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New Stimulus Law
The new stimulus law has plenty of tax cuts. But negotiators watered down several of the breaks, such as the payroll tax credit and home buyer credit, to get the cost of the final package under $800 billion and will three GOP votes necessary for final passage.
Individuals get a payroll tax credit for 2009 and 2010. The new credit is 6.2% of earned income, capped at $400 for singles and $800 for marrieds. For single filers, it starts phasing out at $75,000 of adjusted gross income and dries up at $95,000. The phaseout zone for couples is $150,000-$190,000.
Employees will get the credit in advance via lower income tax withholding in each paycheck, not as a rebate check. The IRS will issue revised tables very soon, so 12 months of credit will be crammed into about nine months of paychecks. That's about $10-$20 extra per week. To get any advance benefit from the credit, self-employeds can reduce their quarterly estimated payments. They exact amount of the payroll tax credit for the year will be calculated on the filers' tax returns.
Retirees and other pensioners will get a one time $250 check instead, no later that June 17. The checks will go to recipients of Social Security benefits, Railroad Retirement benefits, Supplemental Security Income or veterans pensions. Federal retirees who don't receive any Social Security will also get a $250 check.
The credit for first-time home buyers is a lot sweeter. For primary homes purchased this year before December 1, 2009, the maximum credit increases to $8,000, and it needn't be paid back. The 15-year repayment rule still applies to residences bought in 2008, however. Folks who buy homes in 2009 can elect to claim the credit on their 2008 returns. IRS has already revised Form 5405 to reflect the $500 hike in the maximum credit as well as the waiver of the credit repayment requirement. The credit is refundable. allowed in full even if it exceeds your tax bill for the year. But the credit will be recaptured if the home is sold within three years of purchase.
The tax credit for college tuition is much juicer for 2009 and 2010. The Hope credit is replaced by a new credit of up to $2,500 per student a year for four years of college, not just the first two. It now also covers the cost of books, and begins to phase out at a much higher levels of AGI . $80,000 for singles filers and $160,000 for couples. If the credit is more that your income tax liability, 40% of it is refundable. Also, the full credit is allowed against the minimum tax.
Buyers of new vehicles can deduct the sales tax paid on the purchase, even if they don't claim sales taxes as itemized deductions. They can add the tax they pay to their standard deduction. This break applies to new cars, motor homes, light trucks and motorcycles purchased after Feb. 16, 2009 and before Jan. 1, 2010. Sales tax paid on the first 49,500 of cost qualifies. The benefit begins phasing out for married couples with AGIs over $250,000 and singles with AGIs over $125,000.
For details on additional tax changes in the new law, please contact our office.
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