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Taxpayer Benefits in the Economic Stimulus Package

Written by Nickel - 36 Comments

Yesterday afternoon, the economic stimulus package was signed into law. After weeks of wrangling and lots of speculation, the final bill included $212B in tax cuts along with $575B in spending. So what’s in it for you? What follows is a rundown of some of the major taxpayer benefits.

“Making Work Pay” Credit

While you won’t be getting a stimulus check, individuals earning less than $75k/year (and couples earning less than $150k per year) qualify for a $400 per individual ($800 per couple) tax credit. This credit will be doled out in the form of reduced withholding increasing your take home pay by an estimated $8-$13 per week. Social Security recipients who don’t qualify because they don’t work will receive a one-time $250 payment.

First-Time Homebuyer Credit

I’ve written about this extensively over the past few weeks, so it should come as no surprise that the stimulus package includes an $8,000 tax credit for first-time homebuyers. This credit is available to first-time homebuyers that purchase a home between January 1st 2009 and November 30th, 2009. This is a refundable tax credit that is phased out for individuals with AGI of $75k or higher and couples with AGI of $150k or higher.

Alternative Minimum Tax Relief

This is a bit of a red herring, as the Alternative Minimum Tax (AMT) would’ve undoubtedly been patched sometime this year whether or not it was included in the the stimulus package. Nonetheless, the fix is in, and a number of “middle income” taxpayers that otherwise might have been snagged will instead escape the evil clutches of the AMT.

Education Tax Credits

The “American Opportunity” education tax credit will take the place of the Hope Credit in 2009/2010. This credit, which is available for the first four years following high school graduation, covers up to $2,500 in tuition and related costs per year (including school-related book and computer purchases). This credit phases out for single taxpayers with AGI of $80k-$90k and married taxpayers with AGI of $160k-$180k.

Earned Income and Child Tax Credits

The Earned Income Credit (EIC) will be temporarily expanded for families with three or more children. The $1,000 Child Tax Credit will also be extended to additional low-income families.

Unemployment Tax Break

Individuals receiving unemployment benefits in 2009 won’t have to pay federal income tax on the first $2400 that they receive. Moreover, unemployment benefits will increase by $25/week and will also last longer. There will also be a 65% subsidy of health insurance premiums for the unemployed under the COBRA program.

Sales Tax Deduction for Vehicle Purchases

Individual tax payers with an AGI of less than $125k ($250k for joint filers) will be able to deduct state, local, and excise taxes on the purchase of a new car or truck in 2009 even if they don’t itemize. This deduction applies to the taxes paid on the first $49,500 of the vehicle’s purchase price.

Energy Incentives

Purchasers of plug-in hybrid vehicles can qualify for a tax credit of as much as $9,100. In addition, there will be a number of incentives for individuals who make energy-efficient home improvements.

Published on February 18th, 2009 - 36 Comments
Filed under: Economy, Taxes

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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36 Responses to “Taxpayer Benefits in the Economic Stimulus Package”

  1. 1
    the weakonomist Says:

    So GM got what they wanted. They’ll be first to market with a plug-in hybrid. The funny thing is we don’t know with certainty it will actually work well. I’d like to have a tax break on my car, because it actually exists and gets good gas mileage.

    $13 a week won’t even stimulate an eee’d up techno freak at burning man, much less anyone else.

  2. 2
    Matthew Says:

    The question I’ve been trying to answer is: Does the “making work pay” tax credit apply to 2008 taxes or only 2009? Is it refundable? And what do you do if you have already submitted your taxes?

  3. 3
    nickel Says:

    Weakonomist: I agree that $13/week isn’t much. That being said, there are studies that show that dribbling the money out a little at a time is a more effective way of getting people to spend it. If people instead received a $400 or $800 check, there’s a risk that they’d (gasp!) save it instead of spending it.

    Matthew: As I understand it, the “Making Work Pay” credit is for 2009, not 2008. This is why your 2009 withholding will be adjusted.

