Stimulus Information

The stimulus plan President Obama signed into law contains a few tax treats for individuals under The American Recovery and Reinvestment Act (ARRA) of 2009. 

Most of the other changes signed into law will affect NEXT YEAR’s (2009) tax return. 

WHAT’S IT GOING TO DO FOR YOU?

Taxpayers will not get a separate, special check mailed to them from the IRS like last year’s economic stimulus payment.

The exception included in the new law is a lump sum payment of $250 to Social Security recipients, disabled veterans, and certain retirees. The Social Security Administration announced that seniors and other recipients will receive their one-time $250 payment in late May or early June. The IRS will not be sending these one-time payments as it did with the 2008 stimulus payments. SSA, VA, and the Railroad Retirement Board will be directly handling the payments.

MORE MONEY?

You will begin to see one change to your paychecks this spring if your modified adjusted gross income is between $150,000 and $190,000 for married filing joint returns, and others with modified adjusted gross incomes (MAGI) between $75,000 and $95,000.  Available for tax years 2009 and 2010, the Making Work Pay credit is 6.2 percent of a taxpayer’s earned income with a maximum credit of $800 for a married couple filing a joint return and $400 for other taxpayers, but it is phased out for higher income taxpayers. Most workers will qualify for the maximum credit. Because the credit is refundable (people can get it even if they owe no tax), most low-income workers will also qualify for the full credit.

    HOMEBUYING

There are two breaks in the tax code for first-time homeowners. Which credit you can take depends on when you purchased your home.

If you’re a first-time home buyer and you purchased your home on or after April 8, 2008, and by Dec. 31, 2008, you may eligible for the $7,500 tax credit that you will have to pay back.   It’s a 15-year, interest-free loan from the IRS. If you claim the credit on your 2008 tax return, you have to begin paying back the money in 2010.

The $8,000 tax credit is available for qualifying home purchases from Jan. 1, 2009, until Dec. 1, 2009. If you take advantage of the $8,000 tax credit and then sell your home or it’s no longer your principal residence within 36 months of the purchase date, you will have to pay back the full $8,000. However, as with the $7,500 credit, if you sell the home and your gain is less than the credit, you only have to repay up to the amount of the gain. If you die before the credit/loan is repaid, any outstanding amount is forgiven.

If your status is married filing separately, you can’t get the full $8,000 or $7,500 credit. Instead, you get $4,000 of the $8,000 credit or $3,750 of the $7,500 credit. Single filers are eligible for the full credit.  You can take this credit in 2008 or 2009.

    CAR BUYING

The ARRA provides an incentive for new motor vehicle purchases in 2009. The bill allows taxpayers to deduct the state and local sales and excise taxes for any new car, light truck, motorcycle or mobile home purchased between February 17, 2009 and January 1, 2010. The deduction is “above the line,” which means it can be taken even by those who do not itemize other deductions on their tax returns limited to the taxes on up to $49,500 of the purchase price on a qualified motor vehicle. It phases out for taxpayers with MAGI of $125,000-$135,000 for individuals and $260,000 for married filing joint.

    UNEMPLOYMENT

The plan exempts the first $2,400 of unemployment insurance benefits from federal income taxes in 2009.

Under the new law, eligible former employees, enrolled in their employer’s health plan at the time they lost their jobs, are required to pay only 35 percent of the cost of COBRA coverage. Employers must treat the 35 percent payment by eligible former employees as full payment, but the employers are entitled to a credit for the other 65 percent of the COBRA cost on their payroll tax return.

Employers must maintain supporting documentation for the credit claimed. This includes:

• Documentation of receipt of the employee’s 35 percent share of the premium.
• In the case of insured plans: A copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier.
• Declaration of the former employee’s involuntary termination.

COBRA provides certain former employees, retirees, spouses, former spouses and dependent children the right to temporary continuation of health coverage at group rates. COBRA generally covers health plans maintained by private-sector employers with 20 or more full and part-time employees. It also covers employee organizations or federal, state or local governments. It does not apply to churches and certain religious organizations. The new COBRA subsidy provisions also apply to insurers required to offer continuation coverage under state law similar to the federal COBRA.

KIDS AND COLLEGE

Money withdrawn from a 529 college savings plan is not taxable if it’s used for qualifying expenses. Under the stimulus plan, computer costs will now be considered an allowable expense for 529 college savings plans.
The floor for the refundable child tax credit is reduced from $8,500 to $3,000 for 2009 and 2010.

MILITARY MEMBERS

The government will cover 95% of a loss if a service member is forced to sell a home as a result of a base closure, reassignment or combat wound requiring them to be near a health facility.  The program also covers surviving spouses of those killed in combat.

ENERGY EFFICIENCY

For 2009 the stimulus plan increases from 10 percent to 30 percent (up to a maximum of $1,500) the tax credit for the purchase of qualified energy efficiency improvements to existing homes such a central air conditioner, heat pump or furnace.

AMT

There was yet another patch to the alternative minimum tax for 2009.  The AMT exemption is set at $46,700 for single filers, $70,950 for joint filers. Without this temporary fix on a tax that was supposed to be targeted at the ultra wealthy, the AMT amounts were set to go back to $33,750 for individuals and $45,000 for married couples filing jointly.