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What’s in it For Me: The Ultimate Stimulus Package Guide

February 23rd, 2009 · 14 Comments

Written by J.P. Wicklein

     Last Monday President Obama signed the American Recovery and Investment Act of 2009 into law.  There’s a substantial amount of aid in the bill that will benefit states and various interest groups.  That said the bill also contains a lot for the average American. 

“Making Work Pay” credit

·      Single filers with an adjusted gross income (AGI) between $6,450 and $75,000 will receive a $400 credit.  Joint-filing married couples with an adjusted gross income between $12,900 and $150,000 will receive an $800 credit.

·      The credit is phased out for single filers with an AGI between $75,000 and $95,000. For joint-filing married couples the $800 credit phases out between $150,000 and $190,000.

·      The credit is valid for the 2009 and 2010 tax years.

·      Unlike the 2008 stimulus check, the “Making Work Pay” credit will be gradually paid out through reduced payroll taxes.  For those receiving the full credit it should amount to an additional $8 - $10 per week. 

·      It’s going to take a bit of time for companies to incorporate the “Making Work Pay” credit in their payroll systems.  Don’t plan on seeing it until June or July 2009. 

·      You shouldn’t need to take any action to receive this credit.

·      If you are claimed as a dependent on someone else’s tax return you are not eligible for the credit.

 

Note:  Paying out the credit via reduced payroll taxes, instead of mailing rebate checks, should save the federal government some expense.  The U.S. Treasury spent over $40 million distributing rebate checks last year.

 

$250 Payment for government program beneficiaries

·      This payment is not available to those that received the “Make Work Pay” credit.

·      To qualify, recipients must have been eligible for Social Security or Supplemental Social Security (SSI), Railroad Retirement benefits, veteran’s compensation benefits, or veteran’s pension benefits.  More specifically, recipients of the $250 payment must have been eligible for one of the above programs for at least 1 month between November 2008 and January 2009. 

·      The IRS is still determining how, and when, the credit will be paid out.

 

$250 Refundable credit for government retirees

·      This credit is not available to those that receive the “Make Work Pay” credit or the $250 payment for government program beneficiaries. 

·      To qualify, recipients must receive retirement benefits during 2009 as a result of their service as a federal government employee.   Further, the retirement benefits must have been based on earnings not subject to Social Security tax withholding at the time.  Finally, recipients must provide a Social Security number on their 2009 Form 1040.

 

$8,000 First time homebuyer tax credit

·      The home must be purchased between January 1, 2009 and November 30, 2009 to qualify.

·      The tax credit is not a loan and does not need to be repaid provided you live in the home for at least 3 years.

·      To be eligible for the tax credit the home must be a primary residence (no investment property).

·      The $8,000 tax credit is phased out for single filers with a modified adjusted gross income between $75,000 and $95,000.  ($150,000 to $170,000 for joint filers). 

·      Recipients of the tax credit can claim it on their 2008 tax return – even though it occurred in 2009.  This effectively allows first time homebuyers to receive the credit sooner.

·      A first time homebuyer is considered anyone who has not owned a principal residence within three years of the purchase date.  In the event of a newly constructed home, the purchase date will be the date the recipient moves in.

 

New car buyer tax incentives

·      Americans that purchase a new car, motorcycle, light vehicle, or motorized RV during 2009 can deduct state and local sales tax assessed on their purchase.

·      The tax deduction caps out at a purchase price of $49,500. 

·      It’s only available to single filers with adjusted gross incomes less than $125,000 ($250,000 for joint filers). 

·      This tax deduction is “above-the-line” – meaning taxpayers that don’t itemize (take the standard deduction instead) will qualify. 

 

Unemployment Benefits

·      Recipients of unemployment benefits will not be required to pay federal income tax on the first $2,400 worth of unemployment earned during 2009. 

·      Unemployment benefits will increase $25 a week through 2009.  No action is required to receive the additional payment; unemployment offices will automatically increase the pay out within the next month or two.

·      The emergency unemployment compensation program, which provides up to 33 weeks of unemployment benefits, has been extended through December 2009.

·      The federal government will subsidize 65% of unemployed worker’s COBRA insurance premiums for up to 9 months.  To qualify for the subsidy employees must have been involuntarily terminated between September 1, 2008 and December 31, 2009.  Additionally, recipients of the subsidy can’t have an adjusted gross income exceeding $125,000 (single filers) or $250,000 (joint filers). 

 

Increase in AMT exemption levels

·      The Alternative Minimum Tax exemption levels were increased by $500 for single filers and $1,000 for joint-filing married couples.  The new exemption levels are $46,700 for single filers and $70,950 for joint-filing married couples. 

