Stimulus package offers several tax breaks for individuals Tax Matters by David A. Katzman When President Barack Obama signed the American Recovery and Reinvestment Act of 2009, the economic stimulus package contained several important individual tax breaks. For example, the package increases the alternative minimum tax (AMT) exemption for 2009 to $46,700 for single filers or $70,950 for joint filers, which means another year of reprieve for millions of taxpayers. The new law also includes a “making work pay” credit for 2009 and 2010. Instead of a check, like the last tax rebate, this credit allows for a reduction in federal income tax withholding from your paycheck or from your estimated-tax payments. The amount is 6.2 percent of your earned income up to a maximum of $800 for joint filers or $400 for single filers. The credit phases out for those with adjusted gross incomes above $150,000 for joint filers or $75,000 for single filers. The stimulus package also offers a one-time distribution of $250 for qualifying recipients, which include recipients of Social Security, SSI, Railroad Retirement and Veterans Disability Compensation Benefits. Federal and state pension recipients who are not eligible for Social Security will also receive a $250 distribution. If recipients qualify for this benefit, as well as the making-work-pay credit, that credit will be reduced by $250. If you need a new vehicle, the stimulus package provides for a deduction of state and local sales taxes and excise taxes on automobiles, light trucks and SUVs, as well as motor homes and motorcycles. The deduction phases out for those earning more than $250,000 for joint filers or $125,000 for single filers. If you already deduct state and local sales tax on your federal income tax return, this new deduction does not allow for duplication. The stimulus package also increases benefits for qualifying first-time homebuyers. In 2008, congress created a refundable tax credit of up to $7,500—equal to 10 percent of a home’s purchase price up to $75,000—for homes purchased between April 9, 2008 and July 1, 2009. Under that provision, taxpayers must repay this credit in equal installments over 15 years or when the house is sold. For homes purchased after Jan. 1, 2009, the new law eliminates the repayment requirement. The law also extends the purchase time through the end of November 2009 and increases the maximum credit to $8,000. There are some occupancy requirements attached to this credit, as well as a repayment rule for homes either sold or no longer serving as the primary residence within 3 years of purchase. For the unemployed, the stimulus package exempts from federal income tax up to $2,400 in unemployment benefits collected in 2009. In addition, beginning March 1, 2009, 65 percent of COBRA premiums will be subsidized by the federal government for workers who become involuntarily unemployed between Sept. 1, 2008 and March 1, 2009. This subsidy phases out for joint filers with earnings above $250,000 and terminates for those reporting $290,000 or more. For single filers the phase-out begins at $125,000 and tops out at $145,000. The stimulus package also replaces the HOPE scholarship credit with an improved American Opportunity Education Tax Credit. The new maximum credit for 2009 and 2010 is $2,500 annually—with 40 percent of this credit being refundable. (A refundable tax credit may reduce your tax liability below zero, in which case you would receive a refund.) This credit phases out for joint filers with income between $160,000 and $180,000, or $80,000 and $90,000 for single filers. For families with Section 529 savings plans, computer equipment now qualifies as an educational expense in 2009 and 2010, as well. For low-income families with at least three children, the earned income tax credit increases for 2009 and 2010. The credit is 45 percent of the family’s earned income up to $12,570 and the phase out begins at $21,420, or $1,880 higher than 2008. Claiming a refundable child tax credit has also been eased in 2009 and 2010. This was accomplished through a lowering of the income threshold to $3,000. Last year the threshold was $8,500.