President Obama and congressional leaders have agreed on an ambitious, stimulus plan with the hope of reviving a struggling national economy. The $789 billion measure includes nearly $300 billion in tax cuts and more than $450 billion in new spending-most of it to be allocated in the next two years.
Here is a look at some of the tax cuts and credits and what they will mean to you.
Make Work Pay
This provision delivers Obama’s
promised tax cut to 95 percent of Americans. Everyone earning $75,000 or less would receive a tax cut of $400, with a limit of $800 per household.
What it means to you:
If you earn $75,000 or less, you would receive a $400 tax refund on payroll taxes paid for 2009-2010. The IRS will likely alter withholding tax schedules so you would benefit from the tax cut immediately. The cut is gradually reduced for individuals making more than $75,000 and is eliminated for those making more than $100,000.
Senior Payment
This is a one-time $250 payment to Social Security recipients, including disabled and older veterans and Supplemental Security Income (SSI) beneficiaries.
What it means to you:
If you’re receiving Social Security benefits because you’re over 67, or receiving SSI benefits, or are a disabled veteran, you will qualify for a $250 one-time payment. This will be distributed as an additional payment.
Alternative Minimum Tax Relief
This $70 billion reduces the impact of a 40-year-old law aimed at fewer than 100 millionaires who avoided paying income taxes in the 1960s. Without this fix, it would force millions of middle-income taxpayers to pay a penalty.
What it means to you:
You might be spared the higher alternative minimum tax if your tax bill is otherwise reduced by a number of tax credits, exemptions and a deduction for especially high property taxes.
Expanded Earned Income Tax Credit
The earned income tax credit (EITC) has been expanded since 1975; today, 21 million poor, working American families receive these benefits.
What it means to you:
This is a targeted benefit for the working poor. It raises the EITC from 40 to 45 percent of qualifying income. If you earn between $7,470 and $13,440, you would receive an extra $457
American Opportunity Tax Credit
This expands an existing tax credit for educational expenses by increasing the size of the benefit and extending coverage to include more expenses.
What it means to you:
This education tax credit would be available to anyone with income under $80,000. The credit-which covers a portion of tuition, fees and supplies-would range from $1,800 to $2,500 for expenses in 2009-2010.
First-Time Homebuyer Tax Credit
This program alters the existing credit for first-time homebuyers. Under current law, the credit must be repaid over 15 years. The change will waive the payback requirement.
What it means to you:
If you are a first-time homebuyer with income between $75,000 and $95,000 ($150,000 to $170,000 if married and filing jointly), you would receive a tax credit of $7,500. The qualifying house must be your primary residence and must be purchased between January and June 2009.
Excerpted from AARP Bulletin Today article at http://bulletin.aarp.org