·      For the most part, if you paid AMT last year you probably will this year.  Inversely, if you didn’t pay AMT last year you probably won’t this year.  Generally, the increase in exemption levels only helps people that aren’t already ensnared avoid getting caught by the AMT.  It doesn’t really do anything for the millions of taxpayers already stuck paying it. 

 

American Opportunity Education tax credit

·      This education tax credit replaces the existing Hope Scholarship tax credit while applying to 2009 and 2010.

·      Eligible citizens will receive a $2,500 tax credit for higher education expenses.  (This is a $700 increase over the Hope Scholarship tax credit.)

·      To qualify for the full credit recipients must have an adjusted gross income less than $80,000 (single filers) or $160,000 (joint filers).

·      To receive the full $2,500 tax credit individuals must have incurred at least $4,000 worth of higher education expenses. (The first $2,000 worth of expenses are refunded at 100% while the next $2,000 are covered at 25%.)

·      A partial tax credit is available for single filers with an AGI between $80,000 and $90,000 ($160,000 and $180,000 for joint-filing married couples.)

 

Increase in Pell Grants

·      Recipients of Pell Grants will see a $500 increase in 2009 ($5,350 in total) and again in 2010 ($5,850 in total). 

 

“Additional” Child Tax Credit

·      Under the current child tax credit those owing less than $1,000 in income taxes are unable to take advantage of the full, $1,000 child tax credit.  The “Additional” Child Tax Credit included in the stimulus package allows some parents the ability to receive the entire $1,000 child tax credit - even if they owe no income taxes at all. 

 

Expansion of the Earned Income Tax Credit (EITC)

·      For 2009 and 2010, the income range in which the credit is phased out has been increased. 

·      Eligible families with at least three children will receive an increased payment up to $629 in 2009. 

That’s everything in the stimulus package that directly benefits individual Americans.  If you have any questions feel free to ask them in the comments section below. 

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Photo by: Woodleywonderworks

Tags: Jobs · Taxes

14 responses so far ↓

  • 1 Mike // Feb 23, 2009 at 5:34 pm

    What! Of nearly a Trillion dollars, (yep, with a “T”) in pure pork, we get this? We are in the middle of the middle class, my wife is out of work, my job is on thin ice already and democrats offer us a grand total of $800 jointly? This covers our rent payment for one month! This Obama guy is a fraud!!! What a crock!!!

  • 2 Financial Fellow // Feb 23, 2009 at 10:23 pm

    I’d like to have seen much more in it, too Mike. The $15K homebuyer’s tax credit proposed by a Republican senator (GA) would have been a great start.

    Instead of spending $787 billion on the stimulus package they could have just given every single American $3,000. I suspect that may have done more to help the economy. Only time will tell…

  • 3 JT // Feb 24, 2009 at 12:52 am

    Thank you for breaking down the stimulus package.
    Any details on how the package can help homeowners?

  • 4 kiet // Feb 24, 2009 at 8:23 am

    Just bought my house in May of 2008. Why is my 7500 tax credit a loan when the other recipients will not need to repay the $7,500 for this year? Theirs is not a loan and does not need to be repaid provided they live in their home for at least 3 years? Should I let this one go into Foreclosure then get another so that I could get some of this aid? Would that be legal?
    .

  • 5 Financial Fellow // Feb 24, 2009 at 8:54 am

    JT -

    There isn’t anything in the stimulus package that will directly benefit homeowners. The Obama Administration did, however, recently layout plans to provide assistance for those having trouble keeping their homes. These plans would be separate from the stimulus package discussed above. (I’ll do a post on the homeowner assistance shortly).

    Back to the stimulus package: The $8,000 homebuyer tax credit mentioned above should benefit homeowners trying to sell their home by incentivising more people to buy a home.

    I think the bottom line on homeowners is this: If you are making your payments on time, don’t plan on selling your home anytime soon, and don’t have a low level of income the stimulus package won’t do anything for you - relative to being a homeowner.

    Thanks for the comments and great question, JT.

  • 6 Financial Fellow // Feb 24, 2009 at 9:08 am

    Keith -

    It’s a tough break, I admit. I wouldn’t let your home slip into foreclosure over it though. That will wind up doing more harm to you than good. (Between destroying your credit rating and losing your home.)

    Even if you were to do that and try to buy a home this year you wouldn’t qualify as a first time homebuyer for the $8,000 tax credit since you bought a home in 2008.

