The Recovery Act invested millions in new projects that are improving our infrastructue, repairing homes, and much more. But it also provided millions in direct benefits for families, students, businesses, investors, and more including more than $288 million in various forms of tax relief. Guidance on how to access each of those benefits is below.
Recovery Act Provisions:
- $288 billion in tax relief
__________________________
More than a third of the Recovery Act's cost comes from tax relief provisions aimed at individuals, families, businesses and investors. Tax relief is targeted at many groups, including students, homebuyers, and homeowners wishing to make energy efficiency upgrades. A full list of tax relief provisions for individuals and families is below. See our Small Business Benefits section for provisions related to businesses and investors.
"Making Work Pay" Tax Credit
More than $116 billion of the Recovery Act will be spent on President Obama's signature "Making Work Pay" tax credits. The provision will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns. For people who receive a paycheck and are subject to withholding, the credit is typically handled by their employers through automated withholding changes beginning in April 2009. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.
Earned Income Tax Credit
The Recovery Act temporarily expands the existing earned income tax credit for families with three or more children. Qualifying families can receive a tax credit equal to 45 percent of the family's first $12,750 of earned income (rather than the previous 40 percent), and the income limit where the credit begins phasing out has been raised to $21,420 for married couples.
Child Credit Expansion
Under the Recovery Act, eligibility for the refundable child tax credit is expanded for 2009 and 2010 so that the credit begins at $3,000 of income rather than $8,500.
Sales Tax Deduction for Vehicle Purchases
The Recovery Act 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 in 2009. This deduction is subject to a phase-out for taxpayers with adjusted gross income in excess of $125,000 ($250,000 in the case of a joint return).
Unemployment Benefits Exemption
The first $2,400 in unemployment benefits received in 2009 are exempted from federal income tax due to the Recovery Act. This is a change from normal conditions, under which all unemployment benefits are subject to federal income taxation.
Extension of AMT Relief for 2009
The Recovery Act extends AMT relief for nonrefundable personal credits and increases the AMT exemption amount to $70,950 for joint filers and $46,700 for individuals. These provisions will provide tax relief to more than 26 million families in 2009.
First-time Home Buyer Tax Credit
The Recovery Act provided a credit to first-time homebuyers who purchased a home between January 1, 2009 and December 1, 2009, and subsequent legislation has extended this provision through April 2010. The credit is worth up to $8,000 and does not have to be repaid over time, as was the case with previous credits of this kind. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return), and it only applies to the purchase of a principal residence. As of August 2009, 131,000 Texans had already taken advantage of this credit, collecting more than $932.5 million in tax credits.
American Opportunity Tax Credit
The American Opportunity Tax Credit provides a 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 $2,000 of tuition and related expenses paid during the taxable year. Forty percent (40%) of the credit would be refundable, and the entire provision phases out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly). The American Opportunity Tax Credit is in effect for 2009 and 2010.
Adjustment to 529 Savings Plan
Section 529 Education Plans are tax-advantaged savings plans that cover all qualified education expenses, including tuition, room & board, mandatory fees, and books. The Recovery Act allows computers and computer technology to be considered as qualified education expenses.
Refundable Credit for Certain Federal and State Pensioners
The Recovery Act includes a one-time refundable tax credit of $250 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.
Tax Credits for Home Energy-Efficient Improvements
For 2009 and 2010, the Recovery Act increases this credit from 10 percent to 30 percent of qualified energy efficiency upgrades to existing homes. Caps on individual upgrades are removed, and an overall cap of $1,500 applies.
Repeal of Subsidized Energy Financing Limitation on the Investment Tax Credit
This investment tax credit is limited when energy investments are partially financed by other governmental subsidies or bonds, but the Recovery Act repeals any such limits. Removal of Dollar Limitations on Certain Energy Credits Previously, individuals have been allowed to claim a thirty percent (30%) tax credit for qualified solar water heating property (capped at $2,000), qualified small wind energy property (capped at $500 per kilowatt of capacity, up to $4,000), and qualified geothermal heat pumps (capped at $2,000). The Recovery Act repeals the individual dollar caps, so each of these properties is eligible for an uncapped thirty percent (30%) credit.
