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Tax Incentives for Individuals and Families

Making Work Pay Tax Credit

The bill cuts 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 S400 for working individuals and $800 for working families. This tax credit would be calculated at a rate of 6.2% of earned income, and would phase out for taxpayers with adjusted gross income in excess of S75,000 (S150,000 for married couples filing jointly). The credit is phased out at a rate of 2% of the eligible individual's modified adjusted gross income above $75,000 ($150,000 for a joint return). Thus, the credit phases out completely at modified AGI of $95,000 ($190,000 on a joint return). 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 tax returns.

Payment to Recipients of Social Security, SSI, Railroad Retirement and Veterans Disability Compensation Benefits

The bill provides a one-time payment of S250 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.

Refundable Credit for Certain Federal and State Pensioners

The bill provides a one-time refundable tax credit of S250 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.

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 S16,420 ($19,540 for married couples filing jointly). The bill would increase 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 S1,880. For example, in 2009, taxpayers with three or more qualifying children may claim a credit of 45% of earnings up to $12,570, resulting in a maximum credit of $5,656.50.

Increase Eligibility for the Refundable Portion of Child Credit

Currently, a taxpayer receives $1,000 tax credit for each qualifying child under the age of 17. To the extent the child credit exceeds the taxpayer's tax liability, the taxpayer is eligible for a refundable credit (the additional child tax credit) equal to 15% of earned income in excess of a threshold dollar amount. 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 threshold in excess of $8,500. The bill would reduce this threshold floor for 2009 and 2010 to $3,000.

American Opportunity Education Tax Credit

The bill provides financial assistance for individuals seeking a college education. For 2009 and 2010, the bill provides 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 S2,000 of tuition and related expenses paid during the taxable year. Forty percent (40%) of the credit would 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). The credit is available with respect to an individual student for four years, provided he has not completed the first four years of post-secondary education before the beginning of the fourth tax year. Subject to an exception, forty percent of a taxpayer's otherwise allowable credit is refundable. The exception is that the credit is not refundable if the taxpayer claiming the credit is a child subject to the kiddie tax (generally, any child under age 18 or any child under age 24 who is a student providing less than one-half of his or her own support, who has at least one living parent and does not file a joint return).

New 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, computer technology or internet access qualifies as qualified Section 529 education expenses. Expenses for software qualify, but the software must be predominantly educational in nature.

Refundable First-time Home Buyer Credit

In 2008, 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 S7,500) by first-time home buyers. The provision applied 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 S75,000 ($150,000 in the case of a joint return). The new 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 all taxpayers with a deduction for state and local sales and excise taxes paid on the purchase of new cars, light truck, recreational vehicles, and motorcycles through 2009. This deduction is subject to a phase-out for taxpayers with adjusted gross income in excess of S125,000 ($250,000 in the case of a joint return). Only taxes on that portion of the cost of qualified motor vehicle not exceeding $49,500 ($24,750 for a married person filing separately) may be deducted. A qualified motor vehicle is a (1) passenger automobile, light truck or motorcycle the gross vehicle rating of which is not more than 8,500 pounds and (2) a motor home the original use of which commences with the taxpayer. The deduction for qualified motor vehicle taxes is not available to a taxpayer who elects to deduct state and local sales and uses in lieu of income taxes as an itemized deduction. The deduction is allowable for AMT purposes.

Temporary suspension of taxation of unemployment benefits

Currently, all federal unemployment benefits are subject to taxation. The proposal temporarily suspends federal income tax on the first $2,400 of unemployment benefits per recipient. All 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 to $70,950 for joint filers and S46,700 for individuals. Additionally, interest on qualifying private activity bonds issued in 2009 or 2010 isn't treated as an AMT preference.

2009 American Recovery and Reinvestment Act
    Tax Incentives For Businesses
    Tax Incentives for Individuals and Families
    Tax Provisions Related to Energy
    Other Initiatives

(This information is subject to change, pending the approval of the Senate, House and President)