  4. 4
    Dustin Says:

    I take it the first time home buyer credit can only be claimed on your 2009 tax return and can not be claimed on this years return, correct?

  5. 5
    Sonny Says:

    The summary of the bill, distributed by the Senate Finance & House Ways and Means committees, reads as if the new $8k homebuyer tax credit is an amendment to the existing $7.5k homebuyer tax credit, which can be claimed on 2008 tax returns, even for purchases occuring in 2009. However, the new bill appears to be silent regarding in which tax years the credit can be claimed. The IRS website seems to be silent on this issue as well. I am eligible for the new homebuyer tax credit. Can I claim it on my 2008 tax return?

  6. 6
    Sonny Says:

    The IRS website says “There are a few limited areas in the legislation that could impact 2008 tax returns. For example, for some small businesses, changes in the net operating loss provisions could affect 2008 tax returns. More details on this and other changes — such as the first-time homebuyer’s credit — will be available soon.”

  7. 7
    Chad @ Sentient Money Says:

    Great! We just added more layers of paperwork in our daily lives, in order to pay ourselves. This plan is as dumb as all the previous ones and will only prolong the pain.

    We should have corrected the holes in financial regulations and then let the market correct appropriately. Now, the stimulus will prop up housing prices for a few months…and then the prices will fall again. Housing is still above where historical pricing suggests it should be at, so everyone planning on buying a house with this “great” tax credit should know they will still see significant declines in their home value over the next year…maybe 2. When will everyone learn there is no magic to correct this? It just takes time.

  8. 8
    Ryan Says:

    Is the $400 credit something that we have to pay back when we file for 2009? Or is it like the stimulus check, where we don’t have to pay it back?

  9. 9
    Scott @ The Passive Dad Says:

    I heard on the radio that a solar energy rebate was part of the stimulus package. Have you heard anything about that?

  10. 10
    Michelle H. Says:

    I have a question — what are the exact qualifications on the first time homebuyer credit? We bought a house in 2006 that we fixed up and resold – we never lived in it. However we just signed on a house Feb. 13, 2009. Can we still take this credit or does the 06 house purchase make that impossible? Any help would be appreciated!
    Blessings

  11. 11
    Michelle H. Says:

    One other thing – this house we just bought will be our primary residence.
    Thanks!

  12. 12
    Jim Says:

    What the government giveth with one hand they will take away twice as much with the other. Our children and grandchildren will pay a steep price for our need for immediate gratification. As always, the responsible will pay for the irresponsible, and failure is subsidized.

  13. 13
    Glory Says:

    I don’t see anywhere in this stimulus package where the middle class or where I guess poverty level people as some people say my husband and I are at making only $42,000. a year can get a break at all. Can You please show us where we do get a break in this year (2009) or any where in the near future. We both are in our 50’s and I have just become disabled and am awaiting for Social security to make up it’s mind to give me my benefits. Also my husband is a 22 year Vet from the US Navy and served during Desert Sheild and Desrt Storm. His 42,000. includes his military pension. Any help making us understand this would be most appreciated!

  14. 14
    Tim Says:

    Lets stop calling it taxpayer benefits. tax payer benefit is an oxymoron. It is still national debt, which means that the tax payer still has to pay for the “benefit” eventually. The benefit will end up cost the taxpayer more in the long run. sorry, i see no benefit.

  15. 15
    thomas Says:

    Is it possible to not get that $13 bucks? I’m simply going to have to owe at the end of the year regardless. I don’t want to be a leech.

  16. 16
    Sonny Says:

    Good news! The IRS issued the new form 5405 yesterday (http://www.irs.gov/pub/irs-pdf/f5405.pdf), which is required to claim the new first time homebuyer credit. This credit can be claimed on 2008 tax returns even for purchases in 2009. If someone already filed, they can also file an amendment (1040X) if they don’t want to wait until next year to claim the credit. All relevant instructions and stipulations are attached to the form.

  17. 17
    Chad @ Sentient Money Says:

    This is terrible news. I really hope the form is difficult and confusing. I’m tired of paying for other people’s bad decisions.

