President signs into law the “American Recovery and Reinvestment Act of 2009”
Making Work Pay Credit: This provision allows a credit against income tax up to $400 for individuals whose modified adjusted gross income does not exceed $75,000 and $800 for married couples whose modified adjusted gross income does not exceed $150,000. It applies retroactively to January 1, 2009 and will be repeated in 2010. Taxpayers may take this credit through a reduction in payroll withholding or when filing their returns for the year.
$250 Economic Recovery Payment: This provision allows a one-time payment of $250, for 2009 only, to taxpayers on fixed incomes (primarily Social Security recipients).
First Time Home Buyer Tax Credit: The credit is increased to $8,000 for purchases made after December 31, 2008 and before December 1, 2009. It also eliminates any required repayment to the IRS. The credit is phased out for taxpayers with income in excess of $75,000 for individuals and $150,000 for married couples.
New Car Deduction: For the purchase of a new car in 2009, taxpayers are allowed a deduction for state and local sales taxes and excise taxes. Taxpayers do not need to itemize deductions to take advantage of this benefit. The deduction is phased out for individuals with income in excess of $125,000 and married couples with income in excess of $250,000.
Alternative Minimum Tax: This provision raises exemption amounts above the 2008 levels. The patch was designed to insulate approximately 26 million middle-income taxpayers from the AMT in 2009.
Unemployment Compensation: The provision excludes up to $2,400 of unemployment compensation from the recipient’s gross income for 2009.
Transit Benefit: The new law increases the current $120 per month income exclusion amount for transit passes to $230 per month.
COBRA Benefits: The provision allows individuals who are involuntarily separated from employment between September 1, 2008 and January 1, 2010 to elect to pay 35% of his/her COBRA coverage and have it treated as paying 100%.
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