The American Recovery and Reinvestment Act - Tax Incentives & Direct Aid

The American Recovery and Reinvestment Act of 2009 - Direct Tax Incentives & Assistance Provisions

Making Work Pay - Refundable Income Tax Credit

	The Lesser of 6.20% of gross income or $400 ($800 if married filing jointly) for gross incomes up to $75,000 ($150,000 if filing jointly)


Increase in the Earned Income Tax Credit (EITC)
	Congress provides for an additional tax credit for families with three or more qualifying children, and increases the relief for the marriage penalty.
	EITC applies to individuals and joint filers with relatively low earnings


Increase of refundable portion of child credit

	Refundable tax credit is calculated to apply to 15% of earned income in excess of $3,000 (instead of $12,550 currently) for taxable years 2009 and 2010


American Opportunity Tax Credit

	Increases the tax credit for individuals/joint filers incurring post-secondary education expenses.
	Too many details to be condensed on a table - please read the legislation and consult a tax expert to see if you qualify and take advantage.


Temporarily allow computer technology and equipment as a qualified higher education expense for qualified tuition program

	Too many details to be condensed on a table - please read the legislation and consult a tax expert to see if you qualify and take advantage.


Modifications to homebuyer credit

	First-time homebuyers are allowed a tax credit equal to the lesser of $8,000 ($4,000 for a married individual filing separately) or 10 percent of the purchase price of the principal residence.
	The new legislation in addition to increasing the tax credit by $500, eliminates the recapture of the credit (e.g. paying it back).
	Both of these are true as long as a house is purchased between 1/1/09 and 12/1/09.

	There are a variety of other conditions that apply. If you are considering buying your first home (meaning if you did not own a home in the last 3 years), it is worth checking it out.


Election to substitute grants to states for low income housing projects in lieu of low income housing credit allocation for 2009

	Read the stimulus bill if it applies to you


Election to accelerate the low-income housing credit allocation

	Read the stimulus bill if it applies to you

Deduction of interest on indebtedness for the purchase of qualified motor vehicles

	If you buy a car or light truck between 11/12/2008 and 1/1/2010, you are most likely eligible to have an above-the-line deduction for the interest in your loan, and it provides a deduction/credit for state sales and excise taxes.


Extended alternative minimum tax relief for individuals

	The bill provides relief for those middle class taxpayers caught by the AMT.
	Read the stimulus bill and consult a tax attorney if it applies to you.


SMALL BUSINESS PROVISIONS

5-year carryback of operating losses of small businesses

	The bill allows businesses to carry-back losses incurred in 2008 or 2009 for up-to 5 years (it used to be 2) - only one of the two years can be chosen. A small business is defined as one with less than $15 million in revenue
	For businesses with taxable gains in tax years 2003-2007 it may provide a nice refund from Uncle Sam. Check with your accountants.


Decreased required estimated tax payments in 2009 for certain small businesses



FOR STATES

Qualified construction bonds

	Creates a new category of tax-credit bonds: qualified school construction bonds. Limited to $11 billion for 2009 and 2010.


Extend and expand qualified zone academy bonds

	Congress extends the provision for up to $1.4 billion of qualified zone academy bonds annually for 2009 and 2010.


Build America Bonds

	"Qualified tax credit bonds" are treated as "taxable government bond", the holder of one of these bonds will accrue a tax credit in the amount of 35% of the interest paid when the coupons on the bond are due.
	What this does is to allow the state/local entity to issue bonds at a coupon lower than comparable private bonds, as the federal government makes up the difference between the interest paid by the state/local government issuer
	and one issued by another entity that does not have a tax advantage.
	The law for the "Build America" bonds has a twist to this - in this case the holder receives the interest at par, and it is the state/local institution the one that claims the 35% credit - so if the bond were to have a $1,000 coupon,
	the holder will receive the entire coupon, and the state/local authority could claim $350 as payment from the federal government - thus reducing the costs to the state/local issuer to $650.


Recovery Zone Bonds

	Similar to the "Build America" bonds but for "Recovery Zone Economic Development Bonds - the recovery for the issuer increases to 45% of the interest payable - the purpose of the bond is to promote economic activity in a recovery zone.
	There is a limitation of $10 billion on these "Recovery Zone Economic Development Bonds"
	Congress also creates "Recovery Zone Facility Bonds" with a limitation of $15 billion nationwide. These bonds are treated as "qualified private activity bonds" (interest does not add to gross income for taxable purposes) - these bonds
	are issued tor the purchase of property in recovery zones that are destined to conduction of business in the zone.


