Last Updated: February 16, 2009
There's nothing quite like a new law to send one back to a proverbial drawing board. On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009, a $787 billion stimulus package aimed at lifting the economy out of recession, creating millions of jobs and boosting consumer spending.
The plan, which will be watched by a team of managers to make sure money is spent "wisely and well," includes numerous tax breaks for Americans who are struggling to make ends meet. "I don't want to pretend that today marks the end of our economic problems," said Obama. "Nor does it constitute all of what we have to do to turn our economy around. But today does mark the beginning of the end."
It also marks the beginning of what financial planners say is a great opportunity to revisit and tweak your financial plan. "This is a huge wakeup call to every person in America to get your own financial planning done, to get your financial house in order," said FPA member Marty Kurtz, CFP®, of The Planning Center.
Part of getting your house in order will require spending time "absorbing everything" about the new law before taking any action that could affect you over the next few years, said Kurtz. Others agree. "Spend time understanding the bill," said FPA member Paula Hogan, CFP®, of Hogan Financial Management. "There is a lot of money being given away."
Here's what FPA experts say the new law means to you and your money.
"Making Work Pay" Credit
"I think there are a few nuggets included in this legislation that can be of great interest to many taxpayers," said FPA board member Lee Baker, CFP®, of Apex Financial Services. "The first thing is that most taxpayers should not expect to receive a stimulus check in the mail." Instead, in 2009 and 2010, there is a tax credit of up to $400 for individuals and $800 for married couples filing their taxes jointly. "Unlike recent plans this tax credit can be taken in the form of an adjustment to withholding or as a tax credit when filing the 2009 tax return next year," said Baker.
Extension of Temporary 2008 AMT Provisions
"The new law also provides tax relief to about 26 million families by increasing the alternative minimum tax (AMT) exemption," said Baker. The exemption for 2009 is $46,700 for single taxpayers and $70,950 for married filing jointly.
According to Huxford, if you are recently unemployed, there's a provision to increase benefits by $25 per week through 2009. Typically you pay federal income taxes on federal unemployment benefits, but in 2009, you will not have to pay taxes on the first $2,400 in benefits you receive.
According to AARP, retirees and other Social Security beneficiaries will get an extra $250 per person within 120 days of President Barrack Obama signing the bill into law. "The so–called senior payment—$250 for individuals, $500 for couples who both receive some Social Security benefit—will go to retirees, older veterans, Supplemental Security Income (SSI) beneficiaries, and people with disabilities," AARP said.
Besides tuition, room, board, and other college expenses, computers and computer technology, including educational software and Internet service, are now qualified education expenses, according to Baker.
Higher Education Tax Credit
Speaking of college, you'll get a credit of up to $2,500 of the cost of college tuition and other related expenses in 2009 and 2010, according to FPA member Dusty Huxford. You'll need to spend $4,000 in a single year to get the full credit. And as with most credits, there's a phase–out. This credit phases out for individual taxpayers with adjusted gross income of more than $80,000 and $160,000 for married couples filing jointly.
Car Buyer Tax Deduction
According to Baker, you'll be able to deduct state and local sales and excise taxes when you purchase a new car, light truck, recreational vehicle or motorcycle for the rest of 2009. Of course, there's a phase–out. This deduction phases out for individual taxpayers with adjusted gross income of more than $125,000 and $250,000 for married couples filing jointly. This a deduction and not a credit, said Baker. Plus, Huxford said there's a tax credit for plug–in electric cars.
First-Time Homebuyer Tax Credit
First–time home buyers are eligible for a refundable tax credit equal to 10 percent of the purchase price of their home, up to $8,000, if they made the purchase after January 1, 2009, but before December 1, 2009, according to published reports. The new credit does phase out for individuals with incomes over $75,000 or married couples with incomes over $150,000 who file their taxes jointly.
Temporary Subsidized COBRA Premiums
For those who are unemployed and trying to decide how they pay their health insurance premiums under COBRA, the new law has a provision of interest. Baker said workers involuntarily terminated between September 1, 2008 and December 31, 2009 will receive a 65 percent subsidy from the U.S. Treasury Department for up to nine months. This is targeted at taxpayers with incomes of less than $125,000 for single taxpayers and $250,000 married filing jointly. "It is noteworthy that if a taxpayer did not elect COBRA when initially eligible because it was too expensive, they would be given an additional 60 days to elect COBRA and receive the subsidy," said Baker. Learn more at this site. For her part, Hogan suggests that you don't go "off COBRA until you understand whether you are eligible for the premium reimbursement."
In addition, Baker said the law extends tax credits for energy efficient improvement to existing homes through 2010. The bill increases the amount of the tax credit from 10 percent to 30 percent for 2009 and 2010 for qualified improvements during the taxable year.
The new law also includes provisions that affect the earned income tax credit, the child tax credit, and the Hope credit. What's more, the new law affects business owners, said Huxford. "Talk to your financial planner or your tax adviser for more information on these," he said.