I thought it necessary to detail for our clients and readers the highly anticipated stimulus bill flying through the House and Senate just a few days after our new President’s inauguration. This is the new New Deal. We are about to chunk down a bill for our grandchildren to pay that will keep our country talking for many years to come (adding an estimated $347 Billion in interest costs alone to the national debt over 10 years). The bipartisan “love” promised by our new President is being watched closely under the initial negotiations of this bill.
The stimulus bill has passed the Democratically-controlled House (cited as the American Recovery and Reinvestment Act of 2009), and has just passed the Democratically-controlled Senate 61 to 36. Over $838 Billion is included in this Senate version of the bill, with supposed tax cuts for individuals who work, and the unemployed needing health coverage to the largest overhaul of our out-dated energy grid to stabilizing state and local governments operating in the red. Only a third is for tax cuts while a whopping two-thirds, or $550 Billion, is for new spending.
Now it’s time for the House and Senate to come together and negotiate the details before ‘Bama receives the final bill to sign (hopefully, by mid to late February).
Here are some things the individual may expect. Tax benefits for the businesses will be the focus of next week’s Tuesday Tax Time post.
FOR THE INDIVIDUAL…
- Protection From The AMT (Alternative Minimum Tax). The Senate version of the stimulus package increased the minimum exemption (which keeps individuals from paying the AMT) to $70,950 for those filing joint tax returns, and $46,700 for those filing single. Before this measure, you could expect to be hit by the AMT (an alternate “tax code” for the rich, so to speak) if you were married and only made $45,000.
- Home Buyer Tax Breaks. This one is really cool. The first time home buyers credit is getting pumped with some serious cash… payable to you (potentially). If you buy a home within 12 months after the signing of the bill (and hold and occupy the home for 2 years), you could receive up to 10% of the purchase price on the home you purchase (with a $15k cap on that amount) in a refund at tax time next year. And you don’t have to pay it back, as the current home buyers credit stipulates, and it’s not just for first time home buyers anymore! If the President signs the bill as written currently, you can expect a lot of people to be buying and selling homes, as this will become a very profitable endeavor for the year 2009. Hello real estate market – hang on to your britches.
- Payments to Individuals. There is a new “Making Work Pay” Credit included in both the House and Senate versions of this stimulus bill, where if you work, you’ll get up to $500 of earnings at tax time (up to $1,000 if a married couple both work). This credit is actually 6.2% of your earned income, so it will apply to those receiving W-2s and the self-employed. Another payment to individuals is the additional child tax credit, which is being beefed up in this proposed legislation (this is the credit you normally get if you don’t have immediate tax liability to warrant the regular child tax credit). And the limits on receiving the Earned Income Credit are being raised to get those with lower incomes (and kids, bless their hearts!) more cash in their pocket come tax time.
Here’s a pretty cool table showing you how much cash you might expect (from The Tax Foundation post):
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Table 1: Tax Savings in 2009 Under House and Senate Stimulus Packages
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|||||
|
Current Income Tax
|
House Bill (H.R.598) |
Senate Bill (S.350) |
|||
|
Tax |
Savings |
Tax |
Savings |
||
|
Couple with two children earning: (a) |
|||||
|
$40,000 |
($1,721) |
($4,115) |
$2,394 |
($3,865) |
$2,144 |
|
$60,000 |
$2,900 |
$900 |
$2,000 |
($233) |
$3,133 |
|
$80,000 |
$5,604 |
$3,604 |
$2,000 |
$2,318 |
$3,287 |
|
$100,000 |
$10,180 |
$8,180 |
$2,000 |
$4,778 |
$5,403 |
|
$200,000 |
$35,750 |
$35,750 |
$0 |
$30,191 |
$5,559 |
|
Single parent with two children earning: (a) |
|||||
|
$20,000 |
($5,274) |
($6,774) |
$1,500 |
($6,524) |
$1,250 |
|
$40,000 |
$0 |
($1,200) |
$1,200 |
($1,200) |
$1,200 |
|
$60,000 |
$4,753 |
$2,453 |
$2,300 |
$1,753 |
$3,000 |
|
$80,000 |
$9,103 |
$7,379 |
$1,724 |
$6,303 |
$2,800 |
|
$100,000 |
$14,105 |
$14,105 |
$0 |
$13,953 |
$153 |
|
$200,000 |
$41,113 |
$41,113 |
$0 |
$37,746 |
$3,367 |
| (a) The couple is assumed to be a two-earner couple with equal earnings and income from no other source. One child is assumed to be under age 17 and the other child of college age with college expense of $4,000. Itemized deductions are assumed to be 18 percent of earnings. It is assumed that the taxpayer does not purchase a home in 2009. The same assumptions apply for the single parent.Note: Calculations in italics indicate that the taxpayer is subject to the alternative minimum tax (AMT), | |||||
Tune in next week for the update on how this stimulus will help businesses. Woot, woot!
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.
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