Tribal Economic Development Bonds

	$2 billion are allowed under this category.


Delay in implementation of withholding tax on government contractors

	The 3% withholding requirement is delayed 1 year to apply to payments after 12/31/2011.


Extension of renewable electricity production credit

	Credits for producition of electricity using renewable means (e.g. wind, biomass, geo-thermal, etc.) is extended for another 3 years.


Election of investment credit in liu of production credit
Modification of energy credit
Grants for specified energy properties in lieu of tax credit
Expand new clean renewable energy bonds
Expand qualified energy conservation bonds

	Provide incentives for the production of energy from renewable sources.


Extension and modification of credit for non-business energy property

	Provides a 30% tax credit for expenditures to make a private property more energy efficient - the aggregate cap is $1,500.


Credit for residential energy efficient property

	It provides for a 30% tax credit for the purchase of qualified renewable energy equipment for residential properties.


Temporarely increase in credit for alternative fuel vehicle refueling property

	Increases the maximum credit (30% of purchases) available to businesses that distribute alternative fuel ($200,000 for hydrogen and $50,000 for all others and private properties ($2,000) to promote and make use of these sources more plausible.


Modification of credit for carbon dioxide sequestration

Credit for electric plug-in vehicles

Credit for investment in advanced energy property

Statutory limit on public debt increased

	You'll be happy to know that the federal government can now be in debt up to $12.1 trillion.

TARP ISSUES

Failure to redeem certain securitites from the United States

	In order to keep payment of bonus as before, Congress requires that the financial institution repays any funds that the government as invested under TARP. Otherwise, bonuses are capped at 1/3 of the total compensation. Given that
	most high executives and producers in Wall Street make most of their compensation as bonus, this will effectively reduce substantially the salaries of those individuals, or force the banks to transform at-risk salary into base-salary.


TRADE ADJUSTMENT ASSISTANCE

	A series of provision to help workers, firms, farmers and localities deal with the loss of jobs going abroad, or trade induced losses.


ASSISTANCE FOR UNEMPLOYED WORKERS AND STRUGGLING FAMILIES

	Extends unemployment benefits.
	Increases unemployment benefits by $25/week.
	Transfers $7 billion to states under the Unemployment Trust Fund

	Increase in funding for "Temporary Assistance for Needy Families" (TANF) - emergency fund set at $5 billion to go to the states
	States can draw Child Support Enforcement (CSE) funds from the federal government

	Adult social security and railroad retirement beneficiaries, supplemental security income recepients and veterans receiving compensation or pension benefits from the Department of Veteran Affairs will receive $250 - total appropiations equal $222 million
	Government retairees receive a similar $250 tax credit ($500 if both spouses are eligible)

	COBRA - employees that have been laid off can continue their insurance coverage, but rather than paying 100% of the insurance premium, the government will subsidize 65% of it (in other words they will pay only 35% of the premium)
	the subsidy expires after 9 months. It applies to people laid off between 9/1/08 and 1/1/10. There are income exclusion for people making over $125,000, or couples making over $250,000)
	Insurers will be compensated directly by the government through a credit on their tax withholdings or directly by the Treasury.


HEALTH INFORMATION TECHNOLOGY

	Congress intends to make the use of Electronic Health Records (EHRs) the norm rather than the exception;
	As such it is providing incentives for physicians that provide MEDICARE services to adopt them through a 5-year incentive payment starting 2011, 2012 and 2013.
	Payments will be capped at $18,000 per year and will decrease each year after the first to $12,000, $8,000, $4,0000 and $2,000.
	Hospital paid professionals are not eligible.

	Hospitals will receive an incetive that starts with a $2 million base added to its discharge related payment x its Medicare share. In effect receiving $200 for each discharge paid under the inpatient prospective payment system, starting with
	its 1,150 discharge through its 23,000th.

	Medicaid providers (30% of their practice) will be eligible for a payment equal to 85% of their net allowable technology costs to implement EHRs - not to exceed $25,000 or 5 years. Annual costs are not to exceed $10,000.
	Aggregate allowable costs are not to exceed $63,750 after application of the 85%.
	Providers whose practice is 20-30% medicaid related will receive an aggregate incentive of $42,500.
	Payments to hospitals will be similar than under the MEDICARE


STATE FISCAL RELIEF

	The federal government will make sure that states have the funds necessary to cover for the increased costs of Medicaid during the downturn and to provide fiscal relief to avoid cuts in services and benefit payments.

Track the Stimulus

All you want to know about the economic stimulus plans