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 file with TurboTax now, and not miss out on the new tax breaks that begin this year.
Most taxpayers will get more money in their pockets in 2009
The new recovery act, according to the White House, will give a direct tax break to 95 percent of workers and their families, through the Making Work Pay Credit.
The law contains many other tax breaks that should provide a financial boost to everyone from the unemployed and low income, to families with children and children in college, to first-time homebuyers and taxpayers buying new cars.
The $787 billion legislation, which Congress approved Feb. 13, is designed to get both individuals and businesses to open their wallets and to lift the economy out of its slump. Most of the cuts are good for only a year or two.
As more details about the tax changes become available, TurboTax will post them here.
Tax breaks for individuals, families:
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 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.
First-time homebuyers
First-time Homebuyer's Credit: The tax package increases the $7,500 first-time homebuyer credit to $8,000 for primary residences purchased between Jan. 1, 2009 and Nov. 30, 2009, and eliminates the requirement that the credit be repaid, as long as the house isn’t sold within three years.
College students
Expanded Hope Credit: The Hope Credit for college costs is increased to $2,500 for 2009 and 2010, covering 100 percent 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 percent 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.
The tax package starts the phaseout range at $21,420, an increase of $1,880. Also in 2009, the credit increases for families with three or more children to 45 percent of the first $12,570 of earned income, up from 40 percent.
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.
Homeowners
Extended energy-saving credits: The 10 percent tax credit for energy-saving home improvements climbs to 30 percent and is extended through 2010. Improvements that qualify for the credit include energy-efficient skylights, windows and outer doors, along with energy-saving water heaters, central air conditioners and biomass stoves.
The bill also eliminates individual credit caps for the different types of property, and instead imposes a $1,500 cap on all qualifying property.
Middle-income taxpayers
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.
Businesses will get a big share of the tax breaks
Small businesses would most likely be affected by the following changes:
Bonus depreciation
Special 50 percent, first-year bonus depreciation is revived for assets bought and placed in service during 2009.
Loss carrybacks
Businesses that averaged $15 million or less in gross receipts over the past three years will be allowed to carry back losses for five years instead of two. The easing applies only to 2008 losses.
How can I get a recovery rebate in 2009?
TurboTax Online will let you know if you qualify and guide you as your prepare your tax return. So relax, if you qualify TurboTax Online will ensure that you get one.