    That said, I can fully understand your frustration. It isn’t fair that qualifying homebuyers that buy a home this year get an $8,000 tax credit while you only got a $7,500 0% interest loan.

    I suppose it’s all relative, though. I’m sure someone that bought a home in 2007 looked at the $7,500 0% interest loan you got in 2008 and felt some resentment. Admittedly, though there’s a bigger difference between the 2008 and 2009 plans.

    Currently, your $7,500 0% interest loan needs to be repaid over 15 years. I wouldn’t be too surprised if that doesn’t get changed to be a tax credit or somehow sweetened between now and the time you would be scheduled to start repaying the $7,500 - assuming you opt to take it when you file your taxes. But, for now it appears as though you will need to repay it.

    Thanks for your comments, Keith. I understand and appreciate your frustration. I didn’t get a fat tax credit from the government when I bought my first home either.

    John (Financial Fellow)

  • 7 kieth // Feb 24, 2009 at 9:48 am

    Thanks for the swift response…

  • 8 BUD THOMAN // Feb 27, 2009 at 4:29 pm

    A GOVERNMENT WHICH ROBS PETER TO PAY PAUL CAN ALWAYS DEPEND ON THE SUPPORT OF PAUL…G.B.SHAW

    WHEN ARE WE GOING TO LEARN THAT NOTHING IN THIS LIFE IS FREE?

  • 9 Financial Fellow // Feb 28, 2009 at 12:10 am

    Nice quote, Bud. Very appropriate as well.

    I’m particularly concerned about the proposed tax changes that were conveyed over the last couple days as a part of the Obama Administration’s budget proposal. Having the wealthiest 5% of Americans fund health care reform through higher income taxes? Sounds like redistribution of wealth to me…

  • 10 Jim Hoover // Mar 1, 2009 at 3:03 am

    Just found your site. A couple of comments from a 50 y.o. guy with a family income of $150/yr (just so you have an idea about my situation):

    Maybe you heard about the massive transfer of wealth from the middle and lower classes to the wealthy during the GWB years. Clearly the wealthy did NOT hire a bunch of workers with the huge tax break Bush provided them.

    No less a billionaire than Mort Zuckerman (appearing on the McLaughlin Group show this week) endorsed Obama’s plan. He stated he began to get concerned when the share of U.S . privately held wealth held by the top 1% of Americans rose from 10% to 20% (!).

    Meanwhile, my dear FF, tell me how many thousands of American workers with spouses and children lost their jobs (along with their health insurance) in the last couple of months.

    Let’s endorse a plan to help average Americans.
    (The wealthy don’t need to worry. Trust.)
    Best to you and your new site!
    JH

  • 11 Financial Fellow // Mar 1, 2009 at 10:49 pm

    Jim -

    Thanks for your comments and the best wishes on the site!

    You make some good arguments. I would agree that there is some degree of alarm raised when 1% of Americans control 20% of the wealth.

    I’m all for some amount of tax reform. One thing that’s never sat well with me, though, is discouraging the behavior of earning more income by taxing it at a higher rate. Individuals that earn more money pay more taxes - even at a flat tax rate. Therefore, discouraging them from earning more money by taxing them at a higher rate doesn’t seem fair to me. The current tax system rewards those that earn less.

    Unfairness in the tax system abound: For example, Americans that live in areas with a higher cost of living carry a larger tax burden than those that do not. Also, many states pay more in federal taxes than they get back whereas other states receive more than they put in.

    I’m not saying you can create a perfectly fair world of taxation but something better than what we have today is certainly possible.

    Thanks again for your comments,

    John (Financial Fellow)

  • 12 Chyann McGruder // Mar 6, 2009 at 5:38 pm

    If this is true, “Joint-filing married couples with an adjusted gross income between $12,900 and $150,000 will receive an $800 credit.”, what about us who earn less than the $12,900?

    Can we get this credit if have a loan but are currently in college? ” Eligible citizens will receive a $2,500 tax credit for higher education expenses.”

  • 13 Financial Fellow // Mar 6, 2009 at 10:33 pm

    Chyann -

    Unfortunately, no. You will only qualify for the credit if you earn at least $12,900 (married couples) or $6,450 if you’re single.

    Yes, you can qualify for the American Opportunity Education Tax Credit if you still have other loans.

    Thanks for the questions!

    John (Financial Fellow)

  • 14 Chyann // Mar 18, 2009 at 4:23 pm

    Thanks for your reply.

    I was afraid really low-income people would still be really low-income people.

    My income is only $7,980 so $250 (at some point), $500 more in the Pell Grant, and $2,500 credit on student loans is better than nothing.

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