2009 Recovery Act - Highlights for Individuals
"Making Work Pay Credit" - More Money in Your Paycheck
The 2009 Recovery Act provides a refundable credit of up to $400 for working individuals and $800 for working families. The credit is calculated at 6.2% of earned income, and phases out for taxpayers with modified adjusted gross income in excess of $75,000 (or $150,000 for married couples filing jointly). Nonresident aliens and individuals who can be claimed as a dependent do not qualify for the credit. The Making Work Pay Tax Credit benefits 95% of working families in the United States. Employees will receive this credit via reduced income tax withholding in each paycheck, not as a rebate check. The IRS has issued revised withholding tables, so employees should begin to see larger paychecks beginning April 1, 2009. This translates into roughly $10-$20 extra per week. To receive advanced benefit from the credit, self-employed people may reduce their quarterly estimated payments. The exact amount of the credit for the year will be calculated on the 2009 tax returns. Retirees and other people on pensions will receive a one time $250 check as a substitute. The checks will be issued to recipients of Social Security benefits, Railroad Retirement benefits, Supplemental Security income or Veterans pensions. Federal retirees who don't receive any Social Security will also receive a $250 check.
$8,000 Refundable Credit for First Time Home Buyers
If you haven't owned a home during the past 3 years, then you are a "First Time Home Buyer". For primary homes purchased between January 1, 2009 and November 30, 2009, the maximum credit increases to $8,000, and needn't be paid back. However, the 15-year repayment rule still applies to residences purchased in 2008. Qualifying Individuals who purchase homes during 2009 (on before 11/30/09) can elect to claim the credit on their original or amended 2008 tax returns. The credit is refundable which means it is allowed in full even if it exceeds your tax bill for the year. Taxpayers should note that the credit will be recaptured if the home is sold within 3 years of purchase.
"American Opportunity Tax Credit" - Improved College Tuition Credit
The tax credit for college tuition is much better for 2009 and 2010. The Hope credit is replaced by a new credit called "American Opportunity Credit". The credit amount is up to $2,500 per student a year for four years of college, not just the first two. The credit now also covers the cost of books, and begins to phase out at much higher adjusted gross income levels. ($80,000 for single filers and $160,000 for married couples.) If the credit is greater than your income tax liability, 40% of it is refundable.
Energy Efficient Home Improvements
The credit for energy efficient home improvements is larger for 2009 and 2010. The credit rate triples to 30%, with a new ceiling of $1,500 a year. Also, there are no longer dollar caps on solar water heaters, geothermal and wind energy assets. For more information on what energy efficient home improvements and appliances are eligible for the Residential Energy Credit , visit www.energystar.gov.
Unemployment Benefits
The first $2,400 of unemployment benefits received in 2009 are tax free. The law also helps terminated workers pay for continuing health insurance. Starting March 1, 2009, those who were let go after Aug. 31, 2008 and before Jan. 1, 2010 and elect to retain their coverage can get 65% of the premium paid for by the federal government for up to nine months. People who left before Feb. 17, 2009 and declined coverage must be notified that they have 60 days to take advantage of this change.
Sales Tax Deduction for New Vehicles
Buyers of new vehicles can deduct the sales tax paid on the purchase, even if they don't "itemize" their deductions on the returns. This break applies to new cars, motor homes, light trucks and motorcycles purchased between February 17, 2009 and December 31, 2009. Sales tax paid on the first $49,500 of cost qualifies. The benefit begins phasing out for singles with Adjusted Gross Income over $125,000 (married couples with AGI over $250,000) and is not available for single filers with AGI of $135,000 or more (married couple with AGI of $260,000 or more).
