What a month! The nearly trillion dollar economic stimulus package was finally approved by Congress and signed into law. The size of the stimulus is truly mind boggling – $787,000,000,000 (9 zeros!) – and works out to about $2,600 per American. To put in perspective, if the stimulus were a country it would be the 15th largest in the world based on GDP. There is plenty of debate on whether the stimulus will work and how many families it will actually help. But the fact of the matter is that it has been passed and the key now is to determine how you can directly or indirectly benefit from all the spending.
Over the next few months we will start seeing cash from the stimulus package hit our paychecks (lower withholdings) or mailboxes (via checks). Having covered various tax components of the package extensively here – see sidebar for article links – I thought I would provide a summary of the key components that potentially put cash in your hands sooner rather than later. Where applicable I have linked to the main article which goes into details about the tax break or credit.
Most of these tax credits and deductions have income restrictions and generally phase out for singles earning over $75,000 and couples making more than $150,000. Again see the linked articles for more detail on the thresholds and qualifications.
– Working Tax credit of up to $400 for individuals, $800 for couples for 2009 and 2010. Figure your individual credit by taking 6.2% of your earned income. Note that your employer can adjust your withholdings so that the credit is returned to you over the year instead of all at once. People who are self-employed can adjust their quarterly tax filings to account for the credit.
– Auto Assistance Ownership : If you buy a new car, light truck, recreational vehicle or motorcycle in 2009, you’ll be able to deduct the state and local taxes you paid on it (but not interest on the auto loan as proposed in the earlier bill). It is applicable to any new car less than $49,500 purchased after the stimulus bill is signed into law – Feb 16, 2009 to December 31 2009. See the detailed article for how this tax deduction is figured.
First time home buyers who buy before December 1 2009 will receive a refundable new home buyer tax credit of 10% of the purchase price of the home up to $8000. The credit doesn’t have to be repaid, but you do have to keep the home for at least 3 years. The existing home buyer $7500 credit still applies to buyers who bought in 2008 and the IRS has to still rule whether the original credit has to be repaid (currently it does, interest free over 15 years).
– To help existing home owners, there is a tax credit available if you add energy-efficient air conditioners, heat pumps or furnaces. The credit also can be used by homeowners to replace leaky windows or put more insulation into the attic. The tax credit can be used to cover 30% of the costs, up to $1500.
– The $1000 child tax credit will be extended to more families, and if you’re a poor family with three or more kids, you’ll get an expanded Earned Income Tax Credit.
– In 2009 a number of retirees and disabled people, including Social Security recipients, will receive a $250 refundable tax credit. The money would arrive within 120 days of the bill’s signing and does not have to be repaid.
– The Higher Education Tax Credit will refund “up to $2,500 of the cost of college tuition and other related expenses in 2009 and 2010. You’ll need to spend at least $4,000 in a single year to get the full credit. You can use withdrawals from a 529 college savings plan to cover computers and related technology and services for the first time in 2009 and 2010.
– Increase Food Stamp Benefits by over 13% to help offset rising food costs for more than 31 million Americans, half of whom are children.
The stimulus bill also contains a number of measures to assist the unemployed:
– No tax on the first $2400 of unemployment you receive in 2009. If you’re drawing unemployment, expect to see $25 more per check, and the duration of the benefits has been extended.
– The government will subsidize up to 65% of your premium for COBRA coverage if you lost your job after Sep 1st, 2008. If you declined Cobra, you’ll have 60 days to reconsider.
The above tax cuts make up about 35% of the $789 billion economic stimulus package, with the remaining 65% directed towards spending on infrastructure and other initiatives designed to stimulate the economy. You can see a breakdown of the entire stimulus package here.
If you have any more questions on the stimulus package and the tax breaks, check out some of the previous posts or leave a comment here or on the related post and I will endeavor to get you an answer based on the information that is currently available.