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February 26, 2009
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Economic Stimulus 2009
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On Friday, Feb. 17, President Obama signed a $787 billion stimulus package, designed to kick-start the sagging economy and get millions of Americans back to work, and the country back on its feet.
Having a hard time figuring it all out as to how it will affect you? After watching the Presidential Address, I decided to do a little research on how this plan will not only assist me personally but American's in general. I have summarized my findings in "plain English" for you below!
The American Recovery & Reinvestment Act (ARRA), the stimulus plan includes tax relief for middle-income families and spending programs for things like transportation, environmental and broadband infrastructure projects, aid for states and energy assistance, all designed to create millions of good-paying jobs.
Another bright side to this plan is that 95% of America's taxpayers will benefit from at least one of the tax breaks. Unlike the 2008 Economic Stimulus, there will not be stimulus rebate payment checks in 2009 for the majority of Americans.
"What I am signing is a balanced plan with a mix of tax cuts and investments. It is a plan that's been put together without earmarks or the usual pork barrel spending. And it is a plan that will be implemented with an unprecedented level of transparency and accountability," President Obama said before signing the bill into law. "And we expect you, the American people, to hold us accountable for the results. That is why we have created Recovery.gov, so every American can go online and see how their money is being spent."
That site, Recovery Website is now live. You can go there to see projections -- based on language in the legislation -- of where your money will go, broken down state-by-state. And over the coming weeks and months, as the funds start to go out, you'll be able to see far more detailed information.
While some of the relief will be paid this year, the majority of the relief for an average taxpayer is most likely to come next year.
Note: Many of these provisions below are subject to phaseout for higher-income individuals.
Key taxpayer provisions:
Tax credit for workers: For 2009 and 2010 there is a "making work pay" tax credit of up to $400 for working individuals and up to $800 for couples
Temporary suspension of taxation on unemployment benefits: The jobless get a little more help with a $25 increase in weekly benefit checks through 2009 and suspension of federal tax on the first $2,400 of unemployment benefits received in 2009
Retirees and disabled individuals: Those receiving Social Security benefits and individuals on disability will receive a one-time payment of $250 in 2009
First-time home buyer credit: Increased to $8,000 for qualified first-time home buyers purchasing homes after Dec. 31, 2008 and before Dec. 1, 2009; repayment requirement waived unless sold or no longer principal residence within 36 months
"American Opportunity Tax Credit" for education: An 'enhanced' Hope credit applies to the first four years of college; it provides 100% credit for the first $2,000 and 25% for the next $2,000 on qualified expenses such as tuition and books; the credit is 40% refundable, meaning even taxpayers who have no tax liability can receive a credit for 40% of qualified college expenses, up to $1,000
529 plans: Qualified computer technology and equipment is now allowed as higher education expenses from the plan, so distributions from 529 plans to buy a computer, for example, for college will not be taxable
Earned Income Tax Credit: Increased EITC amounts for families with 3 or more children and additional marriage penalty relief
Additional Child Tax Credit: Earnings threshold is lowered to $3,000, helping more people qualify for the credit and receive more money; for 2008 the earnings threshold was $8,500
Vehicle purchase: State and local sales taxes paid for purchases of qualified new motor vehicles are deductible
AMT: The one year typical patch for 2009 of the Alternative Minimum Tax (AMT) to prevent as many as 24 million middle-income households from being hit with a tax that was originally designed to prevent the very wealthy from avoiding taxes
Additional questions I and many others had were answered courtesy of H&R Block:
Q: Who qualifies for the $8,000 credit on the purchase of a new home?
A: You must be a first-time home buyer, which the law defines as someone who hasn't owned a primary home for three years prior to the home purchase.
If you haven't owned a home for the past three years but your spouse has, neither of you qualifies, says Rob Dietz, director of tax issues for the National Association of Home Builders.
Q: I'm buying a new home from a builder. Will I qualify for the credit?
A: Yes, as long as you close on the purchase between Jan. 1 and Dec. 1, says Bill Killmer, executive vice president for the NAHB.
If you're building the home yourself, for example, you've hired a contractor to build a home on a lot you already own, the date of purchase is defined as the date of occupancy, Killmer says. So to qualify for the credit, you'll need to move into your home by Dec. 1.
Q: I'm planning to buy a home for $50,000. Will I get a tax credit for $8,000?
A: No. The credit is equal to 10% of the home's purchase price, up to a maximum of $8,000. So your credit would be limited to $5,000.
Q:Do I have to wait until next year to claim the credit and get a tax refund?
A: The law allows taxpayers who purchase a home in 2009 to treat it as if it occurred on Dec. 31, 2008 and claim the credit on their 2008 tax return, Dietz says.
If you've already filed your 2008 tax return, or buy a home after you file your 2008 taxes, you can file an amended return and claim the credit.
Q: I'm planning to buy a used car. Will I qualify for the new sales tax deduction?
A: No. The sales tax deduction is limited to purchases of new cars and trucks Feb. 17 through Dec. 31. However, your vehicle doesn't have to be a 2009, says David Hyatt, spokesman for the National Automobile Dealers Association. As long as you're the first owner, he says, the vehicle qualifies as new.
Any new car or truck with a gross vehicle weight of less than 8,500 pounds is eligible for the deduction, which means all vehicles purchased for personal use qualify, Hyatt says. Motorcycles and motor homes also qualify for the deduction, he says.
Q: Is there a limit on the price of the vehicle?
A: The deduction is for sales taxes on purchases of up to $49,500. If you buy a more expensive vehicle, you'll still be allowed to claim the deduction, but only on the tax that applies to the first $49,500 of the price.
Q: Isn't there already a deduction for sales taxes on cars and trucks?
A: Yes, but that sales tax deduction comes with two big caveats. First, you have to itemize to claim it. If you claim the standard deduction, you're ineligible. Second, if you live in a state that imposes income taxes, you have to choose between deducting sales taxes or income taxes, says Amy McAnarney, executive director of H&R Block's Tax Institute. Many taxpayers elect to deduct their state income taxes because they're higher than the amount they pay in sales taxes.
The new sales tax deduction for purchases of new cars and trucks is an above-the-line deduction, which means you don't have to itemize to claim it. Double-dipping isn't allowed, so if you itemize and deduct your sales taxes, you can't claim an above-the-line deduction for the same expense. But if you claim the above-the-line deduction for your sales taxes and you itemize, you can deduct your state income taxes, too.
Q: What years are covered by the new education tax credit?
A: Parents of dependent college students and independent students can claim a credit of up to $2,500 a year to offset the cost of tuition, textbooks and fees in 2009 and 2010. To qualify, the expenses must have been paid after Jan. 1. For example, if you paid some of your 2009 tuition in late 2008, that payment doesn't count toward the credit, according to tax publisher CCH.
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