What is the American Recovery and Reinvestment Act

The American Recovery and Reinvestment Act of 2009, signed into the Law on November 6, 2009, includes many new programs that taxpayers can choose from in order to reduce their tax liabilities or to receive a larger refund. Some of the Programs are new; however, others were revised in order to assist taxpayers during this recession. To determine whether you are qualified; read thoroughly each ruling or have your account explain them before you include them. The following are some of the Acts of 2009:

1) MAKING WORK PAY TAX CREDIT – This was implemented so taxpayers have more take-home pay.

2) FIRST TIME HOMEBUYER CREDIT – Taypayers receive a credit of up to $8,000 without paying it back. You must buy or enter into a binding contract to buy principal residences on or before April 30, 2010, and closed by June 30, 2010. This can be claimed on the 2009 or 2010 tax forms. It extends and expands the First Time Homebuyer Credit to also buying a replacement principal residence and raises the income limitations for homeowners claim credit.

It also includes military and other Federal employees. People with higher incomes are now qualified for the credit, which phases out for individual tax payers with gross incomes between !25,000 and $145,000 and $225,000 and $245,000 joint incomes. There is no credit for homes exceeding $800,000. Members of military and certain other Federal employees serving outside the United States have an extra year to buy a principal residence in the United States and qualify for the credit, those who purchase on or before April 30, 2011, with closing by June 30, 2011. Also includes members of Foreign Service and Federal employees of the Intelligence Committee and uniform services are eligible for this special rule.

The credit applies to any individual (and if married, the individual’s spouse) who serves on official extended duty service outside the United States for at least 90 days between December 31, 2008, and May 1, 2010.

3) MONEY BACK FOR VEHICLE PURCHASE – If you purchase a certain vehicle in 2009, you can deduct State and local sales taxes they paid or other taxes and fees they paid in states with no sales tax.

4) EDUCATION BENEFITS – According to the new American Opportunity Credit and 529 college savings plan; this benefit helps families and students find ways to pay high educational expenses.

The ruling increases the 2009 and 2010 old “Hope” credit to higher income as well as those who owe no tax. It adds required course materials to a list of qualified expenses. Credits can be claimed for four post-secondary education years instead of two years. The maximum annual credit is $2,500. The gross income has to be less than $80,000 as an individual and $160,000 married filing joint a return.

5) ENHANCED CREDITS FOR 2009 AND 2010 – The American Recovery and Reinvestment Act provides a temporary increase in earned income tax credit for taxpayers with three or more qualifying children. The maximum Earned Income Tax Credit is $5,657.

It phases out for married couples filing jointly, the beginning phase-out period is $21,420, and continues as follows: 

$40,463 with one child

$45,295 with two children

$48,279 with three or more children

For married couples with no children, the beginning phase-out period starts at $12,470 and completely at $18,440.

6) INCREASED TRANSPORTATION SUBSIDY – This is an employer-provided benefit for transit and parking that ends in 2009 (to be revised in 2010). It began in March, 2009. Employees may exclude $230 a month in transit benefits and $230 a month for parking with a maximum of $460 per month. Employees may receive benefits for commuter transportation and transit passes and benefits for parking during the same month.

7) UNEMPLOYMENT BENEFITS – Under the American Recovery and Reinvestment Act, up to $2,400 in unemployment benefits are now tax-free for 2009. Taxpayers should check the tax withholding to make sure they are not having unnecessary tax withheld. (Normally all unemployment benefits are taxable).

8) EMERGENCY EFFICIENCY AND RENEWABLE ENERGY INCENTIVES – Increases credit rate to 30% of all qualified improvements and raises the maximum credit to $1,500 for improvements done in 2009 and 2010.

The Plug-in Electric drive vehicle credit is for vehicles purchased after December 31, 2009. This includes a new, four or more wheels, cross weight less than 14,000 pounds using batteries with at least four kilowatt hours. The maximum credit is $2,500 but tops out at $7,500.

The second law under this Incentive is for the low-speed electric vehicle with two or three-wheel vehicles. The credit is $1,030 of the cost of the vehicle up to a maximum credit of $2,500. The purchase must be made after February 17, 2009, and before January 1, 2012. You may not claim this credit if the electric drive vehicle credit is allowable.

9) HEALTH COVERED TAX CREDIT – The law increases from 65% to 80% of qualified health insurance premium which allows more people to be eligible. You pay 20% of the premium no matter how much Federal income tax one owes. The Health Coverage Tax Credit began in 2002 and expanded in 2009, as a result of the American Recovery and Reinvestment Act that is a Federally-funded tax credit. 

In January, 2010, the United States Territories are also able to participate in the monthly Health Covered Tax Credit Program. The 20% payments have to be received on time as the Government pays 80%. You can pay in advance or use reimbursable credit. Individuals must be receiving Trade Adjustment Assistance including reemployment and alternative Trade Adjustment Assistance (TAA) or be over age 55 and receiving pension payments from Pension Benefit Guaranty Corporation (PBGC). Thousands are eligible; some are displaced workers.