Wednesday, February 18, 2009

Tax Cuts in Stimulus Bill - Who Gets Help

Stimulus: Who Gets The Tax Cuts at summarizes the impact of the stimulus package tax cuts for individuals, business, state and local government, and renewable energy.

Here's my brief summary of the tax cut benefits for individuals by income level:

  • Low income. Earned income credit is increased for taxpayers with three or more children. Currently, the maximum credit is reached at two or more children. In addition, the limit for triggering the refundable additional child tax credit is lowered to $3000 from $8500 in 2008.

  • Low to middle income. Up to the first $400 (individual) and $800 (couple) for FICA (i.e. Social Security tax) will be refunded. Effectively, the a taxpayer will not pay Social Security taxes on the first $6451 (individual) or $12903 (couple) of income. This credit is phased out for individuals with adjusted gross income over $75,000 and couples over $150,000.

    However, instead of providing a rebate check, as was done in 2008, the plan is to reduce withholding in 2009 and provide the reconcile the credit in the 2009 tax return.

    In addition, there is an $8,000 refundable tax credit for first-time home buyers who purchase from January 1 to November 30, 2009. The tax credit phases out for individuals earning more than $75,000 and couples earning more than $150,000.

  • Middle income. A new college tax credit of $2500 is introduced, which phases out for individuals with incomes over $80,000 and couples with incomes over $160,000.

  • Middle to high income. Another single year AMT patch has been passed. The stimulus bill increases the AMT exemption to $70,950 for joint filers and $46,200 for individuals for 2009. Thus, people who didn't pay an AMT last year, most likely won't pay an AMT tax this year, if there is no change to their tax situation.
  • For those that can manage there income, e.g. self employed and retirees, knowing the tax benefits and income limitations ahead of time can help choose an income strategy that reduces tax liability and, therefore maximize the amount of money a taxpayer keeps.

    For more on The Practice of Personal, check back every Wednesday for a new segment.

    This is not financial or tax advice. Please consult a professional advisor.

    Copyright © 2009 Achievement Catalyst, LLC

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