Back on Feb. 17, 2009, President Obama signed into law the American Reinvestment and Recovery Act of 2009 (ARRA), widely known as the “stimulus package.” This name represents the stated intent of the legislation — to stimulate a sluggish U.S. economy by fighting unemployment, putting more money in the hands of consumers and assisting state and local governments through these difficult financial times in order to reduce the possibility of raised taxes at the state and local level.
Financially, the stimulus package represents an investment of $787 billion into the American economy in the form of tax cuts, expansion of unemployment benefits and other social welfare provisions and domestic spending in education, healthcare, infrastructure and the energy sector. It is estimated that 3.5 million jobs will be created or saved by this legislation in 2009 and 2010.
Approximately 36 percent of the dollars infused into the U.S. economy by the stimulus package are in the form of income tax relief for both businesses and individuals. This portion of the law offers by far the most direct benefit to the “Average Joe” in Mississippi. A large portion of the approximately $504 billion of investment dollars other than income tax relief in ARRA goes to the states, who will, in turn, distribute funds through grants, subsidies, loan programs, etc.
One of the more popular benefits for individuals in the stimulus package is the income tax credit for first-time home buyers. A similar provision was in the tax law for 2008, but it was significantly improved in the stimulus package. For homes purchased after Jan. 1, 2009, and before Dec. 1, 2009 (not the end of 2009 as one might think), individuals purchasing their first home (or who have not owned a home at any time during the three years ending on the date of purchase) will receive a refundable tax credit of 10 percent of the purchase price of their home, up to $8,000. This credit may even be claimed by filing an amended 2008 federal income tax return, so you don’t have to wait until April 2010 to get the money back. Unlike the previous law, as long as you own the home for at least three years, the credit never has to be repaid to the government. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a married couple filing a joint return).
Soon after the stimulus package was enacted, most Americans drawing a salary experienced an unexpected increase in take-home pay. That was due to the “Making Work Pay” credit of 6.2 percent of earned income, limited to $400 for single taxpayers and $800 for married couples, received through a reduction in income tax withholding. While the increased cash flow was probably welcomed by most, it is important to remember that the only thing decreased were the taxes withheld, not the taxes due on your earnings. If you normally receive an income tax refund when you file your income tax return, you may have already gotten it through the decreased withholding. In fact, families in which both spouses work or individuals with more than one job may need to adjust their withholding in order to avoid having to pay back some of this credit when they file their 2009 tax return.
The stimulus package also added an incentive to purchase a new vehicle in 2009. Those individuals who do so may deduct the state and local sales and excise taxes paid on the vehicle, up to a total vehicle cost of $49,500. This deduction is available whether or not you itemize deductions for 2009 and is currently only available for 2009.
With all the press coverage that the stimulus package has received, it is sad to note that the vast majority of the benefits are not coming to the average American citizen or small business, but rather to big corporations experiencing highly publicized financial problems and special interest groups. However, there are some benefits out there for everyday, hard-working people to take advantage of before 2009 passes away into 2010.
Bob Bunting is a CPA and senior tax manager for HORNE LLP in Jackson.
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