Tax Implications of Federal Stimulus

From this week’s House Republican Newsletter:

On February 17, 2009, President Barack Obama signed H.R. 1, the American Recovery and Reinvestment Act – also known as the “Federal Stimulus Bill” into law. The new law, which is expected to cost taxpayers a total of $1.139 trillion with interest, is the largest spending bill in the history of America. H.R. 1 is divided into three parts: discretionary spending ($311 billion) mandatory spending ($269 billion) and tax provisions ($212 billion). This analysis will focus on the tax provisions and their impact on stimulating the economy.

Tax Provisions in H.R. 1:

  • Making Work Pay Tax Credit – creates an income tax credit at $400 for individual filers and $800 for joint filers. Individuals who make $95,000 or more, and joint filers who make $190,000 or more, do not qualify for the tax credit. Furthermore, the credit contains a $75,000 individual earnings eligibility threshold for the refundable portion of the tax credit.
  • Child Tax Credit – broadens the eligibility requirements pertaining to those who are eligible for the child tax credit. Current law allows a 15% refundable child tax credit for taxpayers that earn $8,500 or more. H.R. 1 lowers the earnings floor to $3,000.
  • College Tax Credit – provides $2,500 in tax credits per student for students and parents to assist with the cost of post-secondary tuition and expenses, 40% of which is refundable.
  • Qualified School Construction Bonds – creates new tax credit bonds issued by State and local governments for the construction, repair, rehabilitation, acquisition, or reduction of debt for public schools.
  • Vehicle Sales Tax – permits individuals to deduct state sales tax on new car purchases in 2009.
  • Homebuyer Tax Credit – Expands and extends the current first time homebuyer tax credit. First time homebuyers (individuals that make less than $75,000 and couples who make less than $150,000) are eligible for a tax credit equal to 10% of the purchase price of the home, up to $8,000 through November 2009. In addition, this tax credit does not have to be repaid.
  • Alternative Minimum Tax Fix – includes a one year patch to prevent middle income tax payers from being subject to a tax increase in 2009. The AMT, was originally designed to ensure wealthy individuals pay an adequate amount of income tax. However, the AMT has never been adjusted for inflation and has the ability to strangle millions of new middle income tax payers each year.
  • Bonus Depreciation – extends, through December 31, 2009, bonus depreciation provisions that allow businesses to deduct 50% of the cost of depreciable capital expenditures within the first year of the property’s purchase.

  • Net-Operating Loss Carryback – limits the five year net-operating loss carryback to losses that occurred in 2008 for businesses with less than $15 million in annual receipts.
  • Renewable Energy Production Tax Credit – extends the renewable energy production tax credit for wind energy through 2012 and other renewable sources through 2013.
  • Unemployment Benefits – any unemployment benefit under $2,400 is not subject to taxation.
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