02/20/09 President Obama today signed the $787 billion stimulus package, which includes a number of tax breaks and other items of interest:
- For First-time Homebuyers there is a $500 increase in last year’s tax credit (essentially an interest-free loan) to $8000 – but this time it doesn’t have to be paid back, unless the taxpayer sells the home within three years. There’s a phaseout for singles with over $75,000 adjusted gross incomes (AGI) and for married couples filing jointly with AGI over $150,000.
- An incentive to further help out the Auto industry comes in the form of a deduction for sales tax on a new car purchase. Sales taxes on large purchases are currently taken into consideration for the state tax deduction on Schedule A, but this new sales tax deduction skips back to the front page of the 1040 – no itemizing required. It’s limited to vehicles costing up to $49,500, and has AGI phaseouts of $125,000 for singles and $250,000 for joint filers. Hurry to the dealer, folks – the credit is good from today until December 31, 2009.
- A new Higher Education credit increases the benefit to taxpayers, compared to the current Hope credit. The credit increases to $2,500 per year and now includes expenditures for books and other materials as well as tuition. This should give a bigger break to Community College students who typically have lower tuition, but nearly equal book costs. AGI phaseouts are higher now as well: $80,000 for singles and $160,000 for joint filers.
- Unemployed Workers might not think that income taxes are a worry (no job, no income, right?), but they should realize that unemployment benefits are taxable under federal law. The new legislation, however, exempts up to $2,400 of payments from taxation. This gives some relief to those unemployed workers who choose not to have taxes withheld – they may not be faced with coming up with as much of a payment when they file next year. For workers laid off any time between September 1, 2008 and the end of 2009, the new bill also subsidizes 65% of COBRA payments so the newly unemployed can continue with their former employer’s medical insurance plan. This subsidy ends after nine months, even though COBRA coverage can last up to 18 months.
Ther was plenty more in the legislation than I discuss here. It’s not a perfect solution to our country’s economic problems, but doing nothing is just not an option any more. Take some time to read up on some of the summaries from appropriate news sources (not the tons of forwarded and re-forwarded emails that land in your box overnight, please), and see where yours and your children’s tax dollars will go for many years to come. But while you read, try to cut the president some slack – after all, this mess started way before he was sworn in a month ago. It takes time to fix it.