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American Recovery and Reinvestment Act of 2009

March 5, 2009 - Howard Nemenoff
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act (ARRA) of 2009. This new law has significant impact to your income and taxes for 2009 and beyond. The following are some of the key changes that affect individuals.

Making Work Pay Credit

This is a refundable credit of up to $400 for singles and $800 for married couples. The change affects individuals who are employed or self-employed. The benefit starts to phase out at modified adjusted gross income (MAGI) = $75k/$150k. Full phaseout occurs at MAGI = $95k/$190k. 2009 and 2010: This benefit will be delivered during year as an increase in paycheck via a reduction in income tax withholding and will start in mid-summer. Eligible individuals will claim a credit on their 2009 and 2010 returns. Stay tuned for how this will be administered. Employees may need to work closely with employers to ensure income tax withholding is appropriately reduced.

Economic Recovery Payment

Individuals who receive Social Security, Tier 1 railroad retirement benefits, SSI, or VA pension or disability benefits are eligible for a $250 one-time payment. Most individuals will receive their payment sometime during 2009 via a check sent by the government. Government retirees will claim their payment on their 2009 tax return and will need to file a 2009 tax return in 2010 even if they are not otherwise required to file.

Unemployment compensation

Those taxpayers who receive unemployment compensation will receive an additional $25/week and extended time to receive benefits. Additionally, there will be no tax on the first $2,400 of unemployment benefits. When you file your 2009 tax return, make sure you reduce reported unemployment benefits by $2,400 (but not below $0). Check with your local unemployment office regarding availability of these benefits.


Jobless individuals paying for COBRA insurance and who were involuntarily terminated between 9/1/2008 and 12/31/2009 will receive a federal subsidy of 65% of monthly COBRA premiums for 9 months. This benefit will be phased out for higher income taxpayers. Employers should notify you if you are eligible. Ask your employer if you are unsure.

Earned Income Credit

Those eligible for the Earned Income Tax Credit will receive an increased credit if they have 3 or more children. There will also be an additional marriage penalty relief for married couples filing joint returns. When you file your 2009 and 2010 tax returns, make sure you look up the EIC amount in the correct column on the EIC chart.

Additional Child Tax Credit

There is now an increased eligibility for the refundable portion of this tax credit for lower-income families with children. This benefit will kick in after $3,000 of earned income, down from the current $8,500.

First-Time Homebuyers Credit

If you purchase(d) a home between 12/31/08 and 12/1/09 and are a "first-time homebuyer" (i.e. have not owned a home in the previous 36 months), you are eligible for up to an $8,000 refundable tax credit. Phaseout of this credit starts at $75k/$150k and ends at $95k/$170k. Unlike the $7,500 credit that is available for first-time homebuyers who purchased a home between 4/8/2008 and 1/1/2009, this credit does not have to be paid back if your home is your main residence for 3 years. This credit can be claimed on your 2008 return. Individuals who purchased a home in 2009 and already filed a 2008 return claiming a $7,500 credit based on prior law should amend their return to claim the balance of the credit (up to $500).

Nonbusiness Energy Property Credit (windows, doors, etc)

This is a tax credit of up to $1,500 for qualifying residential energy improvements (windows, doors, etc) and is available to taxpayers who invest in such energy improvements to their residential property. When you file your 2009 and 2010 tax returns, make sure you claim the maximum benefit under this provision and be sure to reduce your credit by any nonbusiness energy property credit claimed in a prior year.

Residential Energy Efficient Property Credit (solar water heaters, etc)

This is an increased tax credit for larger residential energy efficient improvements (e.g., solar heating, geothermal heat pumps). When you file your 2009-2016 tax returns, make sure you claim the maximum benefit under this provision.

American Opportunity Tax Credit

This education credit is an enhanced Hope credit that can be applied to first four years of qualified higher education expenses. The credit Increases the Hope Scholarship Credit to 100 percent qualified tuition, fees and course materials paid by the taxpayer during the taxable year not to exceed $2,000, plus 25 percent of the next $2000 in qualified tuition, fees and course materials. The total credit cannot exceed $2500 and 40% of the credit is refundable. Phase outs start at $80k/$160k and ends at $90k/$180k. This credit is available for your 2009 and 2010 tax returns.

Section 529 plan distributions

This provision expands the definition of qualified higher education expenses to include the purchase of computer and related equipment for the student who is attending college. The provision is available for tax years 2009 and 2010.

Vehicle purchase

Individuals who purchase new vehicles after 2/16/09 and before 2010 will qualify for a tax deduction for the state and local sales taxes paid on the purchase of a new vehicle costing up to $49,500. This benefit starts to phase out for individuals with MAGI of $125k/$250k. You may claim this deduction even if you don’t itemize.

Plug-in electric vehicles credit

Individuals who purchase a qualified plug-in electric motor vehicle after 2009 are eligible for a credit up to $7,500. The credit begins to phase out after the manufacturer sells its 200,000th plug-in vehicle. This credit is available in tax years 2010 thru 2014.

As always, for details about these or any other income tax related matters you should contact a qualified tax professional. If you leave comments and/or questions, I will do my best to answer in a very timely fashion. If there are specific topics that you would like to hear about, please feel free to email me or leave suggestions in your comments. If you would like to contact me directly, my contact information is located in my bio.


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