It has been hard to write about the recently enacted American Recovery and Reinvestment Act of 2009 (the Stimulus Bill), because it is so terribly disappointing. I didn’t like it when I first read it, neither the market nor the public liked it, and the more I read it, the more disappointed I am. Any stimulus to the economy is likely going to be first realized by money the Act gives to the states to keep them afloat and to spend on infrastructure repair and replacement. I trust this will create new employment before the end of the year.

So much for venting (for now). There’s a lots to not like, but let me quickly summarize the tax provisions - which do little - applicable to individuals. I will supplement this summary with additional information over the next few days concerning specific parts of the tax legislation. I will have different posts for individuals and businesses. I will also do a business summary similar to this one. First, understand that the Stimulus Act is in two parts (Parts A and B). Within the Act’s 1,071 pages (my copy, which is the hand-marked up, margin-annotated version of the conference committee bill) are numerous titles and subsections that carry their own names, leading one to believe they were separate pieces of legislation (they probably were once, and have been lying around the House for years). The tax title, in Part B, is known as the American Recovery and Reinvestment Tax Act of 2009. Here’s the brief summary applicable to individuals in this section of the Act:

• You’ve heard about the much-touted Making Work Pay Credit, which is to give each individual a maximum $400 ($800 for joint filers) tax reduction in 2009 and again in 2010. You’ll get this through reduced income tax withholding ($400/52 equals about $8 per week) beginning sometime later this year. If your adjusted gross income (AGI) exceeds $75,000 ($150,000 for joint filers), you’ll have to pay some or all of it back when you file your 2009 tax return.
• The Earned Income Tax Credit is increased for 2009 and 2010, particularly for taxpayers with three or more children. Those taxpayers may now claim a maximum credit of about $5,656. The credit phases out for all taxpayers above a certain earned income level regardless of the number of children and is completely phased out at $35,463 of earnings ($40,463 if married filing jointly).
• Current law provides that individuals with children below the age of 17 (24 for students) may be entitled to a Child Tax Credit of $1,000 per child. The credit is phased out above AGIs of $110,000 (married filing jointly), $75,000 (unmarried individuals) and $55,000 (married filing separately). If the credit exceeds the taxpayer’s tax liability, a portion of the credit may be refunded. The new Act increased the refundable amount.
• The Hope Scholarship Credit has been modified (by adding a new American Opportunity Tax Credit) for 2009 and 2010. The maximum credit is now $2,500 of college tuition and related expenses. Related expenses now include course materials. The credit is now available during the student’s first four (up from two) years of college. The modified credit is phased out for taxpayers with adjusted gross income between $80,000 and $90,000 ($160,000 and $180,000 for married taxpayers filing a joint return). The modified credit may be claimed against a taxpayer’s alternative minimum tax liability. A portion of the credit may be refundable if it exceeds the taxpayer’s tax liability.
• Computer equipment, Internet access and related services (not games) may now be funded from a section 529 qualified tuition account if the technology, equipment, or services are to be used by the beneficiary and family while the beneficiary is enrolled at an eligible educational institution.
• The Act extends the existing refundable “first-time” homebuyer tax credit for qualifying home purchases completed before December 1, 2009, increases the maximum credit amount to $8,000 ($4,000 for a married individual filing separately), and waives recapture of the credit for qualifying home purchases after December 31, 2008 and before December 1, 2009. A first-time homebuyer is an individual (and spouse) who had no ownership interest in a principal residence in the United States during the three-year period prior to the purchase of the new home. The credit phases out for individual taxpayers with AGI between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase.
• Under the Act, the first $2,400 of unemployment compensation received in 2009 is not taxable.
• Taxpayers who do not elect to deduct general state sales taxes instead of state income taxes may now be able to deduct sales taxes on certain automobiles, motorcycles, and motor homes with a sales price not to exceed $49,500. This will be of little to no benefit in Texas, for example, since we do not have a state income tax and can already deduct sales taxes. The difference will be that non-itemizers may also claim the deduction. This deduction begins to phase out at AGI of $125,000 ($250,000 in the case of a joint return), and is completely phased out at AGI of $135,000 ($260,000).
• The alternative minimum tax is patched for 2009, so we don’t have to wait until November or December to face that. At some point, Congress is going to have to address the whole AMT tax system.

That’s about it for individual tax changes. I will next post a summary of business provisions, and then expand on both individual- and business-specific provisions. In the meanwhile, call or email me if you have questions.

Ronnie

Copyright 2009 Ronnie C. McClure, PhD, CPA

This entry was posted on Saturday, February 21st, 2009 at 3:42 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.