Whether you notice it or not, the American Recovery and ReinvestmentAct of 2009 is already affecting your pocketbook. Consumers shouldhave started to see small increases in their take–home pay from the“Making Work Pay” tax credit.
Instead of getting lump–sum payments like last year, the amount oftaxes being withheld from your paychecks has been reduced to the tuneof $400 for individual tax filers and $800 per couple for both 2009 and2010. But if your adjusted gross income is higher than $75,000 for singlefilers and $150,000 for married couples, you won’t see any changes inyour take–home pay.
This new provision is just one of the many tax credits and deductionsdesigned to provide temporary tax relief to spur spending in thiseconomic downturn. Many of these provisions contain income phaseouts that limit the benefits available to higher income taxpayers.A lot of these provisions are also only good for a limited amount oftime so getting with a certified public accountant who is knowledgeableabout tax laws can help you take advantage of what’s out there beforeit is too late.
While there’s not enough space to address all the benefits, here are afew more critical tax relief provisions that can help consumers.
To initiate big–ticket purchases, the act again implemented the First–Time Home Buyer’s credit which is equal to 10 percent of the home’spurchase price up to a maximum of $8,000. With this benefit, the IRSdefines a first–time home buyer as someone who has not owned aprincipal residence during the three–year period prior to the purchase.
Even though the credit phases out Dec. 1, 2009, the best thing aboutit is the repayment provision has been repealed for homes purchased in2009 if the home is held more than three years.
In this new legislation, the U.S. Congress also increased the AlternativeMinimum Tax exemption amounts to $70,950 for joint filers for 2009 andprovides for the use of various non–refundable tax credits to offset bothregular tax and AMT.
The AMT was originally targeted to prevent high–income earnersfrom paying little or no taxes, but over the years has affected manyupper–middle income earners because of the lack of inflationindexing.
Taxpayers will also benefit from income tax deductions thatwere paid on local and state taxes on vehicles priced up to $49,500.However, like most provisions, there are income limits on who canget this credit.
Consumers with children will be happy to know the acttemporarily expands the Child Tax Credit by lowering the eligibilitylevel, called the “refundability threshold,” to make the creditavailable to tax filers with at least $3,000 of earnings. Previously,the credit was typically available only to those with earnings of$8,500 or more in tax year 2008 and $12,550 in tax year 2009.
Parents should also know that for those who contribute to a529 plan/educational savings account, computers can now bepurchased with 529 money as the act expands the definition ofwhat qualifies for higher educational expenses.There’s also relief for workers who were recently laid off throughreduced COBRA Insurance payments for nine months. Laid offworkers can also exclude unemployment benefits (up to $2,400)from their 2009 gross income.
On the business side, smaller firms can take advantage of theNet Operating Loss Carryback that lets business owners elect toincrease their carryback period from two to five years for the taxyear ending in 2008.
To qualify for the new five–year carryback provision, a smallbusiness must have no greater than an average of $15 million ingross receipts over a three–year period ending with the tax year thecarryback is elected.
Another benefit to small businesses is the expansion of theSection 179 Expensing limit to $250,000. This means companiescan expense up to $250,000 in purchases as long as they don’tspend more than $800,000 for equipment placed in service in2009. The old limits were around $130,000 with a phase out ofabout half a million.
Along those lines, the act provides for an additional first–yeardepreciation deduction of 50 percent for certain types of property.New equipment must be purchased and placed in service in 2009.The depreciation bonus helps businesses that buy equipment thisyear cut their 2009 tax bill.
Employers can also take advantage of the Work Opportunity TaxCredit for two new targeted groups to get a credit on employeewages. Unemployed veterans and disconnected youths betweenthe ages of 16 to 25 have been added to the list.
While this is just a snapshot of what’s in the American Recoveryand Reinvestment Act of 2009, the key to taking advantage ofthese provisions is knowing what you qualify for that will help youkeep more of your money. It’s also critical to know the phase outdates for many of these provisions before it’s too late to use them.Tax laws can be very complicated, so it’s best to seek outprofessionals who can help you. You can also learn more about thedifferent provisions by visiting www.recovery.gov.
