American Recovery and Reinvestment Act of 2009

Summer 2010

In February 2009, just as we were filing our 2008 income tax returns, Congress passed the American Recovery and Reinvestment Act of 2009, better known as the “Stimulus Bill”. There were changes that impacted the 2008 tax returns, mainly for the first-time homebuyer, but most of the act benefits taxpayers on their 2009 tax returns that will be filed in 2010.  Below is a partial list of some of the tax law changes that may affect your return.

First, we have the “Making Work Pay Credit.” Most people will see this credit in the form of increased take home pay. In the spring of 2009, there was a change in the withholding tax tables that automatically decreased the withholding for single persons expected to have adjusted gross income less than $95,000, or $190,000 for married individuals.  The idea being that the taxpayer will receive money now, which will decrease the amount of tax withheld, and when the credit is filed on the tax return, the credit will offset the taxes due that were not withheld during the year.  However, employees with multiple jobs or married couples whose combined income is more than $150,000 may want to revise a Federal Form W-4 to insure that enough is withheld to cover taxes on the combined income. For taxpayers who do not have taxes withheld, they will see this credit in 2010, when the 2009 tax return is filed.

All eligible taxpayers will claim a credit on the 2009 and 2010 tax returns. It is a refundable credit of 6.2% of earned income, up to $400.00 per individual, or $800.00 if married filing jointly. It will begin to phase out where modified adjusted gross income reaches $75,000 for individuals and $150,000 if married filing jointly, and will completely phase out at $95,000 and $190,000 respectively.

Next we have the “Economic Recovery Payment.” This is a one-time payment of $250 to those individuals who receive Social Security, SSI, VA pension or disability benefits, or Tier 1 railroad retirement benefits. The Social Security Administration, Department of Veterans Affairs, and the Railroad Retirement Board will pay this stimulus payment. So, unlike the previous stimulus payment, these recipients do not need to file a tax return to receive the payment.

On to the “First Time Home Buyers Credit,” as the name implies, is for first time homebuyers who purchase a home between April 8, 2008, and April 30, 2010.  The taxpayer can receive up to an $8,000 refundable tax credit with the phase-out of this credit beginning with an adjusted gross income of $75,000 for individuals and $150,000 if married filing jointly. Those making $95,000 and $170,000, respectively, or more are not eligible to receive this credit. Individuals who purchase a home in 2009 and already filed a 2008 return claiming a $7,500 credit based on the prior law should have their return amended to claim the balance of the credit.

There are several other changes that may also affect your tax return for 2009.  For example, for those receiving unemployment benefits, there will be no tax on the first $2,400. There are changes in the education credits.  Now, we have the “American Opportunity Tax Credit.”  Changes to COBRA coverage include a Federal subsidy of 65% of the monthly premiums for nine months.  Please visit our website at www.grstarbuck.com and look for the link to “Stimulus Provisions that Could Affect 2009 Tax Returns” to take you directly to the IRS newsroom or feel free to call our office for any additional questions or concerns.