Q1: Will the tax credits and cuts in the 2009 economic stimulus package affect my 2008 tax return?
A1: Generally no, the changes in the stimulus package will not affect your 2008 tax filing, with one possible exception: if you are a first-time homebuyer between Jan. 1, 2009 and Nov. 1, 2009, and want to take advantage of the first-time homebuyer credit on your 2008 return. First-time homeowners who already filed their 2008 return to claim a $7,500 credit may amend their return for the balance of the $8,000 credit.
Q2: What action do I need to take to get these benefits?
A2: If you are employed, for the Making Work Pay credit, you should wait for instruction from your employer on how to reduce your income tax withholding to get the additional dollars in your paycheck.
If you are receiving Social Security benefits, certain railroad retirement benefits, SSI benefits, or VA retirement or disability benefits, you will not need to do anything to receive the one-time payment of $250. The payer of your benefits will determine your eligibility. This is the only group to get a check for the stimulus. Retired government workers who don’t receive Social Security will claim the $250 as a credit on their 2009 tax returns.
Also, taxpayers should determine what investments they could make in 2009 that would impact their filing in 2010, such as buying a new home, vehicle, investing in higher education or making energy-efficient improvements to their homes.
Q3: Does the Making Work Pay tax credit for workers affect me?
A3: This credit affects 95 percent of workers, including those who don’t earn enough to pay income taxes. In 2009 and 2010, this provision means up to $400 for an individual or $800 for couples. Workers who do not earn enough for this amount to be received through reduced federal income tax withholding will receive the remaining on a credit on their tax returns.
Q4: How will I get this tax credit?
A4: Taxpayers can receive this benefit through an increase in their paycheck (in other words a reduction in the amount of tax that is withheld from their paychecks) or through claiming this credit on their tax return. Eligible workers may need to work with their employers to ensure any adjusted income tax withholding is appropriate for their situation.
Q5: I am not able to work. Is there any assistance for me?
A5: The Act provides a one-time payment of $250 for individuals receiving Social Security benefits, certain railroad retirement benefits, SSI benefits, or VA retirement or disability benefits However, there’s no double-dipping. Taxpayers who are eligible for this benefit and the Making Work Pay tax credit will not receive both benefits in full. The Making Work Pay credit will be reduced by the $250 amount. Individuals retired on a federal or state retirement program who don’t receive Social Security benefits will claim a $250 credit on their 2009 returns.
Q6: I lost my job, but am receiving unemployment. What’s in it for me?
A6: The Recovery Act benefits the unemployed in four ways:
1.Increases weekly payments by $25.
2.Eliminates the federal tax on the first $2,400 of unemployment benefits received in 2009.
3.Extends eligibility for unemployed benefit, which can vary by state
4.Provides a 65 percent federal subsidy on COBRA premiums
Q7: I’ve been paying for health insurance through COBRA. Is there any relief in the plan that Congress passed?
A7: Under the stimulus package, the federal government would pay 65 percent of the tab up to nine months.
Q8: Are there any changes to the child tax credit?
A8: The Recovery Act expands the Child Tax Credit, allowing families to begin qualifying for the refundable portion of the credit with every dollar earned over $3,000. That means a refundable credit of up to $1,000 for each qualifying child under 17. A refundable credit means even if an individual has no tax liability, the credit is issued in the form of a refund.
Q10: How does the Recovery Act affect homebuyers? If I buy a home in 2009, will I get a tax credit? What if I bought a home last year?
A10: The Recovery Act includes an $8,000 tax credit for first-time homebuyers. Unlike the credit passed last year, homebuyers will not have to repay the credit as long as they own and live in the house for three years. First-time homebuyers in 2009 who have already filed their 2008 return and claimed the $7,500 credit may amend their returns to claim the balance of the credit based on this change.
Q11: Are there any credits for energy-efficient improvements?
A11: Yes, the plan includes a tax credit through 2010 for energy-efficient improvements to existing homes, such as new furnaces, energy-efficient windows and doors, or insulation.
Q12: Is there any help for higher education?
A12: Yes. More taxpayers will be able to qualify for the new American Opportunity Tax Credit, which provides a partially refundable $2,500 tax credit for higher education expenses in 2009 and 2010.
Q13: Can I include computers in my 529 education plans?
A13: Yes. Computer and computer technology will now qualify in 2009 and 2010 under the Section 529 Education Plans, which are tax-exempt college saving plans.
Q14: Will I get a tax break if I buy a new car?
A14: The package allows taxpayers to deduct the state and local sales and excise taxes paid on the purchase of a new cars, light trucks, recreational vehicles and motorcycles through 2009. The vehicles must be purchased on or after Feb. 17, 2009, and before Jan. 1, 2010.
Q15: What about plug-in hybrids cars?
A15: The Act also provides a tax credit of up to $7,500 for individuals who purchase plug-in hybrid vehicles after 2009 or for plug-in conversions after the date of enactment and before 2012.
About the author:
Danna Golden is the Principal of H&R Block in Broomfield, CO. She can be reached at 720-887-5770. Or visit http://www.hrbtaxandbusiness.com/.