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Financial Education for Everyone

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March 20, 2009

The 2009 economic stimulus bill President Barak Obama signed into law on February 17, 2009, is a whopper, not only in cost ($787 billion) and length (1,070 pages), but also in terms of the vast number of spending and tax-relief programs it touches – everything from multi-billion dollar infrastructure investments to business tax cuts to small increases in unemployment benefits.

Some provisions will take years to trickle down; others take effect almost immediately. Here are highlights of a few programs that could impact you directly:

Payroll tax credit. Workers will receive $400 tax credits for both 2009 and 2010 ($800 for married couples, filing jointly). Unlike last year's tax rebates that were distributed in lump sums, these credits will probably appear as reduced tax withholding on paychecks, starting around June.

Credits gradually phase out for individuals with annual adjusted gross income (AGI) over $75,000 ($150,000 for married couples). Self-employed people can claim their credit when filing 2009 tax returns; but in the meantime they can reduce remaining 2009 estimated tax payments accordingly.

Tax credit for retirees. Those receiving Social Security, railroad retirement benefits, veteran's benefits and government retiree benefits will get one-time $250 payments, beginning in May.

Unemployment relief. Unemployment insurance benefits increase by $25 a week and eligibility is extended to 46 weeks. The first $2,400 in 2009 benefits is not subject to federal income tax. Also, food stamp payments to low-income families are increasing by 13.6 percent.

Health insurance. For those laid off between September 1, 2008, and December 31, 2009, who retain their former employer's health insurance plan through COBRA, the government will pay 65 percent of the cost for up to nine months. Don't worry if you didn't elect COBRA before the bill passed; your former employer must notify you of your eligibility and you'll then have up to 60 days to enroll for coverage that will take effect as of March 1, 2009.

Home purchases. First-time homebuyers qualify for a tax credit of up to $8,000 on homes purchased between January 1, 2009, and December 1, 2009 (note: not December 31), gradually phasing out for those with AGI over $75,000 ($150,000/married). Unlike last year's homebuyer credit, this one doesn't have to be repaid over 15 years, although you will forfeit the credit and have to pay it back if you sell your home within three years.

New car buyers. If you buy a new (not used) car, light truck, RV or motorcycle between February 17, 2009, and December 31, 2009, you can deduct state and local sales and excise taxes on up to the first $49,500 of purchase price. This "above-the-line" deduction (meaning you can take it even if you don't itemize deductions) gradually phases out for AGI over $125,000 ($250,000/married).

Child tax credit. The income threshold to qualify for claiming the child tax credit on federal income taxes is being lowered in 2009 and 2010 from $8,500 to $3,000. This will allow more lower-income families to claim the credit, which is worth up to $1,000 per child.

Energy-efficient home improvements. The tax credit for making certain energy-efficient improvements to existing homes (such as central air conditioning, furnaces, windows, water heaters) increases from 10 percent to 30 percent for 2009 and 2010, up to a maximum of $1,500.

It's probably a good idea to consult with your tax preparer or a financial advisor to make sure you're taking full advantage of these new tax breaks.


This article is intended to provide general information and should not be considered health, legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.