  18. 18
    Sonny Says:

    Chad,
    If this legislation ocurred in any other year except for this one, I would agree with you. Thanks for the cash bro!

  19. 19
    Chad @ Sentient Money Says:

    @ Sonny

    “If this legislation ocurred in any other year except for this one, I would agree with you.”

    So, basically you are throwing away your values for cash like the bankers. Nice. It’s like rats on a ship going down.

    At least I will enjoy seeing everyone who uses this credit lose money, as the housing market corrects and comes in line with historical prices.

  20. 20
    Sonny Says:

    @ Chad,

    I signed a contract on a house before the legislation was signed, so it was not my motivation for the purchase. The new credit is just an unexpected bonus. It would be foolish to not claim the new credit. I agree that the housing market has not bottomed, but I think I found a diamond in the rough. And even though you just insulted me and you sound like a total prick, I don’t mind saying that I checked out your sentient blog, and I like it. A few paralells I noticed: I am a CPA in the DC area, and I have often tried to explain to people the same theory you mention about our debt to society, roaming free and huting, etc. Interesting. But if you want to be self sufficient and pay low (or no) taxes, you will never be able to accomplish this living like a “rat” in DC. Good luck with the bitterness problem.

  21. 21
    Chad @ Sentient Money Says:

    @ Sonny

    I would say we are even with the negativity, as your post in #18 isn’t exactly positive. I don’t know how you expected me respond to it, but you can’t have expected me to be easy going about it.

    I wasn’t so much commenting on you or others using the credit, as I was commenting on you approving of the legislation this year.

    “If this legislation ocurred in any other year except for this one, I would agree with you.”

    Of course you use it if it’s available. I just couldn’t be more against making it available. Your statement seemed to suggest you supported making it available. Thus, my comment, as this credit is no different than giving Citi or GM money to make up for their bad decisions. They shouldn’t have gotten the money and neither should individual home buyers who made foolish decisions. If your housing purchase wasn’t a foolish decision, then I’m glad you acted responsibly. Unfortunately, many haven’t, and are now asking for handouts, essentially from everyone who didn’t make bad decisions.

    Thanks for checking out my blog. I’m glad you found it worth your time. I hope you stop by again. I welcome all posts, even criticism, as it helps flesh out an arguement/discussion…just as these posts have.

  22. 22
    Sonny Says:

    @ Chad,

    Right on brother. I’m buying a farmette a little further out from DC, so I can start working on that self sufficieny thing – livestock/vegetables. It may come in handy when the economy really hits bottom. Although, I definitely won’t be quitting my day job. I bought from a frustrated investor, so he could afford to sell at a more resonable price than an upside-down homeowner. Power to the people (and not the monopolistic legal entities)!

  23. 23
    Chad @ Sentient Money Says:

    I like the small farm idea. I grew up on one and hope to get myself one at some point. It’s amazing how little you need to spend to live, if you have a small farm. Though, that is for later. Right now I’m keeping my day job and looking for a bottom in the stock market/commodity market, so I can get in.

  24. 24
    Sonny Says:

    One more thing…Obama’s plan of the week is indeed a handout for people that made foolish decisions. However, the first time homebuyer tax credit, whether you like the idea or not, is helping mostly people that have not yet made the foolish decision of entering the housing market during the past 6 years. Unless you find a true bargain, you will probably lose more than $8,000 on buying a house right now, depending on the locale.

  25. 25
    Chad @ Sentient Money Says:

    I do have to agree with you. It makes the credit ever so slightly more palatable.

    The big issue will be the false bottom this puts in the housing market. It might stabilize housing for a couple months, but then it will probably go down again until it hits historical norms. Actually, it will probably go below historical norms, as volatile conditions usually create highs that are too high and lows that are too low. We are just stretching the pain out over multiple years instead of getting it over with in one.

  26. 26
    Danielle Says:

    All the jokes about how ineffective $13 a week is as an economic impact are getting OLD. Its money man! If you really don’t WANT it then give it back to our government to reduce our national debt!

