Friday, 24 May 2024

Stimulus bill: Highlights of the final version

The American Recovery and Reinvestment Tax Act of 2009 has gone through different versions as the two houses of Congress have considered and debated it, and a new analysis shows that, while some of its tax-saving provisions have been scaled back, taxpayers should still see numerous tax breaks.


The tax and accounting arm of Thomson Reuters, the New York-based news organization, analyzed the various versions of the bill and arrived at the following list of tax breaks which survived the negotiations process to make it into the final version.


Jim Seidel, chief tax analyst from the Tax & Accounting business of Thomson Reuters, said were some significant changes in the House and Senate bills.


What follows are some highlights of what survived, which is expected to be signed soon by President Barack Obama.


AMT patch. Only the Senate bill included the one-year AMT “patch,” without which millions more people would have been hit with the dreaded alternative minimum tax for 2009. This version survived; the patch will be in place for 2009.


Homebuyer credit. The House provision basically won out over the Senate's; it removes the repayment requirement and bumped up the refundable first-time homebuyer credit to $8,000, unless the home is resold within 36 months of purchase. This would apply for homes bought after 2008 and before Dec. 1, 2009.


Breaks for new car buyers. For tax years beginning after Dec. 31, 2008, the Recovery Act adds an increased standard deduction for state or local sales or excise taxes imposed on the purchase of a new motor vehicle. Only taxes on up to $49,500 ($24,750 for a married person filing separately) of the purchase price may be deducted. The deduction phases out between modified AGI between $125,000 and $135,000 ($250,000 and $260,000 on a joint return). The deduction is available for the purchase of a new passenger automobile or light truck with a gross vehicle rating of not more than 8,500 pounds, or a motorcycle or motor home.


New credit for workers. Both bills contained a new refundable tax credit, which in the final version has been reduced to 6.2 percent of earned income up to a maximum credit of $400 for individuals and $800 for working families. The credit starts to phase out at income levels (AGI) above $75,000 ($150,000 for joint filers). (In the earlier versions, the maximum credit was $500 for singles or $1,000 for couples.) The credit, which will apply for 2009 and 2010 only, can be claimed as a reduced amount of income tax wage withholding, or through a credit on a tax return.


Said Seidel, “It is anticipated that taxpayers' reduced tax liability under the provision will be quickly implemented through revised income tax withholding tables produced by IRS.”


Economic recovery payments. While not technically a tax provision, only the Senate bill had a one-time payment of $300 for retirees, disabled individuals, Social Security beneficiaries, SSI recipients, and veterans receiving veterans' disability compensation and pension benefits. Now, it's $250 instead of $300, with an analogous provision to give the same amount to certain government retirees who are not eligible for Social Security benefits. Any amount received under this provision reduces the amount available under the above workers' credit.


Expanded earned income tax credit (EITC). Both the Senate and House agreed to expand EITC, and the end result is a temporary increase to the EITC to 45 percent of the family's first $12,570 of earned income for families with three or more children for 2009 and 2010. For example, in 2009, taxpayers with three or more qualifying children may claim a credit of 45 percent of earnings up to $12,570, resulting in a maximum credit of $5,656.50. The Recovery Act also increases the beginning point of the phase-out range for all married couples filing a joint return (regardless of the number of children) by $1,880.


New education tax credit. Both the Senate and House bills expanded the HOPE education tax credit for 2009 and 2010, making it available for four years of post-secondary education instead of only two at a rate of up to $2,500 of the cost of tuition and related expenses per year (100 percent of the first $2,000 of expenses and 25 percent of the next $2,000). The final version also makes 40 percent of the credit (i.e., a maximum of $1000) refundable. The credit phase-out threshold also has increased to over $80,000 ($160,000 for joint filers), making it more available than before to higher income taxpayers.


Computers as an education expense. The Senate bill, but not the House bill, allowed computer technology and equipment to qualify as an education expense that can be paid from a Code Sec. 529 plan for 2009 and 2010. This provision survives in the final version.


Unemployment compensation exclusion. Only the Senate bill provides a temporary suspension of federal income tax on the first $2,400 of unemployment benefits received in 2009. This provision also survived.


Transportation fringe benefits. Only the Senate bill increased the maximum monthly exclusion for employer-provided transit and vanpool benefits (currently $120) to the same level as the exclusion for employer-provided parking (currently $230). That provision remains in the final version.


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