Tax Credits: 2009 American Recovery and Reinvestment Act
President Obama has signed the American Recovery and Reinvestment Act of 2009 (ARRA).
Individual taxpayers, including workers, unemployed people, veterans, Social Security
recipients, and others, will generally be affected by these 2009 Tax Credits.
Read more about this stimulus package and how it might benefit you:
Workers
Making Work Pay Tax Credit: The Making Work Pay provision provides
a refundable Tax Credit of up to $400 for working individuals (up to $800 for married
filing jointly). The credit is calculated at a rate of 6.2 percent of earned income,
and it phases out at modified adjusted gross incomes of greater than $75,000 ($150,000
for married filing jointly).
Working taxpayers whose wages are subject to withholding will generally receive
this credit through changes in their withholding, which may mean an increase in
take-home pay. This withholding change is automatic, so submitting a revised W-4
Form is not necessary. The credit will be computed on employees’ 2009 income
tax returns. For taxpayers whose wages are not subject to withholding, the credit
can be claimed on their 2009 return.
For taxpayers who are not eligible for the new Tax Credit, those changes to withholding
could result in a smaller refund when they file their 2009 tax returns. Some taxpayers
who usually receive very small refunds could end up owing a small amount instead
of receiving a refund.
efile recommends that the following taxpayers pay extra attention to their withholding
because of the Making Work Pay Credit: pensioners, married couples with two incomes,
individuals with more than one job, working Social Security recipients, workers
without valid Social Security numbers, self-employed individuals, and dependents.
Pensioners must receive earned income in order to be eligible for the Making Work
Pay Tax Credit. Form W-4P (Pension, Social Security Tax
Witholding) is designed to help pensioners adjust their withholding.
These taxpayers should consult the withholding calculator and submit a revised
Form W-4 if necessary. Learn more about the Making Work Pay Tax Credit
or
listen to Making Work Pay Tax Credit audio.
Click here to estimate and calculate
your paycheck tax withholding now.
New Car Buyers
Save on a new vehicle. Did you or are you planning to purchase a new passenger
vehicle during 2009? If so, learn more about this special new car tax
break.
First-Time Homebuyers
The 2009 First-Time Homebuyer Credit allows taxpayers who purchase in 2009 a credit
of up to $8,000, with no payback requirement.
Homebuyers who have not owned a primary residence for three years leading up to
the date of purchase qualify for this credit (for married couples, this restriction
applies to both spouses). The credit begins to phase out for taxpayers whose modified
adjusted gross income is greater than $75,000 for single filers ($150,000 for married
filing jointly). This credit does not have to be repaid, provided the buyer stays
in their new home for at least three years. You can claim this credit during your
online tax preparation on efile.com; you only have to enter basic information and
the software will efile or print Form 5405 for you. Read more important details on this
Tax Credit.
Other New 2009 Tax Credits for Individual Taxpayers
Retirees, Veterans, and the Disabled: Social Security recipients,
veterans, and railroad retirees will receive a $250 economy recovery payment. Learn More
Students, Education: The American Opportunity Credit, a new higher
education benefit, increases the number of taxpayers who qualify for higher education
tax benefits. The Hope Credit for middle-class taxpayers, covering
college tuition and related expenses, has been increased to $2,500 in 2009 and 2010.
It has been expanded to cover all four years of college and books as well as tuition.
It also includes tax-free distributions from certain college savings plans for computer
purchases. The credit is 40% refundable. It begins to phase out at $80,000 for single
filers ($160,00 married filing jointly). Learn
More
Earned Income Tax Credit. More low and moderate income families
now qualify. Learn More
The Additional Child Tax Credit. The Child Tax Credit and Additional
Child Tax Credit now cover more families and offer greater tax savings to some families
already covered. Learn More
Home Energy Efficiency: As much as 30% of the purchase price and,
in some cases, installation price of home energy efficiency and renewable energy
incentives is now tax-free.
Learn More
Alternative Minimum Tax (AMT): Middle-income taxpayers benefit
from the minimum tax exemptions increase significantly, $46,700 for single
filers ($70,950 married filing jointly). In effect, many middle-income taxpayers
do not have to pay the Alternative Minimum Tax.
Unemployed: Tax-free unemployment benefits are increased to as
much as $2,400. COBRA subsidies are increased. The Health Coverage Tax Credit
is increased to cover 80% of qualified insurance premiums for qualifying
workers who have lost their jobs, and expanded to cover their families for a longer
period of time.
Employers and the Making Work Pay Tax Credit
As an employer, you will need to update your withholding tables. For more information
about how the Making Work Pay Credit affects you as an employer, please view the Wage and EIC Payment Table (Publication
15-T, New Wage Withholding and Advance Earned Income Credit Payment Tables).
The Expanded Net Operating Loss Carryback and Small Businesses
The new net operating loss carryback provision allows small businesses that sustained
net operating losses in 2008 to offset that loss against income earned within the
past five years. Previously, small businesses could only carry back such losses
for two years.
Employer-Supported Employee Transportation and Transit Pass Benefits
Employees might be able to exclude $230 from income per month in transit
benefits and $230 per month in parking benefits –– up to a maximum of
$460 per month. Employees may receive benefits for commuter transportation and transit
passes and benefits for parking during the same month; they are not mutually exclusive.
These benefits are excluded from an employee's gross income for income tax
purposes and from an employee's wages for payroll tax purposes. Previously,
there were two separate monthly exclusion amounts, one for transit passes and commuter
highway transportation — such as commuter vans — and a different
one for qualified parking. The exclusion rate amount for qualified parking was set
at a higher rate. The new regulation makes all the exclusion amounts equal
and sets them at the higher rate for qualified parking. The law provides the equal
benefits through December 31, 2010. The monthly exclusion amount for 2010 will be
inflation-adjusted.
The Work Opportunity Tax Credit
The work opportunity tax credit will now cover returning veterans and
disconnected youth; to request certification for this expanded program, use Form 8850.