THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 

“Making Work Pay ”Tax Credit. 
The bill cut taxes for more than 95% of working families in the United States. For 2009 and 2010, the bill provides a refundable tax credit of up to $400 for working individuals and $800 for working families. This tax credit will be calculated at a rate of 6.2% of earned income, and will phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 for married couples filing jointly). The phase out is at a 2% rate above these limit so the credit is phased out a $95,000 ($190,000 for married couples filing jointly). Taxpayers can receive this benefit through a reduction in the amount of income tax that is withheld from their paychecks, or through claiming the credit on their 2009 tax return.

Economic Recovery Payment to Recipients of Social Security, SSI, Railroad Retirement and Veterans Disability Compensation Benefits. 
The bill provides for 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. The methodology for making this payment has not been identified yet, but it is believed that a ‘stimulus’ like payment will be used.

Refundable Credit for Certain Federal and State Pensioners. 
The bill would provide a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. This one-time credit is a reduction to any allowable Making Work Pay credit. The methodology for making this payment has not been identified yet, but it is believed that a ‘stimulus’ like payment will be used.

Increase in Earned Income Tax Credit. The bill temporarily increases the earned income tax credit for working families with three or more children. Under current law, working families with two or more children currently qualify for an earned income tax credit equal to forty percent (40%) of the family’s first $12,570 of earned income. This credit is subject to a phase-out for working families with adjusted gross income in excess of $16,420 ($21,420 for married couples filing jointly). The bill increases the earned income tax credit to forty-five percent (45%) of the family ’s first $12,570 of earned income for families with three or more children and would increase the beginning point of the phase-out range for all married couples filing a joint return (regardless of the number of children) by $1,880.

Increase Eligibility for the Refundable Portion of Child Tax Credit (CTC). 
The bill increases the eligibility for the refundable child tax credit in 2009 and 2010. For 2008, the child tax credit is refundable to the extent of 15 percent of the taxpayer’s earned income in excess of $8,500. The bill would reduce this floor for 2009 and 2010 to $3,000. This means that taxpayer’s with earned income of over $3,000 will be eligible to get the additional child tax credit. In 2008 they had to make over $8,500 (was to be $12,550 before prior legislation) to be eligible and in 2007, the minimum was $11,750.  By reducing the earned income threshold for computing the refundable CTC, more low-income taxpayers will be eligible for the refundable CTC. The maximum increase in the refundable CTC for any taxpayer in 2009 will be $1,432.50 (($12,550 - $3,000) X .15).

“American Opportunity” Education Tax Credit.
The bill provides financial assistance for individuals seeking a college education. For 2009 and 2010, the bill will provide taxpayers with a new “American Opportunity” tax credit of up to $2,500 of the cost of tuition and related expenses paid during the taxable year. Under this new tax credit, taxpayers will receive 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. Forty percent (40%) of the credit will be refundable. This tax credit will be subject to a phase-out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly) (an increase from the $50,000 ($100,000 for married couples filing jointly) limit previously announced for TY2009). The credit now is phased out at $90,000 ($180,000 for MFJ).  This new credit temporarily enhances the Hope credit by expanding it to the first 4 years instead of the first 2 years, raises it to $2,500 instead of $1,800 and makes 40% (up to $1,000) of the credit refundable whereas the Hope credit is a nonrefundable credit.

Computers as Qualified Education Expenses in 529 Education Plans. 
Section 529 Education Plans are tax-advantaged savings plans that cover all qualified education expenses, including: tuition, room & board, mandatory fees and books. The bill provides that computers and computer technology qualify as qualified education expenses.

Refundable First-time Home Buyer Credit.
Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10 percent of the purchase of a home (up to $7,500) by first-time home buyers. The provision applies to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit are currently required to repay any amount received under this provision back to the government over 15 years in equal installments, or, if earlier, when the home is sold. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The bill eliminates the repayment obligation for taxpayers that purchase homes after January 1, 2009, increases the maximum value of the credit to $8,000, and removes the prohibition on financing by mortgage revenue bonds, and extends the availability of the credit for homes purchased before December 1, 2009. The provision would retain the credit recapture if the house is sold within three years of purchase.

Sales Tax Deduction for Vehicle Purchases. 
The bill provides that all taxpayers who purchase a new vehicle after February 17, 2009 will be able to deduct state and local sales taxes or excise taxes paid on the purchase even if they do not itemize. The new law puts two limits on this new deduction:
1. Deductible sales or excise taxes applies only to the first $49,500 of the purchase price of any one vehicle; and
2. Any deduction will be phased out when the purchaser has adjusted gross income exceeding $125,000 ($250,000 for joint returns).

Qualifying vehicles include newly purchased cars, SUVs, light trucks or motorcycles that weigh no more than 8,500 pounds gross weight. They must be new and first used by the taxpayer. Motor homes also qualify. Both domestic and foreign made vehicles qualify. However, sales taxes paid on a lease agreement are not included.

Temporary suspension of taxation of unemployment benefits.
Under previous law, all federal unemployment benefits were subject to taxation. The average unemployment benefit is approximately $300 per month. The new law temporarily suspends federal income tax on the first $2,400 of unemployment benefits per recipient. Any unemployment benefits over $2,400 will be subject to federal income tax. This proposal is in effect for taxable year 2009.

Extension of AMT relief for 2009.
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 by $70,950 for joint filers and $46,700 for individuals.

Transit Benefits Parity
Qualified transportation fringe benefits, such as transit passes, van pooling and qualified parking, are not included in an employee’s income up to specified dollar amounts. The new law increases the current $120 per month income exclusion amount for transit passes and van pooling to $230 per month for 2009 (starting in March 2009), and continues it through 2010 with an inflation adjustment.

Premium Subsidies for COBRA Continuation Coverage for Unemployed Workers.
Recession-related job loss threatens health coverage for many families. To help people maintain coverage, the bill provides a 65% subsidy for COBRA continuation premiums for up to 9 months for workers who have been involuntarily terminated, and for their families. This subsidy also applies to health care continuation coverage if required by states for small employers. To qualify for premium assistance, a worker must be involuntarily terminated between September 1, 2008 and December 31, 2009. The subsidy would terminate upon offer of any new employer-sponsored health care coverage or Medicare eligibility. Workers who were involuntarily terminated between September 1, 2008 and February 17, 2009, but failed to initially elect COBRA because it was unaffordable, would be given an additional 60 days to elect COBRA and receive the subsidy. To ensure that this assistance is targeted at workers who are most in need, participants must attest that their same year income will not exceed $125,000 for individuals and $250,000 for families.