About the Economic Stimulus Bill

How quickly will people see a change in their paychecks as a result of the “Making Work Pay” provision?

The IRS released new withholding tables reflecting the Making Work Pay credit on Feb. 21 and said most taxpayers will see the credit in their paychecks this spring. The IRS asked employers to begin using the new withholding tables no later than April 1. The $400 credit will show up as about an extra $10 a week in the paychecks of eligible individuals. The average person isn’t going to notice that very much, so it is likely to be spent. When consumers get lump sums, they tend to save the money or use it to retire debt. Small amounts get spent. The Joint Committee on Taxation estimates the provision will cost $116.199 billion over 10 years.

Who is Eligible for the First-Time Home Buyer Credit?

The law provides an $8,000 tax credit for first-time homebuyers who buy a principal residence before Dec. 1. The credit is available to home buyers who haven’t owned their own primary residence for the past three years with incomes up to $75,000 for individuals and $150,000 for married couples. Unlike the $7,500 credit enacted last year, it doesn’t have to be repaid unless you sell your home within three years. Estimated cost is $6.638 billion over 10 years.

Who Qualifies for the Auto Sales Tax Credit? Buyers of new cars or light trucks can deduct the portion of state and local sales and excise taxes attributable to the first $49,500 of the vehicle’s purchase price. The deduction is “above the line,” which means taxpayers don’t have to itemize deductions to claim it, and can be taken against the alternative minimum tax. The deduction is available to taxpayers with adjusted gross income of up to $125,000 for individuals and $250,000 for married couples. The deduction is good for purchases made from Feb. 17, 2009 through Dec. 31, 2009. The deduction can amount to $1,000 to $2,000 depending on the price of the car and the applicable tax rate in your state. Estimated cost is $1.684 billion over 10 years.

How Does the Law Help Families with College Costs?

Parents can claim a tax credit of up to $2,500 a year for college expenses for any year of college. The credit is limited to taxpayers with adjusted gross incomes up to $80,000 for individuals and $160,000 for married couples. The change is only for 2009 and 2010. Estimated cost is $13.907 billion over 10 years.

How does the new law change the Earned Income Tax Credit?

Working families with three or more children may be eligible for an increased credit. For 2009 and 2010, the Earned Income Tax Credit increase will be available for families with three or more children. The credit is 45 percent of the family’s first $12,570 of earned income, and the credit phase-out now begins at adjusted gross income of $21,420, $1,880 higher than under prior law. Estimated cost is $4.663 billion over 10 years.

Are Unemployment Benefits Still Taxed?

With more people out of work, Congress exempted the first $2,400 in unemployment benefits from taxes in 2009. The law also provides a 65 percent subsidy for health insurance premiums maintained by laid-off workers under Cobra for up to 9 months. Estimated cost is $4.740 billion over 10 years for unemployment provision and $24.7 billion for Cobra.