, and to veterans receiving disability
compensation and pension benefits from the U.S. Department
of Veterans' Affairs. The one-time payment is a reduction
to any allowable Making Work Pay credit.
Refundable Credit for Certain Federal and State Pensioners
The new law provides a one-time refundable tax credit of
$250 in 2009 to certain government retirees who are not
eligible for Social Security benefits. This one-time credit
is a reduction to any allowable Making Work Pay credit.
Unemployment Compensation Exclusion
The new tax law temporarily suspends federal income tax on
the first $2,400 of unemployment benefits received by a
recipient in 2009.
Expanded Earned Income Tax Credit
The new law provides tax relief to families with three or
more children and increases marriage penalty relief. The
changes apply for 2009 and 2010.
Expanded Child Tax Credit
The new tax law increases the refundable portion of the
child tax credit for 2009 and 2010 by lowering the income
threshold to $3,000 (from $8,500 in 2008).
Qualified Transportation Fringe Benefits
Qualified transportation fringe benefits, such as transit
passes, qualified parking and van pooling are not included
in an employee's income up to a specified dollar amount.
The new tax law increases the monthly amount to $230 per
month from $120 per month starting in March 2009 and
continuing through 2010.
Energy Incentives
The new tax law enhances several energy tax incentives that
reward taxpayers for installing energy-efficient property
and alternative sources of energy in their homes.
----------------------------------------------------
The recently enacted "American Recovery and Reinvestment
Act of 2009" (2009 Economic Stimulus Act) includes a
wide-range of tax incentives, many of which are retroactive
to the beginning of the year.
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