On February 19, 2009, President Obama signed into law the second economic stimulus bill, the American Recovery and Reinvestment Act. The purpose of the bill is to stimulate the economy and help people who are struggling during this recession.

Making Work Pay tax credit

First, the bill contains the Making Work Pay tax credit. This tax credit is available to people with earned income, and the full credit is available to people with modified adjusted gross incomes of $75,000 or less if single and $150,000 or less if a married couple. (Modified adjusted gross income is your gross income with some exclusions added back in, such as any income earned in a foreign country. Generally, modified adjusted gross income is the same as adjusted gross income.) The credit is worth up to $400 each year for single filers and $800 a year for those filing a joint return. The credit is refundable (like the EITC) so that those people who do not make enough money to owe taxes will be able to claim the tax credit. Adults who receive Social Security benefits, railroad retirement, veterans’ compensation, or pension benefits are not eligible, because the credit applies only to earned income.

The new tax credit will be seen as an increase in paychecks, beginning in April 2009. The IRS has created new tax withholding tables so that less money will be withheld from paychecks, representing the credit. Generally, you will see an increase between $20 and $40 in your paycheck. If you do not make enough to have taxes withheld, you will receive the full credit when you file your 2009 federal tax return next year.

Tax deduction for new car purchases

Second, if you purchase a new car from February 16, 2009, to December 31, 2009, you will be eligible for a deduction for the state and local sales and excise taxes you paid on the car purchase, up to $49,500 of the purchase price of a qualified new car, light truck, motorcycle, or motor home. The deduction is available for people who itemize their returns and for those who take the standard deduction.

First $2,400 in 2009 unemployment benefits tax free

Third, if you are receiving unemployment benefits in 2009, all or part of your benefits may be tax free. Usually, all money received via unemployment compensation is subject to income tax. This year, under the American Recovery and Reinvestment Act, the first $2,400 received as unemployment benefits will be tax free and excludable from income for 2009. Unemployment benefits received before 2009 remain fully taxable. If you anticipate receiving more than $2,400 in unemployment compensation and want to have taxes withheld, you should complete a Form W-4V to request withholding to begin. You can find the forms on the IRS Web site.

One-time economic recovery payment

Fourth, if you receive Social Security, Supplemental Security Income (SSI), veterans disability benefits, or railroad retirement benefits, you will receive a one-time economic recovery payment of $250. You do not have to file a return to get this payment. The payment will be sent to you directly from the Social Security Administration, the Department of Veterans Affairs, or the Railroad Retirement Board.

Tax credit for first-time home buyers

Fifth, if you purchase a home between January 1, 2009, and December 1, 2009, the American Recovery and Reinvestment Act provides for a $8,000 tax credit that would be available to first-time home buyers for the purchase of a principal residence. The credit does not require repayment. The credit can be claimed on your 2009 federal return. The credit will be claimed on your tax return to reduce your income tax liability. If any credit amount remains unused, the unused amount will be refunded as a check to you after you file your 2009 return.

Tax amnesty for New Jersey residents

Finally, Governor Corzine recently signed a bill into law that enacted a tax amnesty period for New Jersey residents. The program begins May 4, 2009, and ends on June 15, 2009. The law will allow taxpayers who owe state taxes for tax years after 2002 and before 2009 to file returns and pay their taxes and have all penalties waived and the interest reduced by half. All tax owed, as well as half of the interest owed, must be paid in order for the penalties and other half of the interest to be waived. The amnesty is not available to any taxpayer who is under criminal investigation for any state tax matter.

The Taxes section of this site contains more information about taxes, including an instructional video and tax forms.

This article is from the May 2009 issue of Looking Out for Your Legal Rights^®.