Permanent Value

2009 Stimulus Bill

Nathaniel Ritchison
February 24th, 2009

In a week shortened by President’s Day, President Obama last Tuesday signed into law his historic first bill, the $787 billion American Recovery and Reinvestment Act of 2009. Despite this unprecedented action to revive our economy, the stock markets continued their slide and made new lows in this 16 month old recession. With the passage of the bill, the president managed to deliver on one of his campaign commitments. President Obama’s chief economic advisor Lawrence Summers wrote last year describing an effective government stimulus for the economy as timely, temporary and targeted. Although timely, there has been heated debate in both the Senate and the House as to the scope of spending and the duration of tax cuts in the bill. A portion of the bill, approximately $200 billion, will provide tax relief for American taxpayers, while an additional $300 billion or so is targeted at creating and maintaining an estimated 3.5 million jobs through government spending.

The following will highlight some of the key points of the tax relief portion of the stimulus package as they relate to you.

Highlighted Tax Relief for Individual and Families
from ARRA 2009

Extension of AMT relief for 2009. The Alternative Minimum Tax relief will affect more than 26 million families by increasing the AMT exemption amount to $70,950 for joint filers and $46,700 for individuals.

Sales tax deduction for new vehicle purchases. The bill will provide all taxpayers that purchase a new vehicle in 2009 with a tax deduction of the state sales and excise tax on their federal income tax returns.

“American Opportunity” Education Tax Credit. For 2009 and 2010, the bill will provide a tax credit of up to $2,500 for individuals attending college. The tax credit will be applied to 100% of the first $2,000 and 25% of the next $2,000 paid in tuition and related educational expenses for a maximum of $2,500. The tax credit is however subject to phase outs for joint taxpayers with an adjusted gross income of $160,000 ($80,000 for individuals).

First-time home buyer credit. Amending an earlier bill placed into law by President Bush, the new bill increases the homebuyer credit by $500 and removes the repayment obligation. Any first-time homebuyer who purchases a home between January 1, 2009 and December 1, 2009 will receive a maximum tax credit of $8,000, or 10% of the property value, whichever is greater.

“Making Work Pay” tax credit. For 2009 and 2010, the bill will provide a refundable tax credit of up to $400 for each working individual ($800 for working families) and would phase out for joint filers with Adjusted Gross Income over $150,000 ($75,000 for individual). Beginning in June 2009, you’ll be given the choice between a payroll credit of $13 per paycheck or a refundable credit on your federal tax return. In 2010, the payroll tax credit will be approximately $6.50 per paycheck for the entire year.

Economic recovery payment to recipients of social security, SSI, railroad retirement, veteran disability compensation and certain other federal and state pensioners.
This will be a one-time payment of $250 to retirees and disabled individuals receiving benefits, and a $250 tax credit for certain federal and state pensioners. It will be reduced by any amount received from the Making Work Pay credit.

Increased Earned Income Tax Credit. The bill will increase the earned income tax credit for working families with three or more children. The new credit will be 45% of the family’s first $12,570 of earned income and increase the beginning point of the phase-out range for all married couples filing a joint return (regardless of the number of children) by $1,880.

Increase eligibility for the refundable portion of child credit. The bill will reduce the floor for eligibility to the refundable child tax credit for 2009 and 2010 to $3,000. The child tax credit will now be refundable to the extent of 15% of the taxpayer’s earned income in excess of $3,000.

Premium subsidies for COBRA continuation coverage for unemployed workers. To help people maintain health coverage who are involuntarily terminated the bill will pay 65% of their COBRA continuation premiums for 9 months after they lose their job. This will cover workers terminated from September 1, 2008 to December 31, 2009. For those workers terminated between September 1, 2008 and enactment but didn’t elect COBRA coverage at the time, they will be given a new 60 day window to elect COBRA and receive the subsidy.

As always, please call our offices to speak with your advisor if you have any questions about the stimulus bill, how it affects you, or if there have been recent family or financial changes. God bless.

Nate