The American Recovery and Reinvestment Act of 2009, provides for a one-time stimulus payment to retirees. If you’re receiving Social Security, Railroad Retirement or Veterans benef ts you should have received a stimulus payment of $250 around June of 2009. Stimulus payments were issued per retiree, so if you’re receiving benefits from more than one agency you would only be eligible for one check, however, if both you and your spouse received benefits, you should have each received a check. Children who receive Social Security benefits are not eligible unless they are adult children who receive disability benefits on a parent’s record.If you’re receiving retirement benefits but still working, you may also be eligible to take the new Making Work Pay credit. Any economic recovery payment received as a retiree will reduce the Making Work Pay credit.
IRS Revises Tax Provisions to Keep Pace with Inflation:
Each year Uncle Sam adjusts more than three dozen tax provisions to keep pace with inflation. For 2009, personal exemptions and standard deductions will rise and tax brackets will widen about 4½ percent because of inflation. Some of the more key changes afecting your 2009 tax return include:
The Standard Deduction is $11,400 for married couples filing a joint return, up from $10,900 in 2008. For singles and married couples filing separately, inflation increased the standard deduction by $250 to $5,700. Heads of household increased $350 to $8,350. The IRS says that nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions.
Personal and Dependency Exemptions are $3,650 up from $3,500 in 2008.
The maximum earned income tax credit for 2009 is:
Earned Income
Children Max. Credit Single MFJ
0 $457 $13,440 $18,440
1 3,043 35,463 40,463
2 5,028 40,293 45,293
3+ 5,657 43,281 48,281
Tax Rate Changes for 2009
Knowing which bracket you are in is important to understanding how different deductions affect your total tax liability. Each year the brackets are adjusted for the ffect of inflation. Below are the new rates for the year 2009.
Single
$0-8,8350
$8,351 – 33,950
$33,951 – 82,250
$82,251 – 171,550
$171,551 – 372,950
over $372,950
Rate
10%
15%
25%
28%
33%
35%
Head of Household
$0 – 11,950
$11,951 – 45,500
$45,501 – 117,450
$117,451 – 190,200
$190,201 – 372,950
over $372,950
Rate
10%
15%
25%
28%
33%
35%
Estate & Trusts
$0 – 2,300
$2,301 – 5,350
$5,351 – 8,200
$8,201 – 11,150
over $11,150
Rate
15%
25%
28%
33%
35%
Married Filing Jointly
$0 – 16,700
$16,701 – 67,900
$67,901 - 137,050
$137,051 – 208,850
$208,851 – 372,950
over $372,950
Rate
10%
15%
25%
28%
33%
35%
Married Filing Seperaretely
$0 – 8,350
$8,351 – 33,950
$33,951 – 68,525
$68,526 – 104,425
$104,426 – 186,475
over $186,475
Rate
10%
15%
25%
28%
33%
35%
Corporations
$0 – 50,000
$50,001 – 75,000
$75,001 – 100,000
$100,001 – 335,000
$335,001 – 10,000,000
$10,000,001 – 15,000,000
$15,000,001 – 18,333,333
over $18,333,333
Rate
15%
25%
34%
39%
34%
35%
38%
35%
First-time Homebuyer Credit Gets a Facelift:
Uncle Sam just keeps making the first-time homebuyer credit better and better. When first enacted in 2008, the credit was 10 percent of the purchase price of a qualifying residence up to a maximum of $7,500. The credit applied only to homes purchased prior to July 1, 2009. In the original legislation, taxpayers were required to repay the credit over a 15-year period, which ultimately made this credit no more than a tax-free loan. In February 2009, Uncle Sam sweetened the deal by increasing the maximum credit to $8,000, extending the cut-off date to November 30, 2009 and eliminated the requirement to repay the credit. Eliminating the requirement to pay back the credit makes this tax break a red-hot deal.In November of 2009, Uncle Sam improved the tax credit once more by expanding the definition of whoqualifies as a first-time homebuyer and extend in the time to purchase your home through April 30, 2010. For homes acquired after November 6, 2009 credit is no longer restricted to first-time purchases. Under the new rules, long-time residents may be eligible for a reduced credit. To qualify, you must have lived in your old residence for any five-consecutive year period during the last eight years, ending on the date your new residence is purchased. The credit for long-term homebuyers is 10 percent of the qualifying home’s purchase price up to a maximum credit of $6,500.The time to purchase your home has also been extended to April 30, 2010. If a taxpayer enters into a binding contract to buy prior to May 1st and the property closes prior to July 1, 2010 the taxpayer will be eligible for the credit.The new law raises the income threshold for which the credit is phased out. Under the old law, single taxpayers were phased out between $75,000 and $95,000 income. Under new law the phase-out begins at $125,000. For married taxpayers the old law phased out the credit between $150,000 and $170,000. Under the new law the phase-out begins at $225,000.Also included in the new law is a purchase price limit of $800,000. Under prior law there was no ceiling placed on the price of the home. Under the new law, once the price paid for the property exceeds $800,000 no credit is available.
