Tax Benefits for Individuals "Making Work Pay" Tax Credit - The new tax law creates a refundable income tax credit for tax years beginning in 2009 and 2010 of up to $400 for eligible single filers and $800 for eligible couples filing a joint return. The credit may be claimed either as a reduction in the federal income tax that is withheld from a worker's paycheck or through a credit claimed on the taxpayer's income tax return. Individuals who may be claimed as dependents and nonresident aliens are not eligible. The credit is 6.2% of earned income, up to the $400/$800 credit maximum. The credit begins to be phased out when annual modified adjusted gross income (AGI) exceeds $75,000 ($150,000 for married persons filing jointly) and is fully phased out when modified AGI reaches $95,000 ($190,000 for joint filers).
Economic Recovery Payment - The 2009 Act provides a one-time economic recovery payment of $250 to adults who are eligible for Social Security benefits, Railroad Retirement benefits, veterans' disability compensation or pension benefits, qualifying individuals who are eligible for Supplemental Security Income (SSI) benefits and cetain government retirees who are not eligible for Social Security benefits. If the individual is also eligible for the Making Work Pay credit, that credit will be reduced by any economic recovery payment made.
First-time Homebuyer Credit - Pre-2009 Act tax law allows a first-time homebuyer a refundable tax credit equal to the lessor of $7,500 ($3,750 for a married individual filing separately) or 10% of the purchase price of a principal residence. A taxpayer is considered a first-time homeowner if they had no ownership interest in a principal residence in the U.S. during the three year period prior to the purchase. The credit is allowed for qualifying home purchases between April 9, 2008 and July 1, 2009 and phases out for individual taxpayers with modified AGI between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase. Under the pre-2008 Act law, the new homebuyer credit generally was to be paid back to the government ratably over 15 years with no interest. In effect, the credit was a no-interest loan. Under the 2009 Act, the maximum credit amount is increased to $8,000 ($4,000 for married persons filing separately) and the credit is extended so that it applies to purchases made prior to December 1, 2009. In addition, for homes purchased after December 31, 2008 and before December 1, 2009, the credit does not have to be repaid unless the home is resold or otherwise ceases to be the taxpayer's personal residence within 36 months of the purchase.
AMT Exemption Increase - The 2009 Act extends the higher AMT exemption amounts to taxable years starting in 2009 and increases them for 2009. In addition, taxpayers may use various nonrefundable tax credits to offset regular tax and AMT.
Deduction for Taxes on Car Purchases - The 2009 Act allows an income-tax deduction for state and local taxes and excise taxes paid on the purchase of qualified motor vehicles on or after the 2009 Act's enactment date and before 2010. The deduction is also allowed for AMT purposes. The new deduction is not allowed to taxpayers who elect to claim an itemized deduction for state and local sales taxes. For purposes of the deduction, a 'qualified motor vehicle' is generally defined as a new passenger automobile, light truck, motorcycle, or motor home (certain limits apply). The deduction is available only for taxes paid on up to $49,500 of the cost and the amount of taxes that can be deducted is phased out for taxpayers with modified AGI between $125,000 and $135,000 ($250,000 and $260,000 for joint filers).
American Opportunity Tax Credit - Pre-2009 Act tax law provided for two tax credits for post-secondary education expenses: the Hope Scholarship Credit and the Lifetime Learning Credit. The 2009 Act modifies and replaces the Hope credit for tax years beginning in 2009 and 2010 with the American Opportunities Tax Credit. The revised credit is up to $2,500 per student per year for the cost of qualified tuition and related expenses, including required course materials such as books. The credit is based on 100% of the first $2,000 of qualifying expenses and 25% of the next $2,000 of qualifying expenses and is available for expenses incurred for up to four years of post secondary education (the Hope credit was available for only the first two years of higher education). The new credit phases out for taxpayers with AGI between $80,000 and $90,000 ($160,000 and $180,000 for joint filers).
529 Plans and Computer Costs - The 2009 Act expands the definition of qualified higher education expenses to include expenses for certain computer technology, equipment, and related services (including internet access) if the expenses are to be used by the 529 plan beneficiary and the beneficiary's family during any of the years the beneficiary is enrolled. The law applies to expenses paid or incurred in 2009 and 2010.
