Whatever your definition of stimulus, the gargantuan $787 billion bill passed by Congress on February 17 provides a wide array of tax credits to a cross section of Americans. No matter what your age, income level or taxpayer status, chances are there’s something in it for you.
Before we take a look at some of the best tax credits, note that, with a few exceptions, the new credits won't impact your 2008 tax returns. That said, you can start claiming them as part of your 2009 tax planning process.
First-Time Home Buyer Tax Credit: The rumor was that the stimulus plan would include a $15,0000 tax credit for buying a new home. In reality, the tax credit is for $8,000 for first-time home buyers only. There are some wrinkles to the new home buying credit. Contrary to the old $7,500 tax credit for first-time home buyers, which had to be repaid in 15 years, the $8,000 tax credit is a no-strings-attached deal as long as you stay in the home for three years. Another wrinkle—well-off Americans need not apply. The tax credit is only offered to Americans with an adjusted gross income (AGI) of less than $75,000 (single) or $150,000 (married filing jointly). The $8,000 credit has a short shelf life, too. The qualifying purchase dates are between Jan. 1, 2009 and November 30, 2009. Consequently, it’s not retroactive for purchases in 2008.
New Car Sales Tax Deduction: The stimulus plan also gives new car buyers a nice break on sales tax—if you buy a new vehicle for less than $49,500 before December 31, 2009. This deduction has an income barrier, too; it’s only offered to Americans with an AGI of less than $125,000 (single) or $250,000 (married filing jointly). Taxpayers can either itemize the sales tax deduction or add it to their standard deduction.
"Making Work Pay" Credit: The new stimulus bill has over $116 billion tax credits, broken down into $400 per worker and $800 per couple over the next two years. It’s not much—about $13 less withheld from a taxpayer’s weekly paycheck. Again, the more you make, the less of a tax credit you’ll get. Under the stimulus bill’s language, taxpayers who earn more than $75,000 annually—and couples making more than $150,000—get a tax credit, too, but at a reduced rate. The new credit begins the phase-out range at $21,420, an increase of $1,880.
COBRA Subsidy: The stimulus package includes a temporary subsidy of COBRA premiums for involuntarily terminated employees. The subsidy covers 65% of the monthly health insurance premium, for a period of up to nine months. To earn the credit, an employee must be involuntarily terminated between September 1, 2008 and December 31, 2009. The tax credit is not applicable to employees who resign voluntarily, nor to employees who lose their health coverage due to a reduction in work hours.
Earned Income Tax Credit: Struggling families with three or more children get a tax credit, too. $4.7 billion will go to expand the Earned Income Tax Credit for low-income families. That means, in 2009, the tax credit increases to 45 percent of the first $12,570 of earned income, up from 40 percent.
Child Tax Credit: Again, for struggling families, $15 billion is being applied to extend the $1,000 Child Tax Credit. By and large, the credit is only for families that don’t pay federal income taxes. The tax credit increases eligibility for the child tax credit by lowering the income threshold that must be met for the credit to be refundable to $3,000 for 2009 and 2010. Congress is plowing $14.8 billion into the updated Child Tax Credit.
Education Credit For College: The American Opportunity Tax Credit (formerly Hope) provides up to $2,500 credit per student for 2009 and 2010. The credit has some legs, as it’s offered to college students for any of the first four years of college. That’s up from a two-year window in previous tax law. The tax credit is 40 percent refundable, and begins to phase out at $80,000 of AGI for singles and $160,000 for married couples.
Suspension of Tax on Unemployment Compensation: Starting in 2009, unemployed Americans can catch a new tax break. The unemployment credit excludes up to $2,400 of unemployment compensation from gross income.
Alternative Minimum Tax Exemptions: The alternative minimum tax is once again in play. The new wrinkle this year raises the exemption amounts for 2009 to $70,950 for married individuals filing jointly and surviving spouses, $46,700 for unmarried individuals, and $35,475 for married individuals filing separately.
Residential Energy-Efficient Property Credit: Washington’s increasing appetite for alternative energy has triggered a new tax credit under the stimulus package. The Residential Energy-Efficient Property Credit provides a tax credit for homeowners who adhere to energy mandates included in the 2000 International Energy Conservation code—things like installing solar panels and energy-efficient skylights or windows. The tax credit applies to anyone making energy efficient changes to their home after 2005. According to the IRS, the 10 percent tax credit for energy-efficient home improvements rises to 30 percent and is allowable through 2010. Another energy-related tax credit—the Alternative Motor Vehicle Credit—gives owners of energy-efficient cars and trucks a break. Click here to see if you qualify.
For more information on the American Recovery and Reinvestment Act of 2009, visit http://www.irs.gov.
American Recovery and Reinvestment Act: At a Glance
| Tax Credit | Description |
|---|---|
| “Making Work Pay” Credit | Taxpayers receive $400 per worker and $800 per couple tax credits in 2009 and 2010 in the form of reduced paycheck tax withholding. |
| Economic Recovery Payment | Retirees on Social Security or veterans get a one-time payment of $250. |
| Unemployment Compensation Tax Credit | For 2009, unemployed Americans can declare up to $2,400 unemployment compensation from their income. |
| COBRA Subsidy | Laid-off employees can have up to 65% of their COBRA payments subsidized for a period of nine months. |
| Alternative Minimum Tax Patch | The new 2009 income limits for AMT exemption clock in at $70,950 for joint filers and $46,700 for single. |
| Earned Income Tax Credit | For 2009 and 2010, EITC will be increased to 40% of the first $12,570 of earned income. |
| Child Tax Credit | The income threshold of the refundable portion of child tax credit is increased to $3,000 in 2009 and 2010. |
| “American Opportunity” Education Credit | For 2009 and 2010, taxpayers can declare up to $2,500 tax credit per student for college educational expenses. |
| Qualified Tuition Programs | Withdrawals from 529 college savings account can be used to purchase computers and Internet services. |
| First-Time Home Buyer Credit | First-time home buyers get an $8,000 tax credit when purchasing a new house in 2009. |
| New Car Sales Tax Deduction | New car buyers earn a tax deduction for state and local sales taxes or excise taxes on the first $49,500 of a vehicle’s purchase value. |
| Residential Energy-Efficient Property Credit | Homeowners can declare up to 30 percent tax credit for energy-efficient home improvements through 2010. |
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