New Educational Credit:
Uncle Sam is willing to help pay for your college with the new American Opportunity Credit. The new education credit modifies and expands the Hope credit for tax years 2009 and 2010. The credit provides undergraduates a dollar for dollar reduction of taxes, up to $2,500 of the first $4,000 of qualifying educational expenses.Qualified expenses have been expanded from the Hope credit rules. In addition to tuition, they include expenditures for required course materials such as books, supplies and equipment needed for a course whether or not the materials are purchased from the school.Unlike the Hope credit, the American Opportunity Credit can be used for all four college years and is refundable up to $1,000. You can receive a refund of up to forty percent of the credit, even though you owe no tax. The full credit is available for taxpayers with modified adjusted gross income of $80,000 or less,$160,000 or less for married couples filing jointly. The credit is phased out for taxpayers with incomes above these levels.
New Standard Mileage Rates:
For 2010, the business standard mileage rate for the cost of operating your car, van or pickup is 50 cents, down from 55 cents in 2009. The standard rate for medical or moving is 16.5 cents per mile, down from 24 cents. The business rate is based on an annual study of the fixed and variable costs of operating a vehicle.The business rate is intended to reimburse the full cost of vehicle ownership and includes the loss of value due to depreciation. The rate for medical and moving is based only on the variable cost of operation. This rate is intended to only reimburse the additional out-of-pocket cost and includes such costs as fuel and maintenance.The standard mileage rate for charitable purposes is set by law. The rate for 2010 stays the same at 14 cents per mile. Uncle Sam has not changed this rate since 2008.
New Law Exempts Partial Unemployment:
If you were out of work and received unemployment benefits you’ll be glad to know that Uncle Sam hascome to your aid. Prior to 2009, unemployment benefits were included in income and fully taxable. The new law temporarily allows unemployment recipients to exclude from income up to $2,400 of benefitsfor 2009. Amounts exceeding the threshold will continue to be fully taxable.
Making Work Pay Credit:
Here’s a new credit aimed at providing tax relief for working people. The Making Work Pay credit allows a dollar for dollar reduction of your taxes equal to 6.2 percent of your wages up to a maximum credit of $400 for single filers, $800 if you’remarried and file jointl. The credit will be available for 2009 and 2010.Uncle Sam put limitations on who will be eligible to take the credit. For high income taxpayers, those with modified adjusted gross incomes exceeding$75,000 for single filers, $150,000 for joint filersthe credit will be reduced by 2 percent of your income in excess of these limits. For example, if you were a single taxpayer with modified adjustedgross income of $90,000, ($15,000 over the $75,000 limit) your Making Work Pay credit would be $100. This is calculated by multiplying your $15,000 excess income by 2 percent to get your phase-out of $300 and then subtracting your phase-out from the $400 maximum credit allowed. Other limitations disallow the credit for nonresident aliens and dependents claimed on another taxpayer’s return. This credit may be an easy one for taxpayers to miss. Your tax preparer will be able to complete the required Schedule to insure you get any credit available.
Residential Energy Property Credit:
If you’re considering energy efficient improvements to your existing home, you’ll be interested in the newenergy legislation. Uncle Sam has increased the credit from 10 to 30 percent of the cost of all qualifying improvements, raised the maximum credit limit to $1,500 for improvements made during 2009 and 2010, and eliminated the $500 lifetime cap.The credit applies to improvements such as:
• insulation materials
• exterior windows
• biomass stoves
• skylights
• exterior doors
• advanced main air circulating fans
• central air conditioners
• natural gas, oil or propane furnaces
• certain metal roofs
• hot water boilers
• electric heat pump water heaters
You may rely on manufacturer’s certifications to be sure the improvements qualify. For exterior windows and skylights homeowners may continue to rely on the Energy Star labels to determine whether property qualifies for purchases before June 1, 2009
NOL Carryback Period Increases:
The American Recovery and Reinvestment Act, passed in February, provides for a five-year (up from two years) net operating loss (NOL) for businesses with sales of less than $15 million. Then in November, The Worker, Homeownership, and Business Assistance Act extended the NOL carryback to all businesses but with a 50 percent income limit in the fifth yea. The new law is available for NOLs incurred in either 2008 or 2009, but not for both years. This is a major expansion of the NOL rules.
