The American Recovery and Reinvestment Act of 2009 (ARRA) is President Obama’s extensive vision for how the government will invest in America’s future. From health care to green technology to state budgets, the legislation represents a broad effort to return the country to a position of economic stability and prosperity. Included in these efforts are several tax provisions which could impact low- to moderate-income workers. The following is a summary of the major changes and how they might affect you.
Making Work Pay Tax Credit
This credit represents President Obama’s promise to lower taxes for 95 percent of American workers. The credit is equal to 6.2 percent of your earned income up to $6,450, for a maximum credit of $400 ($800 if filling jointly). Earners who make up $95,000 ($190,000 if filling jointly) are eligible for the credit. Taxpayers will receive the credit through a reduction in the amount income taxes withheld from their paychecks, beginning April 1st. The credit is in effect for the 2009 and 2010 tax years. Workers with more than one job may want to ask one of their employers to not reduce their withholding to ensure they will not owe taxes when they file in 2010.
Earned Income Tax Credit
The ARRA expands the Earned Income Tax Credit for larger families with three or more children and for married couples. The credit percentage increases from 40 to 45 percent for large families, meaning a maximum benefit of $5,657 in 2009. The act also widens the income range for a married couple to receive the credit. The credit applies to 2009 and 2010 tax years.
Child Tax Credit
The ARRA lowers the refundability threshold for the Child Tax Credit from $8,500 to $3,000 for 2009 and 2010. This means that more families will be eligible for the tax credit in 2009, and many who were eligible before will get a larger credit.
American Opportunity Tax Credit
This credit expands the Hope Education Credit for low- and moderate-income workers. It increases the maximum credit amount from $1,800 to $2,500. It expands the credit to apply to the first four years of post-secondary education (currently, the credit can only be used for the first two years). It expands the definition of what counts as an expenses to include the cost of any course materials. Finally, up to 40% of the credit is refundable. This means that a taxpayer who qualifies for the $2,500 and doesn’t owe any taxes can still claim a refund credit of $1,000.
Social Security Benefits
Although not technically tax related, there will be a one-time $250 dollar recovery payment for most individuals who receive Social Security, Supplemental Security Income, Railroad Retirement and Veterans benefits. You will receive it separately from your benefits by the end of May 2009. It will be delivered in the same way as your current benefits are received. For additional questions, check out http://www.socialsecurity.gov/.
This is a brief summary of the major changes to taxes that will affect low- and middle-income earners. To learn more, check out the Center for Economic Progress’ blog at http://www.workforward.org/ and check out http://www.recovery.gov/ for news, updates, or to get your voice heard about the American Recovery and Reinvestment Act of 2009.
Thursday, March 26, 2009
Taxes and Obama’s stimulus plan
Labels:
benefits,
policy,
stimulus,
tax credits
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