The American Recovery and Reinvestment Act of 2009, commonly referred to as the Final Stimulus Plan, was signed into law on February 17, 2009. While spending is the largest component of the stimulus plan, the Act also contains several important tax provisions. These tax provisions which affect wage earners and the unemployed, home and car buyers, college spenders and small businesses are also designed to increase spending.
The following is a very general overview of some of the major provisions of this tax bill. In the ensuing weeks we will examine these provisions in greater detail.
The “Making Work Pay” refundable tax credit for 2009 and 2010 should affect most taxpayers. The credit is 6.2 % of wages up to $400 ($800 for joint returns). The credit begins to reduce when Adjusted Gross Income reaches $75,000 ($150,000 for joint returns) and is eliminated when such income hits $95,000 ($190,000 for joint returns). Social Security, Railroad Retirement and Veteran’s Administration benefit recipients will receive a minimum credit of $250 regardless of the amount of their wages.
Lower income taxpayers will receive other tax benefits under this bill. Expansion of the Earned Income Credit and liberalization of the Child Credit will hopefully give lower income taxpayers with dependent children more dollars in their pockets. For the first time recipients of unemployment compensation will escape tax on the first $2400 of these benefits.
All taxpayers subject to the controversial alternative minimum tax will see an increase in the exemption from such tax in 2009. The exemption will increase to $46,700 from $33.750 (to $70,950 from $45,000 for joint returns).
The credit for first-time homebuyers is expanded to $8,000 under this bill which also extends and liberalizes the credit. New car buyers will get a deduction for sales tax on the first $49,500 of the cost of a car, motorcycle or mobile home purchased between February 17 and December 31 of 2009. The tax deduction can be taken even if the taxpayer does not itemize, but is phased out for higher income taxpayers.
Taxpayers paying college expenses for either themselves or their dependent children in 2009 and 2010 may benefit from a change in the way tax benefits of such expenditures are calculated. The new “American Opportunity Tax Credit” increase the maximum credit to $2500 and is available for the first four years of post secondary schooling. The income phaseout ranges have also been increased. Forty percent of the credit will be refundable.
Limited tax breaks are also provided for businesses. Since the 1960’s Congress has believed that business owners will purchase more equipment if given appropriate tax incentives. This bill is no exception this theory. Bonus depreciation or the ability to write of 50% of the cost of qualifying property is extended to 2009. The ability of small businesses to completely write of certain capital expenditures in the year of acquisition (section 179) is also extended to 2009. Certain small businesses will also be allowed to carry back losses to five previous years, increased from 2 previous years. There are several other tax benefits provided for in the bill including the expansion of certain business credits.
In succeeding weeks we will examine and explore these tax provisions in greater detail, one provision at a time.
The following is a very general overview of some of the major provisions of this tax bill. In the ensuing weeks we will examine these provisions in greater detail.
The “Making Work Pay” refundable tax credit for 2009 and 2010 should affect most taxpayers. The credit is 6.2 % of wages up to $400 ($800 for joint returns). The credit begins to reduce when Adjusted Gross Income reaches $75,000 ($150,000 for joint returns) and is eliminated when such income hits $95,000 ($190,000 for joint returns). Social Security, Railroad Retirement and Veteran’s Administration benefit recipients will receive a minimum credit of $250 regardless of the amount of their wages.
Lower income taxpayers will receive other tax benefits under this bill. Expansion of the Earned Income Credit and liberalization of the Child Credit will hopefully give lower income taxpayers with dependent children more dollars in their pockets. For the first time recipients of unemployment compensation will escape tax on the first $2400 of these benefits.
All taxpayers subject to the controversial alternative minimum tax will see an increase in the exemption from such tax in 2009. The exemption will increase to $46,700 from $33.750 (to $70,950 from $45,000 for joint returns).
The credit for first-time homebuyers is expanded to $8,000 under this bill which also extends and liberalizes the credit. New car buyers will get a deduction for sales tax on the first $49,500 of the cost of a car, motorcycle or mobile home purchased between February 17 and December 31 of 2009. The tax deduction can be taken even if the taxpayer does not itemize, but is phased out for higher income taxpayers.
Taxpayers paying college expenses for either themselves or their dependent children in 2009 and 2010 may benefit from a change in the way tax benefits of such expenditures are calculated. The new “American Opportunity Tax Credit” increase the maximum credit to $2500 and is available for the first four years of post secondary schooling. The income phaseout ranges have also been increased. Forty percent of the credit will be refundable.
Limited tax breaks are also provided for businesses. Since the 1960’s Congress has believed that business owners will purchase more equipment if given appropriate tax incentives. This bill is no exception this theory. Bonus depreciation or the ability to write of 50% of the cost of qualifying property is extended to 2009. The ability of small businesses to completely write of certain capital expenditures in the year of acquisition (section 179) is also extended to 2009. Certain small businesses will also be allowed to carry back losses to five previous years, increased from 2 previous years. There are several other tax benefits provided for in the bill including the expansion of certain business credits.
In succeeding weeks we will examine and explore these tax provisions in greater detail, one provision at a time.
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