Temporary Income Exclusion for Unemployment Compensation - The 2009 Act provides an exclusion from gross income for the first $2,400 of unemployment benefits received by a recipient in 2009.
Transportation Fringe Benefits - The 2009 Act increases the maximum monthly exclusion for combined employer-provided mass transit and van pooling benefits from $120 to $230 (subject to future inflation adjustments). The increase is in effect for months beginning on or after February 17, 2009 and before January 1, 2011. |
Business Tax Incentives Deferring Crop Insurance Proceeds - A cash basis taxpayer can elect to report crop insurance proceeds in the year following the damage if it can be shown that the income from such crops normally would have been reported in a following year. To qualify for the election, more than 50% of the income from the destroyed crop normally would have been reported in the following year.
"Bonus" First-year Depreciation - The new law extends the 50-percent first-year bonus depreciation allowed under the 2008 Economic Stimulus Act through December 31, 2009. The extension is retroactive to January 1, 2009.
Section 179 Expensing - The 2009 Act extends the increased 2008 Code Section 179 expensing amounts to 2009. The 2008 Economic Stimulus Act increased the amount of Code Section 179 expensing for 2008 to $250,000 and increased the threshold for reducing the deduction to $800,000.
Net Operating Loss Carryback - The new law provides a five-year carryback of 2008 net operating losses (NOL), but only for qualified small businesses with average gross receipts of $15 million or less. The new law gives these businesses the choice to carry back NOLs three, four or five years. The new treatment will apply only to NOLs for any tax year beginning or ending in 2008. The normal NOL carryback period, which is two years for all businesses, returns for NOLs incurred in 2009.
Small Business Estimated Tax Payment Relief - The new law decreases required estimated tax payments for individuals whose incomes primarily come from a small business in 2009. Rather than being required to make quarterly estimated tax payments based on 100 percent of their 2008 returns, the new law allows computation based on 90 percent.
Work Opportunity Tax Credit - The 2009 Act creates two new categories of targeted groups under the existing Work Opportunity Tax Credit (WOTC): unemployed veterans and disconnected youth. These new categories apply to individuals who are hired and begin work in 2009 or 2010.
COBRA Benefits
The new law provides that any individual who is involuntarily separated from employment between September 1, 2008, and January 1, 2010, is required to pay only 35 percent of his/her COBRA coverage and have it treated as paying the full amount. The former employer will be required to pay the remaining 65 percent but, in effect, will be reimbursed by crediting those amounts against income tax withholding and payroll taxes it is otherwise required to remit to the federal government. Income and other limitations on COBRA coverage apply.
Energy Incentives
Non-business Energy Credits - The new law increases the Code Sec. 25C residential energy property tax credit from 10 percent to 30 percent, raises the maximum cap to a $1,500 aggregate amount for 2009 and 2010 installations, eliminates the $500 lifetime cap, and makes several other modifications. The changes are effective for eligible property placed in service after December 31, 2008, and before January 1, 2011.
Plug-in Electric Vehicles - The 2009 Act modifies the existing credit for plug-in electric vehicles by carving out separate treatment for low-speed vehicles. The base amount of the credit for qualified plug-in electric vehicles is $2,500. The full amount of the credit will be reduced once the manufacturer records its 200,000th sale.
Energy Investment Credit - The Economic Stimulus Act expanded the Code Sec. 48 energy investment credit to include qualified small wind energy property. The new law removes the credit cap for qualified small wind energy property. A 30 percent credit presently is available for qualified small wind energy property expenses made by the taxpayer during the tax year.
Better Depreciation Rules for Vehicles Falling Outside Passenger Auto Definition - New vehicles that are outside the passenger auto definition qualify without limits for 50% first-year bonus depreciation if they were acquired and placed in service duirng calendar year 2008. New and used vehicles that fall outside the passenger auto definition also qualify for the Section 179 deduction, however heavy SUVs are subject to a reduced Section 179 allowance of only $25,000. |
