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Tax Tip
The American Recovery and Reinvestment Act of 2009 will benefit taxpayers on their 2009 tax returns filed next year, in 2010. There are a few instances where 2008 tax returns may be affected. One is for first-time homebuyers. See below for a comprehensive list of tax changes in the new law, how they may affect your taxes in 2010 and what you can do now to prepare.
Making Work Pay Credit – This refundable credit is available to individuals who are employed or self-employed. The credit is 6.2% of earned income, up to $400 for individuals and $800 if Married Filing Jointly. The credit starts to phase out when modified adjusted gross income reaches $75,000 for individuals or $150,000 if Married Filing Jointly. Those making $95,000 or $190,000, respectively, or more will not receive the credit. Eligible individuals will claim the credit on their 2009 and 2010 tax returns.
Economic Recovery Payment – This one-time payment of $250 is allocated to individuals who receive Social Security, Tier 1 railroad retirement benefits, SSI, or VA pension or disability benefits. For most individuals, the government will automatically send them checks sometime during 2009. Government retirees will receive payment when they file their 2009 tax returns.
Unemployment Compensation – Those receiving unemployment compensation will not be taxed on the first $2,400 of unemployment benefits. Unemployment compensation is increased by an additional $25 per week and the time to receive benefits is extended. When filing your 2009 tax return, make sure you reduce reported unemployment benefits by $2,400 (but not below $0). Check with your local unemployment office regarding availability of these benefits.
COBRA – Jobless individuals paying for COBRA insurance who were involuntarily terminated between Sept. 1, 2008, and Dec. 31, 2009, may receive a federal subsidy of 65% of monthly COBRA premiums for 9 months. Employers should notify you if you are eligible, and COBRA charges will be reduced sometime in 2009.
Earned Income Credit – Based on income, there is an increased tax credit for families with 3 or more children. For married couples filing joint returns, there is additional marriage penalty relief. When you file your 2009 and 2010 tax returns, make sure you look up the Earned Income Credit amount in the correct column in the Earned Income Credit chart.
Additional Child Tax Credit – Lower income families with children will receive increased eligibility for the refundable portion of the tax credit for lower income families with children when they file their 2009 and 2010 tax returns.
First-time Homebuyer Credit – First-time homebuyers who purchase a home between April 8, 2008, and Dec. 1, 2009, can receive up to an $8,000 refundable tax credit. Phaseout of this credit starts at $75,000 for individuals and $150,000 if Married Filing Jointly. Those making $95,000 or $170,000, respectively, or more are not eligible to receive this credit. When you file your 2008 or 2009 tax returns, make sure you claim the maximum benefit under this provision. Individuals who purchased a home in 2009 and already filed a 2008 return claiming a $7,500 credit based on the prior law should amend their return to claim the balance of the credit (up to $500). For more information, see our article on home ownership.
Nonbusiness Energy Credit – Taxpayers who invest in energy improvements, such as new windows and doors, to their homes can claim a tax credit of up to $1,500 when filing your 2009 and 2010 tax returns.
Residential Energy Efficient Property Credit – Homeowners who invest in such energy improvements as solar heating and geothermal pumps will receive an increased tax credit when filing 2009 to 2016 tax returns.
American Opportunity Tax Credit – An enhanced Hope Credit can be applied to qualified education expenses for the first 4 years of higher education. Maximum credit is $2,500, of which 40% is refundable. Decreased credits are given for individuals making $80,000 ($250,000 if Married Filing Jointly). You may claim this deduction on your 2009 tax return even if you don't itemize.
Section 529 Plan Distributions – The expanded definition of qualified higher education expenses now includes the purchase of computers and related equipment for college.
Vehicle Purchase – If you buy a new vehicle after Feb. 16, 2009, and before 2010, you can get a tax deduction for the state and local sales tax. The deduction is for new vehicles costing up to $49,500, and the benefit begins to phase out for individuals with modified adjusted income of $125,000 ($250,000 if Married Filing Jointly). You may claim this benefit on your 2009 tax return even if you don't itemize.
Plug-in Electric Vehicles Credit – This modification to the tax credit benefits people who purchase a qualified plug-in electric motor vehicle after 2009. The credit is limited to $7,500, and the amount begins to decrease after the manufacturer sells 200,000 plug-in vehicles. When you purchase a plug-in vehicle, ask the dealer about the credit. You'll claim the credit when you file your 2010 to 2014 tax returns.
If you're interested on seeing how all the money in the stimulus package is being distributed, not just the tax dollars, the White House has created a Web site that outlines the dollars. For example, there's a timeline that shows when funding recipients must begin reporting back on how they've used the money given them. You'll also find a breakdown of the areas money is being funneled to on the site. The biggest bucket, however, is for tax relief at $288 billion.
