Mon, February 02, 2009
Tax Changes for 2009 Move Closer to Fruition
As promised, the House and Senate have been busy working on The American Recovery and Reinvestment Act of 2009, which includes several tax law changes intended to boost the economy.
The House passed its version of the bill on January 28; now the Senate gets to monkey with it to its satisfaction. The Senate’s current version of the bill has a good deal in common with House bill, so I’ll summarize the areas where they agree, as these are all likely to make it into law.
Stimulus Tax Credit
Tax credits, unlike deductions, reduce one’s tax bill on a dollar-for-dollar basis. The “Make Work Pay” credit provides a refundable tax credit of 6.2% of earned income up to $500 for working individuals and $1000 for families. The credit can be claimed as a reduction in the amount of paycheck withholding or through a credit on one’s tax return. The credit starts to be phased out at adjusted gross incomes of $75,000 for single taxpayers and $150,000 for joint filers.
Increased Earned Income Tax Credit
For families with three or more children, both versions increase the earned income tax credit up to 45% of a family’s first $12,570 of income.
New American Opportunity Tax Credit
Replacing current education credits, for 2009 and 2010 this break would provide a credit of 100% of the first $2,000 of college expenses and 25% of the next $2,000, for a total of $2,500. It would apply to all four years of college and would start to be phased out at $80,000/$160,000 depending on filing status.
First Time Home Buyer Credit
This provision expands the benefits of the tax credit passed last July. It provides for a tax credit of 10% of a home’s purchase price, up to a maximum credit of $7,500. The credit is phased out at income levels between $75,000 and $95,000 for singles and $150,000 - $170,000 for married couples. A key change is that the credit will not need to be repaid, as was previously required. Depending on which version of the bill becomes law, the latest qualifying purchase date for the credit could be extended to September 1, 2009 (currently, a home must be purchased after December 31, 2008 and before July 1, 2009 to qualify).
Energy-Saving Tax Credit For Home Improvements
The bill extends tax credits for energy-saving home improvements through 2010, increases the amount of the tax credit from 10% to 30% of the amount spent, and increases the maximum credit from $500 to $1500.
The Senate version of the bill includes another one-year band-aid for the Alternative Minimum Tax, the House bill does not. Sooner or later this will probably be addressed, though it’s anyone’s guess as to how it will be resolved.
There are plenty of other differences between the two versions that will have to be sorted out before the bill becomes law, but the changes above seem very likely. The increased generosity of the first-time home buyer credit seems quite safe, as Congress is eager to try to prop up ailing home prices.
