Reinvestment Act
The 2009 Stimulus Package Has Something for Everyone
As part of his administration's efforts to jumpstart the economy and put more money into Americans' pockets, President Obama signed the American Recovery and Reinvestment Act (ARRA) on February 17, 2009.
The Act was created to give a tax break to 95% of taxpayers, with some families potentially saving more than $13,000 in home, car, college and other tax credits.
TaxACT 2009 software will cover all details of the ARRA. In the meantime, use the information below to help with making decisions that will maximize your refund.
Making Work Pay Credit (also good for 2010)
Tips
- Reduced withholding could result in a balance due on your tax return. Ensure you're withholding the right amount by using the IRS withholding calculator. To adjust your withholding, submit Form W-4 to your employer.
- Self-employed workers should consider changing estimated tax payments, but be leery of quarterly underpayment. You can use TaxACT 2008 to adjust your estimated payments.
Overview
- Designed to increase your take-home pay amount by reducing federal income tax withholdings
- Credit of 6.2% of earned income (salary or self-employed), up to $400 for single filers ($800 for married filing jointly)
- Phases out at modified adjusted gross income $75,000 - $95,000 ($150,000 - $190,000 married filing jointly)
- Most wage earners have been receiving the credit as a boost in their paychecks since April 2009, qualified taxpayers will receive the credit in their paychecks via decreased income tax withholding
- Credit amount must be reduced by economic recovery payment or government retiree credit (see below)
- Not available for non-residents and taxpayers claimed as a dependent
TaxACT will figure the credit for you (via Schedule M) and record it for you on your 1040, 1040A or 1040EZ
Find out what this credit is worth to you – use our Making Work Pay Calculator
Economic Recovery Payment
Tip
- If employed, review your federal withholding using the IRS withholding calculator. To adjust your withholding, submit Form W-4 to your employer.
Overview
- Recipients of Social Security, Supplemental Security Income (SSI), railroad retirement benefits, and veterans disability compensation or pension benefits between Nov. 1, 2008 and Jan. 30, 2009, will receive a one-time Economic Recovery Payment of $250 ($500 if married filing jointly and spouse qualifies). Recipients should have received the check after Feb. 2009.
- Only one payment will be awarded even if individual is eligible for more than one program
- Must be deducted from the Making Work Pay Credit amount
TaxACT will ask for the payment amount you received on Schedule M to calculate the Making Work Pay Credit.
Government Retiree Credit
Tip
- If employed, review your federal withholding using the IRS withholding calculator. To adjust your withholding, submit Form W-4 to your employer.
Overview
- A one-time $250 ($500 if married filing jointly and spouse qualifies) refundable credit
- For government (federal, state or local) retirees who don't receive Social Security
- You cannot take this credit if you received the Economic Recovery Payment in 2009
- Must file a 2009 return even if you aren't required to file
TaxACT will figure and record the credit for you on your 1040, 1040A or 1040EZ via Schedule M.
Additional Child Tax Credit (also good for 2010)
Overview
- For taxpayers who receive less than the full amount of the child tax credit (it may give you a refund even if you do not owe any tax)
- Earned income threshold needed to qualify for this credit decreases to $3,000 to cover more low-income families (was $8,500 in 2008)
- Credit is equal to 15% of the taxpayer's earned income in excess of $3,000
- Families with 3 or more children can choose to use an alternative formula under which the credit equals the amount by which the taxpayer's Social Security taxes exceed the taxpayer's earned income credit, if that produces a greater refundable amount
TaxACT will calculate the credit on Form 1040 or 1040A.
Expanded Earned Income Credit (also good for 2010)
Overview
- Increase in credit for families with 3 or more qualifying children from 40% to 45%, up to $5,657
- Total phased out at $48,279 modified adjusted gross income if married filing jointly with 3 or more qualifying children
TaxACT will adjust for the new thresholds.
Qualified Motor Vehicle Tax Deduction
Overview
- Deduction of state and local sales tax for certain new cars, light trucks, motorcycles and motor homes purchased after Feb. 16, 2009 and before Jan. 1, 2010
- Limited to tax imposed on first $49,500 of purchase prices
- Can add to standard deduction or claim as itemized deduction (if not taking sales tax deduction)
- Credit phaseout begins for taxpayers whose modified adjusted gross income exceeds $125,000 ($250,000 if married filing jointly)
TaxACT will guide you through the deduction questions and enter this amount on Schedule A as an itemized deduction or Schedule L as part of the standard deduction.
Unemployment Compensation
Tip
- Review your federal withholding using the IRS withholding calculator. To adjust your withholding, submit Form W-4V.
Overview
- Recipients can count up to $2,400 of unemployment benefits received in 2009 as non-taxable income; only pay taxes on benefits received in excess of $2,400
- Unemployment benefits are temporarily increasing by $25 per week
American Opportunity Tax Credit (modified HOPE Credit) (also good for 2010)
Overview
- Maximum credit of $2,500 per student (covers 100% of the first $2,000 and 25% of the next $2,000) for tuition, fees and course materials (books) for the first 4 years of post-secondary education in a degree or certificate program (was previously the first 2 years)
- 40% of the credit is refundable unless student is subject to kiddie tax rules (new line on Forms 1040 and 1040A)
- Phased out at modified adjusted gross income $80,000 - $90,000 ($160,000 - $180,000 if married filing jointly)
- Students attending schools in a Midwestern disaster area can choose to use special rules
TaxACT will guide you through the education topic and give you the deduction or credit that is the most beneficial to you.