Making Work Pay Credit – This refundable credit is available to individuals who are employed or self-employed. The credit is 6.2% of earned income, up to $400 for individuals and $800 if Married Filing Jointly. The credit starts to phase out when modified adjusted gross income reaches $75,000 for individuals or $150,000 if Married Filing Jointly. Those making $95,000 or $190,000, respectively, or more will not receive the credit. Eligible individuals will claim the credit on their 2009 and 2010 tax returns.
Economic Recovery Payment – This one-time payment of $250 is allocated to individuals who receive Social Security, Tier 1 railroad retirement benefits, SSI, or VA pension or disability benefits. For most individuals, the government will automatically send them checks sometime during 2009. Government retirees will receive payment when they file their 2009 tax returns.
Unemployment Compensation – Those receiving unemployment compensation will not be taxed on the first $2,400 of unemployment benefits. Unemployment compensation is increased by an additional $25 per week and the time to receive benefits is extended. When filing your 2009 tax return, make sure you reduce reported unemployment benefits by $2,400 (but not below $0). Check with your local unemployment office regarding availability of these benefits.
COBRA – Jobless individuals paying for COBRA insurance who were involuntarily terminated between Sept. 1, 2008, and Dec. 31, 2009, may receive a federal subsidy of 65% of monthly COBRA premiums for 9 months. Employers should notify you if you are eligible, and COBRA charges will be reduced sometime in 2009.
Earned Income Credit – Based on income, there is an increased tax credit for families with 3 or more children. For married couples filing joint returns, there is additional marriage penalty relief. When you file your 2009 and 2010 tax returns, make sure you look up the Earned Income Credit amount in the correct column in the Earned Income Credit chart.
Additional Child Tax Credit – Lower income families with children will receive increased eligibility for the refundable portion of the tax credit for lower income families with children when they file their 2009 and 2010 tax returns.
First-time Homebuyer Credit – First-time homebuyers who purchase a home between April 8, 2008, and Dec. 1, 2009, can receive up to an $8,000 refundable tax credit. Phaseout of this credit starts at $75,000 for individuals and $150,000 if Married Filing Jointly. Those making $95,000 or $170,000, respectively, or more are not eligible to receive this credit. When you file your 2008 or 2009 tax returns, make sure you claim the maximum benefit under this provision. Individuals who purchased a home in 2009 and already filed a 2008 return claiming a $7,500 credit based on the prior law should amend their return to claim the balance of the credit (up to $500). For more information, see our article on home ownership.
Nonbusiness Energy Credit – Taxpayers who invest in energy improvements, such as new windows and doors, to their homes can claim a tax credit of up to $1,500 when filing your 2009 and 2010 tax returns.
Residential Energy Efficient Property Credit – Homeowners who invest in such energy improvements as solar heating and geothermal pumps will receive an increased tax credit when filing 2009 to 2016 tax returns.
American Opportunity Tax Credit – An enhanced Hope Credit can be applied to qualified education expenses for the first 4 years of higher education. Maximum credit is $2,500, of which 40% is refundable. Decreased credits are given for individuals making $80,000 ($250,000 if Married Filing Jointly). You may claim this deduction on your 2009 tax return even if you don't itemize.
Section 529 Plan Distributions – The expanded definition of qualified higher education expenses now includes the purchase of computers and related equipment for college.
Vehicle Purchase – If you buy a new vehicle after Feb. 16, 2009, and before 2010, you can get a tax deduction for the state and local sales tax. The deduction is for new vehicles costing up to $49,500, and the benefit begins to phase out for individuals with modified adjusted income of $125,000 ($250,000 if Married Filing Jointly). You may claim this benefit on your 2009 tax return even if you don't itemize.
Plug-in Electric Vehicles Credit – This modification to the tax credit benefits people who purchase a qualified plug-in electric motor vehicle after 2009. The credit is limited to $7,500, and the amount begins to decrease after the manufacturer sells 200,000 plug-in vehicles. When you purchase a plug-in vehicle, ask the dealer about the credit. You'll claim the credit when you file your 2010 to 2014 tax returns.
If you're interested on seeing how all the money in the stimulus package is being distributed, not just the tax dollars, the White House has created a Web site that outlines the dollars. For example, there's a timeline that shows when funding recipients must begin reporting back on how they've used the money given them. You'll also find a breakdown of the areas money is being funneled to on the site. The biggest bucket, however, is for tax relief at $288 billion.
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