Highlights of Recent Tax Changes
As part of the Government's efforts to jumpstart the economy and put more money into tax payers' pockets, President Obama signed the American Recovery and Reinvestment Act (ARRA) on February 17, 2009.
Individuals - Recent Tax Changes
Businesses - Recent Tax Changes
Workers - Making Work Pay Credit
This refundable credit is available to individuals who are employed or self-employed. The credit is 6.2% of earned income, up to $400 for individuals and $800 if Married Filing Jointly. The credit starts to phase out when modified adjusted gross income reaches $75,000 for individuals or $150,000 if Married Filing Jointly. Those making $95,000 or $190,000, respectively, or more will not receive the credit. This credit applies to 2009 and 2010 tax returns.
Economic Recovery Payment
This one-time payment of $250 was paid to individuals who receive Social Security, Tier 1 railroad retirement benefits, SSI, or VA pension or disability benefits during the period from November 2008 through January 2009. The payors of the benefit automatically sent this payment in May or June. Note: Government retirees who don't receive Social Social Security benefits may be able to claim a Government Retire Credit when they file their 2009 tax returns.
Unemployment Compensation
The first $2,400 of unemployment compensation is not taxable in 2009. When filing your 2009 tax return, make sure you reduce your (and your spouse's if any) reported unemployment benefits by $2,400 (but not below $0). Check with your local unemployment office regarding availability of these benefits. Unemployment compensation is increased by an additional $25 per week and the time to receive benefits is extended.
COBRA
Jobless individuals paying for COBRA insurance who were involuntarily terminated between Sept. 1, 2008, and Dec. 31, 2009, may receive a federal subsidy of 65% of monthly COBRA premiums for 9 months. Employers should notify you if you are eligible, and COBRA charges will be reduced sometime in 2009.
Earned Income Credit
There is an increased tax credit for families with 3 or more children. For married couples filing joint returns, there is additional marriage penalty relief. When you file your 2009 and 2010 tax returns, make sure you look up the Earned Income Credit amount in the correct column in the Earned Income Credit chart.
Additional Child Tax Credit
Lower income families with children will receive increased eligibility for the refundable portion of the tax credit for lower income families with children when they file their 2009 and 2010 tax returns.
Homebuyer Credit
First-time Homebuyer's Credit: The tax package increased the $7,500 first-time homebuyer credit to $8,000 for primary residences purchased between January 1, 2009 and November 30, 2009, and eliminated the requirement that the credit be repaid, as long as the house isn't sold within three years.
The Homebuyer's Credit was expanded and made easier to qualify for under a law signed in November, 2009. To earn a tax credit of up to $8,000, first-time homebuyers now have until May 1, 2010 to sign a contract and until July 1, 2010 to close on a house. Also, people who already own their homes and have lived in them for at least five of the last eight years may now take a credit of up to $6,500 if they buy a new principal residence.
The Homebuyer's Credit was expanded and made easier to qualify for under a law signed in November, 2009. To earn a tax credit of up to $8,000, first-time homebuyers now have until May 1, 2010 to sign a contract and until July 1, 2010 to close on a house. Also, people who already own their homes and have lived in them for at least five of the last eight years may now take a credit of up to $6,500 if they buy a new principal residence.
Nonbusiness Energy Credit
Taxpayers who invest in energy improvements, such as new windows and doors, to their homes can claim a tax credit of up to $1,500 lifetime maximum. The credit applies to 2009 and 2010 tax returns.
Residential Energy Efficient Property Credit
Homeowners who invest in such energy improvements as solar heating and geothermal pumps will receive an increased tax credit when filing 2009 to 2016 tax returns.
American Opportunity Tax Credit
An enhanced Hope Credit can be applied to qualified education expenses for the first 4 years of higher education. Maximum credit is $2,500, of which 40% is refundable. The credit phases out for individuals with adjusted gross income over $80,000 ($160,000 if Married Filing Jointly).
New car buyers
New car sales tax deduction: Buyers of new cars, light trucks, SUVs, motorcycles and 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.
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.
