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Economic Stimulus Package – Tax Cuts

Tax Help for Families, Individuals and Small Businesses

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Updated December 07, 2009

Update: $250 economic recovery payments will be sent to more than 52 million persons currently receiving Social Security, and Supplemental Security Income (SSI) benefits beginning in early May 2009 and continuing into June. [Get the details…]

Because of this plan, 95% of the working households in America will receive a tax cut - a tax cut that you will see in your paychecks beginning on April 1st. (President Barak Obama - Feb. 24, 2009)

The 2009 economic stimulus bill -- the American Recovery and Reinvestment Act -- provides tax breaks and incentives for families, individuals and businesses. Here are some highlights:

Tax Credits Paid to Workers

Individuals will get a tax credit of $400, while couples will get $800. The tax credit payments, expected to start around June, will be spread out through the rest of 2009 in the form of reduced federal tax withholdings taken from workers' paychecks. For 2009, the tax credit will amount to about an extra $13 per week and about $7.70 a week in 2010. Individuals with annual taxable incomes in excess of $100,000, and couples filing jointly with incomes in excess of $200,000 will not be eligible for the workers' tax credits. The credit begins to phase out at $75,000 for individuals and $150,000 for couples.

More details from the IRS

Direct tax rebates, like those paid in 2008, are not currently being planned by the Obama administration.

Families With Children

An expansion of the child tax credit will allow families with children to begin qualifying for the $1,000 tax credit with every dollar earned over $3,000. The change will help more low-income families who do not normally pay income tax, and families with three or more kids to get the child tax credit.

Middle Class Families

About 29 million middle class families will be relieved of the threat of the Alternative Minimum Tax (AMT) burden. Congress created the AMT as a way to make sure wealthy people paid at least some income tax. Since it was never adjusted for inflation, the AMT quickly began to hit the middle class and must be adjusted yearly by Congress.

First-time Homebuyers

First-time homebuyers will qualify for an $8,000 tax credit (increased from $7,500) if they buy their home before Dec. 1, 2009. As a very important bonus, the repayment requirement of the first-time homebuyer tax credit has been removed.

Update: The Worker, Homeownership and Business Assistance Act of 2009, signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts.

Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return. See: details from the IRS

New Car Buyers

To help the tanking U.S. auto industry, people who buy new cars, light trucks and SUVs, before Jan. 1, 2010 will be allowed to deduct all state and local sales taxes paid on the purchase from their federal income tax. This deduction will be subject to a phase-out for taxpayers with adjusted gross income in excess of $125,000 ($250,000 in the case of a joint return). According to the IRS, purchases made before Feb. 17, 2009, will not be eligible for this special deduction.

More details from the IRS

All Homeowners

Homeowners who install certified energy-efficient windows, furnaces and air conditioners can qualify for a tax credit tax credit equal to 30 percent of their costs, up to a total of $1,500.

College Students or their Parents

College students or their parents can qualify for a tax credit of up to $2,500 for tuition and related expenses during 2009 and 2010.

Also see: Federal Student Aid Primer

Unemployed People

People getting unemployment compensation during 2009 will not have to pay taxes the first $2,400.

Also See: Bailout American Workers First, Senators Say

Tax Help for Small Business

Among other provisions, the bill allows a delay of the 3% withholding tax on payments to businesses that sell goods or services to governments, and a cut in the capital gains tax cut for investors in small businesses who hold stock for more than five years.

Businesses that reduce their debt will be allowed to delay some taxes, thus allowing them to obtain additional resources to invest in creating new jobs.

Business that create jobs for unemployed veterans and youth that have been out of work and out of school for the 6 months will enjoy tax credits.

Small businesses investing in plants and equipment during 2009 will be allowed to extend the bonus depreciation.

Also see: Money for a Small Business

  • For a detailed cost breakdown of the 2009 economic stimulus bill, see: Economic Stimulus Package by About Guide to the US Economy Kimberly Amadeo.

Economic Stimulus Package - How it Could Affect You

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