The new Economic Stimulus Bill is official. It’s now the American Recovery and Reinvestment Act.
The purpose of the bill is to preserve and create jobs and promote economic recovery. The target, at least according to the bill itself, is to help those most impacted by the recession itself.
Let’s get started with the tax pieces from the new Act:
There is nearly $300 Billion in Tax Relief in the Act. Unfortunately, it’s not quite as easy as giving the government a phone call and telling them where to send the check. The tax provisions add many new tax breaks and significant enhancements to existing credits. Major provisions include a new Making Work Pay credit, enhancements to the child tax credit and first-time home buyer credit, a 2009 alternative minimum tax (AMT) patch, taxpayer-friendly additions to many energy incentives, extensions of 2008 bonus depreciation and increased Section 179 expensing, along with a 5 year NOL carryback for small businesses, state and local government relief.
All told, there are 300 changes to the IRS Code. If you’ve been following the House and Senate versions, it’s important to note that a lot of the initial tax provisions were pared back or eliminated completely. Okay, let’s go through the individual incentives first:
Making Work Pay Credit
The new law includes Pres Obama’s pet project – the Making Work Pay credit. This allows a credit against income tax in an income equal to the lesser of 6.2 percent of the individual’s earned income or $400. That would be $800 for a married couple filing jointly. The credit will apply retroactively to the start of 2009 and extend through 2010.
The credit applies in full for individuals whose modified adjusted gross income does not exceed $75,000 or $150,000 in the case of married couples filing jointly. The credit is phased out at a 2 percent rate above that limit.
The employer’s share of FICA, in other words 6.2%, would remain the same. Qualified taxpayers would take this credit through a reduction in wage withholding or in a lump sum when filing their returns for the tax year. Earnings from self-employment also qualify to the extent they are taken into account in computing taxable income. Individuals who do not provide a Social Security number on there return are ineligible.
You have to work to get the Making work Pay credit. If you are a dependent that can be claimed on someone else’s tax return, you can’t get the credit, even if you do work. NOTE HERE: If you’re high income and claiming your working children as dependents, you might want to rethink that. Your exemptions might be phasing out, so there is no benefit for you, and your children could get a little tax credit plus the benefit of the exemption.
$250 Economic Recovery Payment
The new law provides onetime payments of $250 to individuals on fixed income. This reduces any Making Work Pay credit to which the individual would otherwise be entitled…
Visit Diane Kennedy’s Tax LoopHoles – the ultimate source for paying less taxes legally for more great information.
Opportunities in the new Economic Stimulus Act Teleseminar
Listen to Diane Kennedy discuss the opportunities available in the new Economic Stimulus Act. You can download the FREE 48-Page Transcript here.
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