President Obama has signed the much anticipated American Recovery and Reinvestment Act of 2009 ("Recovery and Reinvestment Act") into law. The Recovery and Reinvestment Act was designed to stimulate broad based growth to the economy and provide tax relief to individuals and businesses. The most relevant tax provisions addressed in the Recovery and Reinvestment Act are detailed below:
PROVISIONS FOR INDIVIDUALS & FAMILIES
"Making Work Pay" Credit
Provides tax credits equal to 6.2% of earned income not to exceed $400 for single returns and $800 for joint returns in 2009 and 2010. The credit is phased-out at adjusted gross income ("AGI") in excess of $75,000 ($150,000 for joint filers).
Economic Recovery Payment
Provides for a one-time payment of $250 to retirees, disabled individuals and Social Security beneficiaries and recipients receiving benefits from the Social Security Administration and Railroad Retirement beneficiaries. Also includes veterans receiving disability compensation and pension benefits from the U.S. Department of Veterans’ Affairs. The payment reduces the "Making Work Pay" credit.
Refundable Credit for Certain Federal and State Pensioners
Provides a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. The credit reduces the "Making Work Pay" credit.
Unemployment Compensation Exclusion
Exempts from tax the first $2,400 of unemployment benefits received by a recipient in 2009.
Expanded Earned Income Tax Credit
Increases the credit for families with three or more children and increases marriage penalty relief in 2009 and 2010.
Expanded Child Tax Credit
Increases the eligibility for the refundable child tax credit in 2009 and 2010 by lowering the threshold to $3,000 (from $8,500 in 2008).
"American Opportunity Tax" Credit
Creates a $2,500 higher education tax credit that is available for the first four years of college. The credit is subject to a phase-out for AGI in excess of $80,000 ($160,000 for joint filers). The new credit temporarily replaces the Hope Credit.
Computers as an Education Expense
Permits computers and computer technology to qualify as qualified education expenses in 529 education plans in 2009 and 2010.
Expanded Credit for First-Time Home Buyers
Increases the refundable tax credit up to $8,000 for first-time home buyers purchasing homes on or after January 1, 2009 and before December 1, 2009. The credit is subject to phase-out for taxpayers with AGI in excess of $75,000 ($150,000 for joint filers).
Deduction for New Car Purchasers
Allows taxpayers to deduct state and local sales taxes paid on the purchase of a new automobile, including light trucks, SUVs, motorcycles and motor homes. The deduction phases-out starting for taxpayers with an AGI in excess of $125,000 ($250,000 for joint filers). The deduction is allowed for those who itemize their deductions and non-itemizers. The deduction, however, cannot be taken by a taxpayer who elects to deduct state and local sales taxes in lieu of state and local income taxes.
Alternative Minimum Tax ("AMT") Patch
Increases the AMT exemption amounts for 2009 to $46,700 for individuals and $70,950 for joint returns and allows the personal credits against the AMT.
Provides a 65% subsidy for COBRA continuation premiums for up to nine months for workers who have been involuntarily terminated, and for their families. The availability of this subsidy must be included in the required notice of COBRA continuation coverage.
PROVISIONS FOR BUSINESS
Extension of Bonus Depreciation
Allows the immediate write-off of 50% of the cost of qualifying depreciable property acquired in 2009.
Extension of Enhanced Small Business Expensing (Section 179)
Allows the write-off of capital expenditures incurred in 2009 up to $250,000. The accelerated deduction is phased-out once qualified expenditures reach $800,000.
Expanded Loss Carryback of Net Operating Losses
Extends the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less.
Incentives to Hire
Allows a work opportunity tax credit equal to 40% of the first $6,000 of wages paid to employees of one of nine targeted groups.
Extension of Monetization of Accumulated AMT and R&D Credits
Extends the provision contained in the Foreclosure Prevention Act of 2008 and allows AMT and loss taxpayers in 2009 to receive 20% of the value of their old AMT or research and development ("R&D") credits to the extent such taxpayers invest in assets that qualify for bonus depreciation.