“Making Work Pay” Tax Credit
The ARRA provides a refundable tax credit of up to $400 for working individuals and $800 for working families. Taxpayers can receive this benefit through a reduction in the amount of income tax withheld from their paychecks, or by claiming the credit on their tax returns. This tax credit is calculated at a rate of 6.2% of earned income, and phases out for taxpayers with adjusted gross income (AGI) in excess of $75,000 ($150,000 for married couples filing jointly).
Economic Recovery Payment to Benefit Recipients
The ARRA provides a one-time payment of $250 to retirees, disabled individuals and SSI recipients receiving benefits from the Social Security Administration, Railroad Retirement beneficiaries, and disabled veterans receiving benefits from the U.S. Department of Veterans Affairs. The one-time payment is a reduction to any allowable Making Work Pay credit.
Refundable Credit for Certain Federal and State Pensioners
The ARRA provides a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. The one-time payment is a reduction to any allowable Making Work Pay credit.
Increase in Earned Income Tax Credit (EITC)
The ARRA temporarily increases the EITC for working families with three or more children. Working families with three or more children qualify for an earned income tax credit equal to 45% (previously 40%) of the family’s first $12,570 of earned income. This threshold for credit phase out has also been raised by $1,880 from previous levels for all families, regardless of the number of children.
Increased Eligibility for the Refundable Portion of Child Credit
For 2009 and 2010, the child tax credit is refundable to the extent of 15 percent of the taxpayer’s earned income in excess of $3,000 (previously $8,500).
“American Opportunity” Education Tax Credit
The bill provides financial assistance for individuals seeking a college education. For 2009 and 2010, the ARRA provides taxpayers with a new “American Opportunity” tax credit of up to $2,500 of the cost of tuition and related expenses paid during the taxable year. Under this new tax credit, taxpayers will receive a tax credit based on one hundred percent (100%) of the first $2,000 of tuition and related expenses (including books) paid during the taxable year and twenty-five percent (25%) of the next $2,000 of tuition and related expenses paid during the taxable year. Forty percent (40%) of the credit would be refundable. This tax credit will be subject to a phase-out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly).
Computers as Qualified Education Expenses in 529 Education Plans
Computers and computer technology now qualify as qualified education expenses under section 529 education plans.
Refundable First-time Home Buyer Credit
Taxpayers that purchase homes after January 1, 2009 and before December 1, 2009 are no longer required to payback the refundable tax credit offered to first time homebuyers (provided the house is not sold within 3 years of purchase). The maximum value of the credit has been increased to $8,000 (previously $7,500), and the prohibition on financing by mortgage revenue bonds has been removed.
Sales Tax Deduction for Vehicle Purchases
Taxpayers may deduct state and local sales and excise taxes paid on the portion below $50,000 of the purchase price of new cars, light truck, recreational vehicles, and motorcycles through 2009. This deduction is subject to a phase-out for taxpayers with adjusted gross income in excess of $125,000 ($250,000 in the case of a joint return).
Temporary Suspension of Taxation of Unemployment Benefits
For the taxable year 2009, federal income taxation on the first $2,400 of unemployment benefits per recipient is suspended. Any benefits over $2,400 will be subject to federal income tax.
Extension of Alternative Minimum Tax (AMT) Relief for 2009
The AMT exemption amount has been raised to $70,950 for joint filers and $46,700 for individuals; AMT relief for nonrefundable personal credits has likewise been extended.