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New Tax Relief for Individuals

The American Recovery and Reinvestment Act (ARRA) of 2009 was signed into law by President Obama on February 17, 2009.

The bill is intended to provide a stimulus to the U.S. economy in the wake of the economic downturn.

The bill includes federal tax cuts, expansion of unemployment benefits and other social provisions such as domestic spending in education, health care, and infrastructure-including the energy sector.

It sets forth both short-term and long-term legislation to restore economic growth, create jobs and strengthen the American middle class.

But what does it mean to you?

Here are some key highlights of the tax relief for individuals:

  • Payroll Checks Increase This Spring. The "Making Work Pay" Tax Credit will mean an additional $400 to $800 for many Americans. New withholding tax tables have been issued for employers, thereby increasing paychecks. This credit, however, begins to phase out for single taxpayers with an AGI of $75,000, or $150,00 for joint taxpayers.

  • First-Time Homebuyer Credit Expands. Homebuyers who purchase in 2009 can get a credit of up to $8,000 with no payback requirement. For further information, see the article below titled First Time Homebuyer's Credit.

  • Expansion of the Hope Tax Credit for College. The Hope Credit for college costs increases to $2,500 for 2009 and 2010 (from $1,800 in 2008). The credit is now allowed for 100% of the first $2,000 of qualified expenses and 25% of the second $2,000. Furthermore, the qualified expenses now include course materials (in addition to tuition and fees). The credit can now be claimed for up to 4 years (up from 2 years).

  • Expansion of Low Income Tax Credits. More taxpayers will qualify for the Earned Income Tax Credit and Child Tax Credit in 2009 due to revisions in the phase out and qualifying income limits.

  • Unemployment Compensation Tax Exclusion. In 2009, the first $2,400 a person receives in unemployment compensation benefits will be excluded from taxation.

  • $250 for Social Security Recipients, Veterans and Railroad Retirees. The Economic Recovery Payment will be paid by the Social Security Administration, Department of Veterans Affairs and the Railroad Retirement Board.

  • Money Back for New Vehicle Purchases. Taxpayers who buy certain new vehicles in 2009 can deduct the state and local sales taxes they paid.

  • Home Energy Credit. Homeowners will benefit from extended energy saving credits when making their homes more energy-efficient in 2009 and 2010. Projects include energy efficient windows, doors, heating and air conditioning systems. The existing 10 percent tax credit for energy saving home improvements has been increased to 30 percent of a cost up to $1,500 and extends through 2010.

  • Alternative Minimum Tax (AMT). The floor for the AMT calculation has been increased to $70,950 for joint filers in 2009.

New Recovery Package - Questions and Answers:

Taxpayers, like you, have many questions related to the American Recovery and Reinvestment Act of 2009, especially since the legislation was enacted while many taxpayers are working to file their 2008 tax returns. How will this new legislation affect you? Here are a few questions and answers to help guide you.

Q: Could the new law affect 2008 tax returns?

A: Generally, no. The new law does not have any major impact for the vast majority of individuals preparing their 2008 tax returns due April 15. Instead, these changes will largely impact 2009 tax returns filed next year, in 2010. Taxpayers should continue to prepare their 2008 tax returns as they normally would.

Note: There are a few limited areas in the law that could impact 2008 tax returns. For some small businesses, changes in the net operating loss provisions could affect 2008 tax returns. For first-time homebuyers, there is an expanded credit available on 2008 tax returns.

Q: Does this new recovery program have any impact on the recovery rebate credit for 2008 tax returns being filed now?

A: No. But the IRS reminds taxpayers and tax preparers to make sure they properly determine eligibility for the recovery rebate credit before they file their 2008 federal tax returns.


Bob King | 05/08/2009