“Stimulus Bill” Individual Income Tax Impact
“Stimulus Bill” individual income Tax Impact
On February 13, the House of Representatives, by a vote
of 246-183, and the Senate, by a vote of 60–38, passed H.R.
1, the American Recovery and Reinvestment Act of 2009 (the
Recovery Act). The Recovery Act contains a wide-ranging tax
package that includes tax relief for individuals and families as
1. “Making Work Pay” Credit. For 2009 and 2010, the
goal of this tax credit is to provide you with a refund equal to
part of your required Social Security tax payments. The tax
credit is equal to 6.2 percent of earned income (not to exceed
$400 for single filers and $800 for joint filers). The credit is
phased out for taxpayers with adjusted gross income (“AGI”)
in excess of $75,000 ($150,000 for joint filers). The credit can
be claimed either through reduced paycheck withholding, or a
credit on your tax return. In essence, you can expect to see
approximately $13 a week less withheld from your paycheck beginning
in June, 2009. In 2010, the extra take-home pay will
decrease to approximately $9 per week.
2. Economic Recovery Payment. The Recovery Act
provides for a one-time $250 payment to retirees, disabled individuals,
Social Security beneficiaries, SSI recipients receiving
benefits from the Social Security Administration and veterans
receiving disability compensation and pension benefits from the
U.S. Department of Veterans’ Affairs. The one-time payment is
a reduction against any allowable “Making Work Pay” credit.
3. Refundable Credit for Certain Federal and State Pensioners.
The Recovery Act provides a one-time $250 refundable
tax credit to certain government retirees who are not
eligible for Social Security benefits. This one-time credit is a
reduction against any allowable “Making Work Pay” credit.
4. Unemployment compensation exclusion. The Recovery Act temporarily suspends
federal income tax on the first $2,400 of unemployment benefits received during 2009.
5. Expanded and Revised Higher Education Tax Credit. The Recovery Act provides, for
any taxable year beginning in 2009 or 2010, an increase in the Hope scholarship credit to equal the
sum of 100% of qualified tuition and related expenses paid by a taxpayer during the taxable year
(for education furnished to an eligible student during any academic period commencing in 2009 and
2010) not to exceed $2,000, plus 25% of such expenses paid in excess of $2,000, but not to exceed
$4,000. The credit is allowed for the first four years of post-secondary education for qualified tuition
and related expenses, including required course materials. The credit is also allowed against AMT.
If you are unable to utilize the entire credit against income tax, up to 40% of the credit is refundable.
However, please note that the credit is non-refundable in the case of a child subject to the “kiddie”
6. Computers as an Education Expense. The Recovery Act permits you to withdraw
funds from a 529 college savings plan to purchase a computer and/or computer-related
technology for the student-beneficiary as such purchases are now deemed “qualified education
7. Expanded First Time Credit for First Time Home Buyers. Pre-Act law provided a
$7,500 tax credit for first time home buyers purchasing a home on or after April 9, 2008, and
prior to July 1, 2009. It was designed to be repaid to the IRS without interest over a 15-year period.
This credit phased out for taxpayers with AGI in excess of $75,000 ($150,000 for joint filers).
The Recovery Act enhances this credit by: (i) eliminating the repayment obligation; (ii) extending
the credit through November 30, 2009; and (iii) bumps up the maximum credit value from
$7,500 to $8,000.
8. Tax Break for New Car Purchasers. The Recovery Act allows taxpayers to deduct state
and local sales taxes paid on the purchase of a new automobile, including light trucks, SUVs, motorcycles,
and motor homes. The tax break phases out starting with taxpayers earning $125,000
per year ($250,000 for joint returns). The deduction is allowed to both itemizers and non-itemizers.
However, the deduction cannot be taken by a taxpayer who elects to deduct state and local sales
taxes in lieu of state and local income taxes.
9. Alternative Minimum Tax (“AMT”) Patch. To limit the number of taxpayers subject to
AMT, the Recovery Act increases the 2009 AMT exemption amounts to $46,700 for individuals and
$70,950 for joint returns. The Recovery Act also extends AMT relief for personal tax credits through
10. Bike Commuter Tax Benefit. This particular piece of the Recovery Act, which was
sponsored by Oregon representative Earl Blumenauer, provides a $20 per month tax credit to any
employee of participating firms who make at least a “substantial portion of their commute by bicycle.”
In essence, this is $240 a year that can be used towards the purchase, maintenance, repairs
and storage of a bicycle used for commuting.
11. Transit Accounts. If you commute to work via public
transportation your employer may allow you to set aside pre-tax
money from each paycheck to pay for the bus, train or parking
permit as a fringe benefit. Pre-Act law only allowed a $120-per month
set-aside for mass transit, while those who “drive and
park” could set $230 aside per month. For 2009 and 2010, the
Recovery Act equalizes this discrepancy and allows individuals
who commute by mass transit to set aside $230 per month.
If you have questions whether you qualify for any of these
individual income tax benefits, or how you can structure your
affairs to maximize these benefits, please contact Randall L.
Duncan or Jonathan D. Mishkin at (503) 242-0000, and we will
be glad to assist you.
Randall L. Duncan
Direct Line: 541-417-6010
Jonathan D. Mishkin, LL.M.
Direct Line: 503-417-6007
1001 SW Fifth Avenue
Portland, OR 97204-1116
Phone: (503) 242-0000
Fax: (503) 241-1458
360 E. 10th Avenue, Suite 300
Eugene, OR 97401-3273
Phone: (541) 485-0220
Fax: (541) 686-6564
333 High Street, N.E.
Salem, OR 97301-3632
Phone: (503) 371-3330
Fax: (503) 371-5336
Nothing in this communication creates or is intended to create an
attorney-client relationship with you, constitutes the provision of legal
advice, or creates any legal duty to you. If you are seeking legal advice,
you should first contact a member of the Closely Held Business
Team with the understanding that any attorney-client relationship
would be subsequently established by a specific written agreement
with Harrang Long Gary Rudnick P.C. To maintain confidentiality,
you should not forward any unsolicited information you deem to
be confidential until after an attorney-client relationship has been
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