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American Recovery and Reinvestment Act of 2009 - Tax Credits for 2009 and 2010 Tax Returns

The American Recovery and Reinvestment Act of 2009 (ARRA) introduced and expanded a number of tax credits.

NOTE: Much of the following tax credit information does not apply to tax years after 2010, but we are maintaining this page as an aid to those who need to prepare atax return or an amended tax return for Tax Year 2009 or 2010.

Learn how to file a tax amendment.

Tax Credits for Workers

Making Work Pay Tax Credit: The Making Work Pay provision of the Recovery Act provided 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 phased out at modified adjusted gross incomes of greater than $75,000 ($150,000 for married filing jointly).

Working taxpayers whose wages were subject to withholding generally received this credit through changes in their withholding, which may have meant an increase in take-home pay. This withholding change was automatic, so submitting a revised W-4 Form was not necessary. The credit was to be computed on employees’ 2010 Tax Returns. For taxpayers whose wages were not subject to withholding, the credit could be claimed on their 2010 Tax Return.

Learn how and why to adjust your paycheck tax withholding.

Tax Credit for First-Time Homebuyers

The First-Time Homebuyer Credit was expanded by the Recovery Act for Tax Years 2009 and 2010. The credit is for homebuyers who closed on a home purchase by September 30, 2010 (as long as they had entered into a binding contract by April 30, 2010). The Homebuyer Credit is worth up to $8,000. The credit is also fully refundable, which means that it will be paid to you in your tax refund even if you owe no tax this year.

Homebuyers who have not owned a primary residence for three years leading up to the date of purchase may qualify for this credit (for married couples, this restriction applies to both spouses). Homebuyers who have already owned a home for 5 consecutive years may still qualify for a slightly lower credit of $6,500.

The First Time Homebuyer Credit does not have to be repaid, provided the buyer stays in their new home for at least three years. You can claim the credit during your online tax preparation on efile.com; you need only to enter basic information and the software will efile or print Form 5405 for you. Read more important details on the First Time Homebuyer Tax Credit.

Other 2010 and 2011 Recovery-Related Tax Credits

Credits for Students, Education: The American Opportunity Credit, an expansion of the Hope Credit, increases the number of taxpayers who qualify for higher education tax benefits. It covers college tuition and related expenses, and has been increased to $2,500 through 2011. The credit has been expanded to cover the first four years of college and includes books and other required course materials as well as tuition. It also includes tax-free distributions from certain college savings plans for computer purchases. The credit is 40% refundable (up to $1,000 cash back). It begins to phase out at $80,000 for single filers, and at $160,00 for married couples filing jointly. Learn more about credits for education.

Earned Income Tax Credit: More low and moderate income families now qualify, and a higher credit amount is available. The Earned Income Credit may be especially beneficial to taxpayers with children.

The Child Tax Credit: The Child Tax Credit now covers more families and offers greater tax savings to some families already covered.

Home Energy Efficiency: As much as 30% of the purchase price and, in some cases, installation price of home energy efficiency and renewable energy devices is tax-free in 2010 and 2011. Learn more about home energy tax credits.

Alternative Minimum Tax (AMT): Middle-income taxpayers benefit from the AMT exemption's significant increase.

Health Coverage Tax Credit: The amount of the Health Coverage Tax Credit has increased to cover 80% of qualified insurance premiums for qualifying workers who have lost their jobs, and it is 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 to account for the Making Work Pay Credit in 2010. 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).

Recovery Tax Credits for Employers

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 2010 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 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.

See what other tax credits and tax deductions you may qualify for.