Making Work Pay Credit
A credit is allowed against income tax in an amount equal to the lesser of 6.2% of the individual's earned income or $400 ($800 for married filing jointly). This credit began for January 1, 2009, and will expire December 31, 2010. The credit phases out at a 2% rate after the taxpayer's modified adjusted gross income reaches more than $75,000 ($150,000 for married filing jointly).
Economic Recovery Payment
This law provides a one-time $250 payment to individuals with fixed income (e.g., Social Security recipients, railroad retirees, disabled veterans). Retired government workers ineligible for Social Security will also receive this payment. The payment reduces the Making Work Pay Credit if the taxpayer is entitled to that credit.
Alternative Minimum Tax Patch
The patch for 2009 raises exemption amounts to $70,950 for joint filers and surviving spouses, and to $46,700 for single filers and heads of households. This should help to keep the number of taxpayers subjected to alternative minimum tax much lower.
First-Time Homebuyer Tax Credit
This section of the new law raises the current maximum first-time homebuyer tax credit to $8,000 and extends it through November 30, 2009. The law also eliminates any required repayment to the IRS after living in the home for three years. This change is effective for purchases of a principal residence by first-time homebuyers after December 31, 2008. Any qualifying purchases made prior to 2009 must still abide by the original credit enacted in 2008. In addition, the credit is reduced when the taxpayer's adjusted gross income exceeds $75,000 ($150,000 for married filing jointly) and is eliminated if the taxpayer's adjusted gross income exceeds $95,000 ($170,000 for married filing jointly). This phase out applies to both 2008 and 2009.
New Car Deduction
This deduction allows for an above-the-line deduction, an adjustment, for state and local sales tax or excise tax paid on the purchase of a new vehicle after February 17, 2009 through December 31, 2009. However, only taxes attributable to the first $49,500 of the purchase price of each vehicle are deductible. The deductible amount is also subject to a phase out if the taxpayer's adjusted gross income exceeds $125,000 ($250,000 for married filing jointly).
Child Tax Credit
For 2009 and 2010, the income threshold for calculating the Child Tax Credit is lowered to $3,000. Therefore, the taxpayer will receive the lesser of 15% of their earned income over $3,000 per child up to a maximum of $1,000 per child.
Education Credit
The maximum HOPE education credit is raised to $2,500 per year and is extended to cover four years. The new legislation also includes course materials as part of the qualified expenses and raises the phase-out level to $80,000 ($160,000 for married filing jointly). With the new changes comes a new name: the American Opportunity Tax Credit. The credit allows for 100% of the first $2,000 in qualified education expenses and 25% of the next $2,000. This credit begins January 1, 2009; however, if payments for a 2009 semester were made in 2008, those payments only qualify for the previous credit.
Earned Income Tax Credit
For 2009 and 2010, calculation for this credit has changed to 45% of the first $12,570 for taxpayers with three or more qualifying children. The phase-out level for joint filers increased by $1,880.
Estimated Taxes
In 2009, if the taxpayer's gross income includes more than 50% from a small business, they may make quarterly estimated payments of 90% of their 2008 tax liability. The taxpayer's adjusted gross income must be less than $500,000.
Bonus Depreciation
The 50% first-year bonus depreciation allowed by the 2008 Economic Stimulus Act is extended through 2009. In addition, bonus depreciation for property with a recovery period of 10 years or longer, transportation property and certain aircraft is extended through 2010. The dollar cap amount for depreciation on vehicles is raised to $18,960.
Section 179 Expensing
The increased Section 179 expensing limit for 2008 of $250,000 is extended through 2009. The threshold for reducing the deduction will remain at $800,000.
Refundable Credits in Lieu of Bonus Depreciation
Businesses may elect to claim additional Alternative Minimum Tax Credit and/or additional Research and Development Credit instead of taking bonus depreciation. This law also extends this option to all property qualifying for bonus depreciation through 2009. These credits may be increased by the bonus depreciation amount, which is 20% of the difference between the depreciation claimed on eligible property with and without bonus depreciation. The bonus depreciation amount is also limited to the lesser of $30 million or theses credits accumulated for years prior to January 1, 2006.
Net Operating Loss (NOL) Carryback
Qualified small businesses with average gross receipts of $15 million or less may elect to carry back their net operating loss for up to five years. However, the NOL must occur in a tax year either beginning or ending in 2008, and the previous law of only two years for a carryback is reinstated for NOLs incurred in 2009 or after.
Work Opportunity Credit
Two new categories of targeted groups are added to the existing groups under the credit: unemployed veterans and disconnected youth. These new categories apply to individuals who are hired and begin work in 2009 and 2010.
