Sandra Baur Accounting and Tax Services provides information on the 2009 Recovery Act Incentives effecting individuals...

New Making Work Pay Credit: Individuals with wage income will receive a credit up to $400.00 ($800.00 for joint filers) in both 2009 and 2010. The credit is the lessor of 6.2% of your wages or $400.00 ($800.00 for joint return). It is also a refundable credit, meaning that you will receive the refund even if you owe no tax. The credit wil not be received as a seperate check, rather less federal taxes will be withheld from your paycheck so that your take home pay will be increased. The credit is phased out for filers with income between $75,000.00 and $95,000.00 ($150,000.00 and $190,000.00 for joint filers).

One time $250.00 Economic Recovery Payment: Individuals who do not qualify for the Making Work Pay Credit because they don't have wage income will receive a one time payment of $250.00 during 2009 only. Those that are intended to qualify for this benefit include retirees, disabled individuals and SSI recipients receving benefits fromt the Social Security Administration, Railroad Retirement beneficiaries, and disabled verterans receiving benefits from the U.S. Department of Verterans Affairs. The details as to how the payments will be distributed have not been resolved, but payments are expected to be made in a similar manner as the 2008 stimulas paymetns. The credit is phased out for filers with income between $75,000.00 and $95,000.00 ($150,000.00 and $190,000.00 for joint filers).

New sales tax deduction for vehicle purchases: This benefit allows a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks motorcycles or motor homes. To qualify purchases must be made between February 16, 2009 and December 31, 2009. The deduction is limited to the tax on the first $49,500.00 of the purchase price and is phased out for filers with income between $125,000.00 and $135,000.00 ($250,000.00 and 260,00.00 for joint filers).

Improved first-time homebuyer credit: This credit makes substantial improvements to a program that was initially created in 2008. The 2009 credit is equal to the lessor of 10% of the homes purchase price or $4,000.00 ($8,000.00 for joint filers) and applies to homes purchased between Decemeber 31, 2008 and November 30, 2009. Essentially, the 2008 tax credit was a loan since the amount of the benefit was required to be paid back to the government over a 15 year period. The 2009 credit is improved in that there is not a requirement to pay the benefit back unless the home is sold within 3 years. Additionally, any purchase made during 2009 can be treated as if it were made on December 31, 2008 which allows you to get an immediate refund of the credit instead of waiting to file your 2009 tax return on April 15, 2010. You are considered a first time homebuyer if you (or your spouse, if married) did not own a home during a previous 3 year period. The credit is phased out for filers with income between $75,000.00 and $95,000.00 ($150,000.00 and $190,000.00 for joint filers).

AMT relief: The stimulus bill also extends certain 2008 previsions that are intended to prevent approximately 26 million middle-income taxpayers from being subjected to the alternative minimum tax. The AMT tax relief increases exemption amounts and allows some credit to reduce the AMT tax as they reduce regular tax.

Refundable child credit expanded: Currently taxpayers receive a $1,000.00 tax credit for each qualfying child under the age 17. Before the Recovery Act, this credit was refundable only to a limited extent. The Recovery Act makes the child credit refundable to a mych greater extent for 2009 and 2010, which means that the credit will be issued t the taxpayer even if no taxes are due.

Education Benefits: The tax code replaces the Hope Education Credit with the American Opportunity Tax Credit. This credit creates a credit (40% of which is refundable if no tax is due) of up to $2,500.00 per year during 2009 and 2010 related to tuition and related expenses incurred during the tax year. In addition, disbursements from a Section 529 Education Plan can be used for computer technology equipment and services for 2009 and 2010.

Tax break for the unemployed: Typically unemployment benefits are fully taxable. Under this provision, the first $2,400.00 of unemployment compensation received in 2009 is exempt from tax. Additionally, the Recovery Act provides a 65% subsidy for COBRA continuation premiums for up to 9 months for workers who have been involuntarily terminated between September 1, 2008 and December 31, 2009.

Increase in Earned Income Tax Crdit (EITC): The EITC is a refundable tax credit targeted towards lower and middle income wage earners and families. Under the Recovery Act legislation, the EITC has been expanded for 2009 and 2010. The expansion includes an increased benefit for those with three or more children adn adjustments to when the creidt is phased out for joint filers to reduce the marriage penalty.

Improved energy tax breaks: The Recovery Act includes several provisions designed to promote the use of the alternative energy and energy savings devices. These include and extension through 2010 of the tax credit for energy-efficient improvements to existing homes, a 30% tax credit for certain qualified projects and tax credits for various types of electric vehicles.

If you have further questions regarding the above or want more information on how Sandra can help you, please contact:

Sandra Baur at 207-310-8080/Sandybaur@me.com