    In my case with 1 wage earner and 1 person getting unemployment this stimulus package will mean…

    $13 a week more for the wage earner
    $25 a week more for the unemployed
    $60 a week for 6 weeks no taxes on my unemployment

    = roughly $98 a week, or nearly $400!

    Once my 6 weeks of not paying taxes on my unemployment is over it still = $150 a month. I would rather be working but until I can find something this helps out immensely. It will get us back on our feet faster and as soon as we are back on our feet we can release our spending freeze and get back to being consumers.

  27. 27
    nickel Says:

    Danielle: I agree. People went nuts last year of a $600 stimulus check, but guess what? That’s only $11.58/week. And now they’re going to turn around and mock a $13/week tax break? Money is money. And if the goal is to get people to spend, studies have shown that reducing withholding (instead of issuing another lump sum check) is the way to go.

  28. 28
    Debbie Mackay Says:

    As far as the change in witholding in the stimulus package, can someone tell me if a married couple, filing jointly with only 1 wage earner gets $400 or $800?

  29. 29
    Chatman Says:

    Debbie, good question. I’m not certain, but I believe the tax credit will be based on how you file your taxes. If you file a joint return, you will probably qualify for the $800 tax credit (even if there is one wage earner). I say this because we file jointly but only I earn income. When the Bush economic stimulus checks were issued, we received the “couple” amount, not the single amount.

  30. 30
    Debbie Says:

    Thanks, Chatman. We too received the “couple” amount with the Bush check, but this stimulus package seems to be worded differently—seems like its goal is to reward the ” worker.” Wish we could find a definitive answer on this—I’ve read things that seem like it could go either way.

  31. 31
    celina Says:

    Ok, I am on unemployment, I have been since Jan. 09, could someone please tell me when I should get this 25$ a week “raise” on my unemployment benefits?

  32. 32
    JoAnne Says:

    I am disgusted that working people are going to pay
    again for those who know the system and are being
    rewarded for making a small amount of income and
    having kids. The thought of them receiving more
    Earned Income Credit with a lower income makes me
    sick. What the government should be doing is
    helping out the people who are working and paying a
    high price for day care, they get squat for a credit.
    It makes me sick that people get rewarded for not
    putting money into the system.

  33. 33
    Rhonda Says:

    When it comes to the Unemployment Tax Break, I won’t see any benefit to this as my previous income was less than $32K. I’m single since my kids are grown and am ineligible for the EIC, live in Ohio and have been on unemployment since November 2008. I don’t see how they are going to give unemployed individuals an additional $25 when the amount you receive is based on an average of 18 months income and is broken down in 6 month blocks, i.e., January to June and July to December. Since I lost my job in November, they used my income from January 2007 through June 2008. Also the no taxes on the first $2400 in unemployment is b.s. as I had received that amount after only 9 weeks of unemployment compensation but isn’t even enough to cover my basic household bills and as such have lost my apartment. Luckily I can stay with my daughter temporarily but is hard as I miss having the control over my housing. Ohio has always been hit the hardest during economic downturns which means higher unemployment. I have an Associates degree in software development and can’t even find a entry level job after 4 months which is why I’ve decided to take a job up in Canada and will be heading there as soon as I get my passport.

  34. 34
    Lisa Says:

    I don’t think fair to give the credit of 7500 to people who brought their home in march of 2008. What about those who brought their home in jan of 2008.

  35. 35
    Meg McCleary Says:

    I am very confuse about this stimulus bill. If one son with a stepson and daughter filed jointly with his wife, how much will he be entitled to? If my other son has one daughter and he and his wife filed jointly what is his entitlement? I
    Is it based on a couple or separate filings?

  36. 36
    Phyllis Rea Says:

    I’M still confused on the making work pay credit. My husband and I are on S/S but I still work. Last year 2009 we both received checks for $250.00 and we filled out form M and received $300.00 added on to our Federal refund. Was that a one time thing or do we as I still work claim the $800.00 again on this years 2010 return? I do not want to make a mistake on our return and have things held up. Please HELP

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