Economic Stimulus 2009: Frequently Asked Questions

Unlike last year, the check is not automatically in the mail for most taxpayers.  For approximately 95% of America’s working families, their refundable tax credit of up to $400 for working individuals and up to $800 for working couples will be paid through a reduction of income tax withholdings (in other words, an increased paycheck). The reduced withholding is scheduled to start no later than April 1 of this year.  Note: Certain retirees and veterans will be receiving a $250 check sometime this year, however.

The tax credit is calculated at a rate of 6.2% of your earned income (or joint income if filing MFJ - Married Filing Jointly). If you earn at least $6,450 and are not phased out of the credit, you will receive $400.

Eligibility for the 'Making Work Pay' credit starts to phase out for individuals with adjusted gross incomes over $75,000 and phases out completely at $95,000. For couples, the phaseout starts $150,000 and completely phases out at $190,000.

Employees will benefit from the new credit now through reduced federal income tax withholding. The reduced withholding is scheduled to start no later than April 1 this year. Self-employed individuals can change their estimated tax payments, but care should be
taken when doing so because self-employment income fluctuates, and a quarterly underpayment could occur even if you have a refund at the end of the year.

If you're an employee, you won't have to do anything. The federal income tax withholding tables will be changed to provide for reduced withholding and therefore larger paychecks throughout the rest of 2009 and all of 2010. The reduced withholding is scheduled to start no later than April 1 of this year. If you don't want your withholding reduced because you know you won't be eligible for the credit or because you'd rather have the benefit in a lump sum with your refund when you file your return, you'll need to file a new W-4 with your employer to request that your withholding be increased to the desired amount. Note: If you're self-employed, you can reduce your estimated tax payments by the expected amount of the credit, but care should be taken when doing so to avoid any unnecessary underpayment penalty.

That would be a personal decision that you or you and your family would need to make.

The amount that your withholding will be reduced depends on your earnings level and the number of pay periods remaining in the year when the reduced withholding starts.

Because reduced withholding could result in a balance due on your tax return, it appears that you would, in effect, be required to pay back any excess benefit that you received during the year. The Tax Institute at H&R Block is awaiting clarity regarding whether an excess advance payment would have to be repaid and any underpayment penalty that results because of this change. More details will be forthcoming.

Eligible taxpayers who are self-employed can adjust their quarterly estimated tax payments to account for the 'Making Work Pay' credit. Care should be taken before doing so because self-employment income fluctuates, and a quarterly underpayment could occur even if you have a refund at the end of the year.

Not quite, but there is some good news for jobless workers in the 2009 stimulus bill.

The first $2,400 of benefits in 2009 is now exempt from federal income taxes. You will pay tax only on benefits received in excess of this amount.

Yes. The bill extends to December 31, 2009, the date by which an individual must
exhaust his regular unemployment benefits in order to qualify for extended
unemployment benefits. The original ending date was March 31, 2009. Extended
benefits continue for 20 weeks plus an additional 13 weeks in high unemployment
areas. Check with your local unemployment office to see if this applies to you.

Yes. Unemployment benefits will temporarily increase by $25 per week.

Yes, more good news for jobless workers.

As you know, COBRA coverage allows you to keep insurance coverage provided by your former employer, but often at a much greater cost to you.

Now, for workers laid off between Sept. 1, 2008 and Dec. 31, 2009, the government will subsidize 65% of your premiums under COBRA for up to 9 months.

And, for those of you that were laid off between Sept.1, 2008 and Feb. 17, 2009 (the day ARRA was signed into law), who did NOT sign up for COBRA, will receive an additional 60 days to do so and receive the 65% subsidy.

Contact your former employer to find out if you qualify for the new subsidized
COBRA insurance.

There is a phase out for this provision, however. The 65% subsidy is limited to those whose income for the year is $125,000 or less or $250,000 for couples filing jointly. Note: Individuals who receive the subsidized premiums but who are all or partly phased out of the benefit will have to repay the excess benefit as an additional tax reported on their tax return.

Yes. As part of ARRA, a one-time payment of $250 will be available to retirees and disabled individuals receiving certain Social Security, Supplemental Security Income, Railroad Retirement benefits, and veterans' benefits. This check will automatically be paid to the appropriate individuals by the government. Retired government workers who do not receive Social Security benefits will be eligible to claim a $250 tax credit on their 2009 tax return.

There are no income limitations for eligibility of the one-time payment of $250. Individuals receiving a qualifying retirement or disability benefit at any time during the period from November 1, 2008 through January 31, 2009 will receive a payment. Individuals who were not receiving benefits during this time, or who die prior to being certified for the payment, will not receive an economic recovery payment. There is no provision that allows claiming this payment on the tax return.

Be sure to check back with us on Digits for further information as details are released.

