As you probably know by now, President Obama has signed the $787 billion stimulus bill into law. The package of federal spending and tax cuts is designed to revive the economy and save millions of jobs. The bill has more than 1,000 pages but you don’t have to read them all to know that the plan can put extra dollars in your pocket. Below are some of the key provisions that could pay off for you. Some of them are tax credits for buying homes and cars, so keep that in mind and plan ahead. By the way, if you want to track where all the money is going, check out the government’s official site at Recovery.gov
1. MORE MONEY IN YOUR PAYCHECK
The new “Making Work Pay” tax credit is the quickest way that most folks will benefit from the stimulus. If you make less than $75,000 per year, you’ll get $400 – and you won’t have to do anything at all. Your federal withholding will simply be reduced, giving you about $13 more per week in take-home pay, starting around June. You’ll get another $400 in 2010, and it will amount to about $7.70 per week if it is spread out over the entire year. Your employer will take care of the withholding changes and you’ll get the extra money automatically. However, if you don’t receive paychecks (i.e. you’re self-employed), you’ll need to check with the IRS (www.irs.gov) next year to see if you can claim the tax credit when you file your 2009 return.
2. MORE MONEY IN YOUR SOCIAL SECURITY CHECK
There will be 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.
3. MORE MONEY FOR COLLEGE
The new “American Opportunity Education Tax Credit” for 2009 and 2010 will provide 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. The credit is phased out for taxpayers with adjusted gross income above $80,000 ($160,000 for married couples).
4. MONEY FOR FIRST-TIME HOMEBUYERS
First-time homebuyers who purchase their homes before Dec. 1, 2009 will be eligible for an $8,000 tax credit. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). You have to keep the home for at least three years after purchase, i.e. this credit is not meant for home-flippers. As for getting a mortgage, well, the government is still working on that problem.
5. BIGGER TAX CREDITS FOR POOR FAMILIES
The $1,000 child tax credit would be extended to more low-income families that don’t make enough money to pay income taxes, and poor families with three or more children will get an expanded Earned Income Tax Credit. The earned income tax credit is increased to forty-five percent (45%) of the family’s first $12,570 of earned income for families with three or more children.
6. TAX RELIEF FOR WELL-OFF FOLKS, TOO
Many more middle-income and wealthy taxpayers will be spared from paying the Alternative Minimum Tax, which was designed 40 years ago to make sure wealthy taxpayers pay at least some tax, but was never indexed for inflation.The bill would provide more than 26 million families with tax relief in 2009 by extending AMT relief for nonrefundable personal credits and increasing the AMT exemption amount to $70,950 for joint filers and $46,700 for individuals.
7. MORE HELP IF YOU’RE UNEMPLOYED
If you’re receiving unemployment compensation:
-The stimulus bill continues the Emergency Unemployment Compensation program, which provides up to 33 weeks of extended unemployment benefits to workers exhausting their regular benefits.
-The bill increases unemployment weekly benefits by an additional $25 through 2009.
-Those receiving unemployment benefits this year won’t pay any federal income taxes on the first $2,400 they receive in 2009.
8. CHEAPER COBRA BENEFITS
Many workers who lose their health insurance when they lose their jobs will find it cheaper to keep that coverage while they look for work. Right now, most people working for medium and large employers can continue their coverage for 18 months under the COBRA program when they lose their job. It’s expensive, often over $1,000 a month, because they pay the share of premiums once covered by their employer as well as their own share from the old group plan. Under the stimulus package, the government will pick up 65 percent of the total cost of that premium for the first nine months. To qualify for premium assistance, a worker must be involuntarily terminated between September 1, 2008 and December 31, 2009.
9. SALES TAX DEDUCTIONS FOR BUYING NEW CARS
To encourage Americans to buy new cars, the bill provides all taxpayers with a deduction for State and local sales and excise taxes paid on the purchase 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).
10. TAX CREDITS TO MAKE YOUR HOME MORE ENERGY-EFFICIENT
Through 2010, homeowners who add energy-efficient windows, furnaces and air conditioners can get a tax credit to cover 30 percent of the costs, up to a total of $1,500. Details are not yet available but will be posted on the IRS website at: http://www.irs.gov.
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