There's good news ahead for most taxpayers. President Obama signed the American Recovery and Reinvestment Act into law Feb. 17 -- a new economic stimulus bill that gives tax breaks to a large portion of Americans of all ages and income levels, as well as to businesses.

Tax breaks apply mainly to 2009 -- no need to delay 2008 income tax filing

Note: The changes won't affect the 2008 tax returns that taxpayers
are filing now, except in a very small number of cases.

So most taxpayers can 2008 taxes and not miss out on the new tax breaks that begin this year for the 2009 tax year.

The new recovery act, according to the White House, gives a direct tax break to almost 95 percent of workers and their families, through the Making Work Pay Tax Credit.

The law contains many other tax breaks that will provide a financial boost to everyone from the unemployed and low income, to families with children and parents with children in college, to first-time homebuyers and even taxpayers buying a new car.

The $787 billion legislation, which was approved by Congress on Feb. 13, is designed to get both individuals and businesses to open their wallets in hppes to lift the economy out of its slump. Most of the cuts are good for only a year or two, so don't delay. 

Workers

Making Work Pay Credit: Workers and the self-employed would get a payroll tax credit for 2009 and 2010 of up to $400 a year for single taxpayers and up to $800 for couples filing taxes jointly.

The IRS will get the money to taxpayers by adjusting the withholding tables, thereby boosting paychecks. The increase could be as much as $40 per month per worker, depending on when the withholding tables are changed. Self-employed workers will claim the credit on their tax returns. In the meantime, they can reduce their estimated tax payments for 2009.

For single tax filers, the credit will begin phasing out at an Adjusted Gross Income (AGI) of $75,000. For couples filing jointly, the phaseout zone will start at $150,000 of AGI. (Adjusted Gross Income is your total income from wages and other income minus certain adjustments, such as deductible IRA contributions and alimony paid.)

Unemployed

Reduced taxes on unemployment income: Normally, people receiving unemployment benefits must report them as income and can be taxed on them. The new bill makes the first $2,400 of unemployment income nontaxable.  

Expanded Hope Credit: The Hope Credit for college costs is increased to $2,500 for 2009 and 2010, covering 100% of the first $2,000 of tuition and related expenses per year and 25 percent of the next $2,000.

The credit is available for all four years of college, up from only two years, and covers the cost of books. It is 40% refundable, and begins to phase out at $80,000 of Adjusted Gross Income for singles and $160,000 of Adjusted Gross Income for married couples.

The bill also allows tax-free distributions from Section 529 College Savings Plans to cover computer purchases.

New car buyers

New car sales tax deduction: Buyers of new cars, light trucks, SUVs, motorcycles or motor homes during 2009, can deduct the state sales or excise tax they pay, even if they don’t itemize their deductions.

This break starts phasing out for single taxpayers with Adjusted Gross Income over $125,000 and couples with AGI over $250,000.

Tax Breaks for Families

Expanded Earned Income Tax Credit (EITC): More couples who file jointly and have children will qualify for the Earned Income Credit.

This tax package starts the phaseout range at $21,420, an increase of $1,880. Also in 2009, the credit increases for families with 3 or more children to 45% of the first $12,570 of earned income, up from 40%.

Enhanced Child Tax Credit: Plus, the Child Tax Credit will cover more low-income earners: For 2008, the credit is refundable to the extent of 15 percent of an individual’s earned income in excess of $8,500; for 2009 and 2010, that floor drops to $3,000.

Retirees, veterans and the disabled

One-time payment of $250: Because the payroll tax credit only goes to employees and the self-employed, the bill adds something for others as well: a one-time payment of $250 to recipients of Social Security benefits, Railroad Retirement benefits, Supplemental Security Income payments, and pension and disability benefits from the Veterans Administration.

Government retirees who don’t get Social Security will also get a one-time refundable tax credit of $250 in 2009.

One-year "patch" on the Alternative Minimum Tax: To keep millions of middle-income taxpayers from being forced to pay the Alternative Minimum Tax (AMT) for 2009, the measure increases the minimum tax exemptions to $70,950 for couples filing jointly and $46,700 for single filers. Otherwise, the exemptions would top out at just $45,000 for couples and $33,750 for singles.

Small businesses would most likely be affected by the following changes:

Businesses that averaged $15 million or less in gross receipts over the past 3 years will be allowed to carry back losses for five years now instead of two. The easing applies only to 2008 losses.

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Laurie King
Re/Max Southeast, Inc.
3600 S. Yosemite St.
Suite 150
Denver, CO  80237