Expanded Definition of Qualified Tuition Programs (also good for 2010)
Overview
- Qualified expenses for Section 529 College Savings plans are expanded to include qualified computer technology, equipment and Internet service for students living at home
- Items must be used by beneficiary and beneficiary's family during the years beneficiary is enrolled at an eligible educational institution
First-time Homebuyer Credit
Tip
- If you only claimed $7,500 on your 2008 return, you can obtain the additional $500 by amending your 2008 return (if you purchased the home after Dec. 31, 2008 and before May 1, 2010, and met all other requirements for taking the $8,000 credit).
Overview
***Updated with information from the Worker, Homeownership and Business Assistance Act of 2009
- Refundable 10% credit on homes purchased after Dec. 31, 2008 and before May 1, 2010, up to $8,000 (previously $7,500) – if the sale doesn’t close by April 30, 2010, you still qualify for the credit if you have a binding contract to purchase a home as of that date and as long as the closing is completed before July 1, 2010. The credit may not be claimed before the closing date.
- First-time homebuyers are those who have not owned a primary residence during the 3 years prior to the purchase date (married taxpayers must both qualify as "first-time homebuyers" in order to receive the credit when filing a joint return).
- Repayment only required if, within 3 years of purchase, the home either ceases to be the primary residence or it is sold
- Credit phases out for homes purchased after November 6, 2009 for taxpayers whose modified adjusted gross income exceeds $125,000 ($225,000 if married filing jointly) – credit ends for those with income of $145,000 ($245,000 if married filing jointly)
- Option to claim on your 2008 or 2009 tax return
- For homes purchased after Nov. 6, 2009: You must be at least 18 on the date of purchase and cannot be claimed as a dependent (for a married couple, only one spouse must meet this age requirement)
- Property cannot be acquired from a relative
- For homes purchased after Nov. 6, 2009: A properly executed settlement statement must be attached to the return (at this time, qualifying taxpayers will have to mail their returns since the statement cannot be submitted electronically)
- For homes purchased after Nov. 6, 2009: No credit available for homes where the purchase price exceeds $800,000
TaxACT includes Form 5405 for this credit.
Residential Energy Efficient Property Credit Limitations (good through 2016)
Overview
- Credit of 30% for expenditures related to larger residential energy improvements (solar hot water property, geothermal heat pumps, wind energy property)
- Limit on credit amount removed for solar electric property
- Credit caps eliminated for qualified solar water heating, geothermal pumps, and small energy property; $500 cap for qualified fuel cell property remains
TaxACT will include Form 5695 to claim this credit.
NEW Homebuyer Credit for Current Homeowners
Overview
***Part of the Worker, Homeownership and Business Assistance Act of 2009 signed into law on November 6, 2009
- A refundable credit of up to $6,500 (up to $3,250 for a married individual filing separately) for long-time homeowners buying a replacement principal residence – buyers must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased
- Eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence between November 7, 2009 and April 30, 2010, and close on the home by June 30, 2010
- Phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers
- 2009 purchases must be claimed on your 2009 return, but 2010 purchases can be claimed on your 2009 or 2010 return
TaxACT includes Form 5405 for this credit.
Nonbusiness Energy Credits (also good for 2010)
Overview
- Individual homeowners can now claim 30% for property improvements, up to $1,500 for 2009 and 2010 combined (was previously 10%, up to $500) – taxpayers must claim the credit on the tax return for the year that the improvements are made
- Definition of qualifying property revised - includes qualifying insulation; exterior windows, skylights and doors; electric heat pumps; central air conditioners; natural gas, propane or oil water heaters; biomass stoves; furnaces and boilers
- There are higher efficiency standards to claim the credit
TaxACT will include Form 5695 to claim this credit.
Vehicle Credits
Overview
- 10% of the cost of the new plug-in vehicle, up to $2,500
- Claimed on Form 8834
- Ranges from $2,500 to $7,500 depending on battery capacity for vehicles purchased after Dec. 31, 2009 and before Jan. 1, 2015
- Increased amount for vehicles drawing propulsion from battery with at least 5 kilowatt hours of capacity
- Phases out after manufacturer sells its 200,000th plug-in electric drive vehicle
- Claimed on new Form 8936
- 10% of the cost of converting, up to $4,000
- Must be placed in service after Feb. 17, 2009 and before Jan. 1, 2012
- May claim even if the vehicle qualified for a previous hybrid credit
- Claimed on Form 8910
TaxACT will include the forms to claim the above credits.
Retirement Savings Plans
Overview
- Minimum required distribution from IRAs and most defined contribution plans has been waived for the 2009 calendar year
- Elective salary deferral amount increases to $16,500 (different amounts for SIMPLE and 403(b) plans)
- Catch-up contribution increases to $5,500
TaxACT will adjust for the above limits.
Alternative Minimum Tax
Overview
- $70,950 for married filing jointly or surviving spouse
- $46,700 for single or head of household
- $33,475 for married filing separately
For a child subject to the kiddie tax, the AMT exemption amount cannot exceed the sum of the child's earned income plus $6,700
TaxACT will adjust for the above limits.
More information (See "2009 Changes") 
Depreciation
Overview
- Bonus depreciation (also known as depreciation allowance) will continue through the 2009 tax year
- The Section 179 Limit will stay at $250,000 and begin phaseout at $800,000 through the 2009 tax year