It's true. For eligible first-time home buyers who purchased a home after Dec. 31, 2008 and before Dec. 1, 2009, the stimulus bill provides for a refundable credit equal to 10%
of the purchase price of the home, up to $8,000.

And, yes, unlike the credit provided last year, this first-time home buyer credit does NOT have to be repaid, unless you sell the home or it no longer is your principal residence within 36 months of purchase.

Yes. The new $8,000 credit begins to phase out for individuals with incomes over $75,000 or married couples with incomes over $150,000 filing jointly.

No, you can still take advantage of the $8,000 credit if you purchased your home in 2009, but you will have to file an amended return to claim the additional credit, up to $500, to which you're entitled.

You must have purchased your home in 2009, however, to be eligible for the up to $8,000 credit. Homes purchased in 2008 do not qualify.

Unfortunately, yes. Those who purchased homes in 2008 and received the first-time home buyer credit are still required to repay the credit over a 15-year period, or sooner if they do not continue to live in the home as their principal residence for the full 15 years.

The American Opportunity Tax Credit, which is really an enhanced Hope credit, provides eligible taxpayers in 2009 and 2010 with a credit up to $2,500 of the cost of tuition and related expenses paid during a taxable year. You will need to spend at least $4,000 to get the full credit, however. For 2009 and 2010, the Hope credit applies to the first four years of college, rather than just the first two years. The Hope credit is a per-student credit (meaning there's no per return maximum), and it can be claimed each year the student has qualifying expenses.

Taxpayers receive a tax credit based on 100% of the first $2,000 of qualified expenses paid during the tax year and 25% of the next $2,000 ($500). Forty percent of the credit is refundable, which is good news for lower-income students and families paying for college.

The credit begins to phase out for taxpayers with adjusted gross income in excess of $80,000 for individuals and $160,000 for couples filing jointly.

No. The enhanced Hope credit only applies to 2009 and 2010.

Yes. Generally when you withdraw money from your 529 plan(s), it's to help pay for college expenses such as tuition, books, room & board, and equipment required for attendance at the school.

Now, in 2009 and 2010, you can also use your 529 plan money for qualified higher-education computers and computer technology - such as software and Internet service
for students living at home.

Yes. The stimulus bill now temporarily expands the earned income tax credit for working families with 3 or more children for 2009 and 2010. These families will receive up to $629 more EIC based on this change.

The bill also increases the beginning point of the 2009 and 2010 phaseout ranges for all married couples filing a joint return, regardless of the number of children.

No. The increased Earned Income Credit for families with three or more children only applies to 2009 and 2010.

The good news is that the eligibility for the refundable child tax credit in 2009 and 2010 has been increased and more taxpayers will now qualify for the credit.

The earnings threshold to qualify for the refundable credit is now lowered to $3,000. For 2008, it was $8,500.

Yes, and no. You'll still have to pay the sales tax, but the new law will allow you to deduct sales tax on new vehicle purchases on or after February 17, 2009 and before January 1, 2010 on your 2009 tax return.

Included in the definition of "new vehicle" are cars, light trucks, recreational vehicles and motorcycles.

And, the deduction can be claimed as an itemized deduction or as an additional standard deduction for non-itemizers. The deduction is limited to the lower of (1) the sales tax paid or (2) the sales tax that would have been paid on a vehicle costing $49,500.

Phaseout of eligibility begins for individuals with adjusted gross incomes of $125,000 and $250,000 for married couples filing jointly.

True. The new law increases energy property credits from 10% to 30%, for property improvements placed into service after Dec. 31, 2008 and before Jan. 1, 2011. Also, the lifetime maximum cap on the credit was increased from $500 to $1,500.

Here's an example of how to calculate your credit: if you buy a $7,000 high-efficiency heat pump, your credit is $1,500 (the lesser of (1) 30% x $7,000, or (2) $1,500). If you buy a $1,000 high-efficiency furnace, (it was on sale!), your credit is $300, the lesser of (1) 30% x $1,000, or (2) $1,500.

The total aggregate credit you can claim cannot exceed $1,500. This includes any credit you claimed in 2006 or 2007. So if you already claimed $500 on a previous return, you could only claim a maximum credit of $1,000 for future energy efficient home improvements.

Furnaces, heat pumps, and windows are common home improvement items that are eligible for the credit.

AMT stands for the Alternative Minimum Tax. First introduced in 1969, the AMT was created to ensure that the wealthiest American households didn't avoid paying income tax.

Unfortunately, the AMT has not been adjusted for inflation over the years, and therefore, the tax now affects middle-income tax filers. The AMT was never intended to hit middle-income taxpayers, but without a 'patch,' 24 million more middle-income Americans could have fallen prey.

Like the last several years, an AMT 'patch' for 2009 is part of this stimulus. Exemption amounts were also slightly increased from 2008 to $46,700 for individuals (up from $46,200) and $70,950 for couples filing jointly (up from $69,950).