Your income tax bill for 2009 may have just gotten smaller, thanks to the passing of the new economic stimulus plan.
The American Heritage Dictionary defines stimulate as: "To rouse to activity or heightened action, as by spurring or goading; excite." Think of this latest federal economic stimulus plan as a giant economic cattle prod-one with a shock of voltage directed straight at your tax bill.
By the federal government's own estimation, the tax relief programs targeted at individuals and families in the new economic stimulus program will cost the Feds more than $210 billion over the next ten years. These tax breaks target working families with children, as well as first-time homebuyers, individuals receiving unemployment, retirees, and upper middle class families that may have been subject to the Alternative Minimum Tax (AMT).
Bigger paychecks and less likely AMT
The most far-reaching of the new tax perks is President Obama's own "Making Work Pay" credit. Unlike the tax relief of 2008, this one won't reach you as a windfall check in the mail. Instead, it will add about $13 per week to your take-home pay starting in June. The program will be worth a cumulative $400 to working individuals, and $800 to working couples for the year. The "Making Work Pay" credit will not affect your income tax bill at year-end.
The AMT tax initiative, however, might. If you've been subject to AMT in the past, you know the drill. You calculate your taxes based on one formula. Then, if you're unlucky enough, you have to calculate your taxes a second time, based on a second, more expensive formula. The AMT fix in the economic stimulus bill will save roughly 26 million households from this fate-by increasing the AMT exemption amount and extending the ability to use certain non-refundable personal credits to offset its liability.
Just for college students
Another bonus that may impact you is the $2,500 "American Opportunity" education credit. To realize the full amount, you need to have incurred $4,000 of education-related expenses during 2009. Up to $1,000 of the credit may be refundable. This income tax credit begins to phase out at gross income levels of $80,000, or $160,000 for married couples.
Year of big purchases
If you really want to wipe out your 2009 tax bill, plan to purchase a car and your first home this year. Buy a new car, light truck, RV or motorcycle, and you'll get to deduct the state and local sales and excise taxes you pay. A first home purchase is even more compelling; the Feds will give you a credit of $8,000 if you close the deal before December 1. Both of these programs are subject to income phase-outs.
The new economic plan also increases eligibility for the refundable portion of the Child Tax Credit, increases the Earned Income Credit, and suspends the taxation of employment benefits. These programs will hopefully cumulatively jolt taxpayers' pocketbooks.
