The American Recovery and Reinvestment Act of 2009 has been approved by Congress and signed by the President. The IRS will be implementing the tax-related provisions of this new program quickly. So what does this mean for you? Following are some of the highlights.
First-Time Homebuyer Credit Expands
Homebuyers who purchase in 2009 can get a credit of up to $8,000 with no payback requirement.
The American Recovery and Reinvestment Act of 2009 expands the first-time homebuyer credit to include purchases made before December 1, 2009 with a maximum credit of $8,000 which can be claimed on a buyer’s 2008 tax return.
Payroll Checks Increase This Spring
The Making Work Pay Tax Credit will mean $400 to $800 for many Americans. The IRS has issued new withholding tables for employers. Please contact us if you need help implementing the withholding adjustments required by the new economic stimulus law.
General Information
For 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns.
This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.
The credit will typically be handled by employers through automated withholding changes in early spring. These changes may result in an increase in take-home pay. The amount of the credit must be reported on the employee’s 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.
Though all eligible taxpayers will need to claim the credit when they file their 2009 income tax return next year, the benefit will generally be spread out over the paychecks they receive beginning this spring and continue until the end of the year. Many higher-income taxpayers will see little or no change in their take-home pay. That’s because the Making Work Pay credit is phased out for a married couple filing a joint return whose modified adjusted gross income (AGI) is between $150,000 and $190,000 and other taxpayers whose modified AGI is between $75,000 and $95,000.
Taxpayers will not get a separate, special check mailed to them from the IRS like last year’s economic stimulus payment.
COBRA: Health Insurance Continuation Subsidy
The American Recovery and Reinvestment Act of 2009 establishes an employer-provided subsidy for employees who involuntarily lose their jobs.
Information for Employees or Former Employees
Workers who have lost their jobs may qualify for a 65 percent subsidy for COBRA continuation premiums for themselves and their families for up to nine months. Eligible workers will have to pay 35 percent of the premium to their former employers.
To qualify, a worker must have been involuntarily separated between September 1, 2008, and December 31, 2009. Workers who lost their jobs between September 1, 2008, and enactment, but failed to initially elect COBRA because it was unaffordable, get an additional 60 days to elect COBRA and receive the subsidy.
This subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns. Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify for the subsidy.
$250 for Social Security Recipients, Veterans and Railroad Retirees
A one-time payment of $250 will be made in 2009 to:
- Retirees, disabled individuals and Supplemental Security Income (SSI) recipients receiving benefits from the Social Security Administration.
- Disabled veterans receiving benefits from the U.S. Department of Veterans Affairs.
- Railroad Retirement beneficiaries.
The IRS will not make this payment — unlike last year’s economic stimulus program. The Economic Recovery Payment will be paid by the Social Security Administration, Department of Veterans Affairs and the Railroad Retirement Board.
The economic recovery payment will be a reduction to any Making Work Pay credit for which the recipient qualifies. The Making Work Pay credit will be claimed on the recipient’s 2009 tax return filed in 2010.
Money Back for New Vehicle Purchases
The American Recovery and Reinvestment Act of 2009 provides a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles through 2009. The deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A. Purchases before February 17, 2009, are not eligible for this special deduction.
The deduction is limited to the tax on up to $49,500 of the purchase price of an eligible motor vehicle. The deduction is phased out for joint filers with modified adjusted gross income between $250,000 and $260,000 and other taxpayers with modified AGI between $125,000 and $135,000.
Following are a few general questions and answers regarding the new recovery package:
Could the new law affect 2008 tax returns? Generally, no. The new law does not have any major impact for the vast majority of individuals preparing their 2008 tax returns due April 15. Instead, these changes will largely impact 2009 tax returns filed next year, in 2010.
There are a few limited areas in the law that could impact 2008 tax returns. For some small businesses, changes in the net operating loss provisions could affect 2008 tax returns. And for first-time homebuyers there is an expanded credit available on 2008 tax returns. Please feel free to contact your Ghirardo CPA tax professional for more information.
Does this new recovery program have any impact on the recovery rebate credit for 2008 tax returns being filed now? No. But the IRS reminds taxpayers to make sure they properly determine eligibility for the recovery rebate credit before they file their 2008 federal tax returns.
For more information about the American Recovery and Reinvestment Act of 2009 visit www.recovery.gov.
