2009 Economic Stimulus Plan: How Will You Be Impacted?

Mark Miller, CPA, Shareholder - Tax   email | bio
April 2009

 
President Obama recently signed into law “The American Recovery and Reinvestment Act of 2009.” This legislation is the fourth major stimulus package enacted within the last year. The aim is to create jobs and assist financially stretched families.

Included in the plan are various tax breaks and spending initiatives geared to have an immediate impact on the economy. Many of the tax cuts apply to individuals and businesses in 2009 and 2010. Included below are selected tax incentives from the 2009 Stimulus Plan. These items have varying effective dates, durations and specific details that apply. Other provisions have income limitations and are subject to phase-outs.

Tax Relief for Individuals and Families

• “Making Work Pay” Tax Credit. Tax cuts are available for most working families. In 2009 and 2010 working individuals and families will receive a tax credit of $400 for individuals and $800 for couples (subject to a phase-out for couples with adjusted gross incomes over $150,000).
   
• “American Opportunity” Education Tax Credit. In 2009 and 2010 taxpayers are eligible for a tax credit of up to $2,500 of the cost of tuition and related college expenses paid during the taxable year. Up to 40 percent of this credit will be refundable.
   
• Computers as Qualified Education Expenses in 529 Education Plans. Section 529 Education Plans (including the Wisconsin Ed Vest program) are tax-advantaged savings plans that cover all qualified education expenses including tuition, room and board, mandatory fees and books. Computers and computer technology are now considered qualified education expenses.
   
• Refundable First-time Home Buyer Credit. First-time home buyers who purchased a home after January 1, 2009 and before December 1, 2009 qualify for a refundable tax credit with a maximum value of $8,000. The repayment obligation included in the 2008 credit was eliminated for homes purchased on or after January 1, 2009, but the home must be held for three years. This credit can be claimed on the buyer’s 2008 or 2009 tax return.
   
• Sales Tax Deduction for Vehicle Purchases. The new law offers a non-itemized deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, recreational vehicles and motorcycles for vehicles up to $49,500. Effective for vehicles purchased on or after February 17, 2009 through December 31, 2009. This deduction is also allowed for AMT purposes.
   
• Extension of AMT Relief for 2009. For 2009 the AMT exemption is increased to $70,950 for married couples and $46,700 for individuals.

Tax Incentives for Businesses

• Extension of “Bonus” Depreciation. In 2008, businesses that had certain capital expenditures were allowed to immediately write off 50 percent of the cost of new depreciable property acquired for use in the United States. The new law extends this provision through 2009
   
• Extension of Enhanced Small Business Expensing. Small business taxpayers that purchased capital expenditures in 2008 were allowed to write off up to $250,000 of capital expenditures subject to a phase-out once capital expenditures exceed $800,000. This expensing provision is extended through 2009.
   
• 5-Year Carryback of Net Operating Losses (NOLs) for Small Businesses. The maximum NOL carryback period is extended from two years to five years for small businesses with gross receipts of $15 million or less and applies to 2008 NOLs.
   
• Delayed Recognition of Certain Cancellation of Debt Income (CODI). Certain businesses may recognize CODI over 10 years for specified types of business debt repurchased by the business after December 31, 2008 and before January 1, 2011. Generally, for the first five years no amounts are included in income, and CODI is included in income over the final five years.
   
• Incentives to Hire Unemployed Veterans and Disconnected Youth. Businesses are allowed to claim a work opportunity tax credit equal to 40 percent of the first $6,000 of wages paid to employees in one of 11 targeted groups. The targeted groups are now expanded to cover unemployed veterans and disconnected youth.
   
• Small Business Capital Gains. This provision allows essentially a seven percent tax rate for individuals on the gain from the sale of certain small business stock held for more than five years (subject to some limitations). This change is for stock issued after February 17, 2009, the date of enactment, and before January 1, 2011.
   
• Temporary Reduction of S Corporation Built-In Gains Holding Period from Ten Years to Seven Years. Under the new law, a business that converted to S Corporation status must now hold assets for seven years (formerly ten years) to avoid a tax on any built-in gains. This applies to recognized gains occurring in 2009 and 2010.
   
• Eliminate Costs Imposed on State and Local Governments by the Alternative Minimum Tax (AMT). Interest income earned on private activity bonds had been subject to the AMT, but the new law exempts these bonds issued in 2009 or 2010 from AMT. The bill also allows AMT relief for current refunding of private activity bonds issued after 2003 and refunded in 2009 and 2010.

Assistance for Families and Unemployed Workers

• Extension of Emergency Unemployment Compensation. This program, which provides up to 33 weeks of extended unemployment benefits to workers exhausting their regular benefits, is extended through December 31, 2009.
   
• Increase in Unemployment Compensation Benefits. Unemployment weekly benefits are increased by an additional $25 through 2009.

Reinvestment in Renewable Energy

• Removal of Dollar Limitations on Certain Energy Credits. Businesses are allowed to claim a 30 percent tax credit for qualified small wind-energy property. Individuals are allowed to claim a 30 percent tax credit for qualified solar-water heating property, qualified small wind-energy property, and qualified geothermal heat pumps. Previously these credits had limits associated with the various energy properties. The new law removes the limits.
   
• Tax Credits for Energy-Efficient Improvements to Existing Homes. Tax credits for improvements to energy-efficient existing homes are extended through 2010. For 2009 and 2010, the amount of the tax credit is increased to 30 percent of the amount paid or incurred by the taxpayer for qualified energy- efficiency improvements during the taxable year. This provision eliminates the property-by-property dollar caps on this tax credit and provides an aggregate $1,500 cap on all qualifying property for the credit.
   
• Plug-in Electric Drive Vehicle Credit. Each qualified plug-in electric drive vehicle placed in service during the taxable year qualifies for the credit of $2,500. If the qualified vehicle draws propulsion from a battery with at least five kilowatt hours of capacity, the credit is increased by $417, plus another $417 for each kilowatt hour of battery capacity in excess of five kilowatt hours up to 16 kilowatt hours. The credit is allowed against the alternative minimum tax (AMT).

Health Insurance and Information Technology

• Premium Subsidies for COBRA Continuation Coverage for Unemployed Workers. The new law provides a 65 percent subsidy for COBRA continuation premiums for up to nine months for workers, and their families, who have been involuntarily terminated. There is also some transitional relief for individuals involuntarily terminated after September 1, 2008 who failed to elect COBRA coverage.
   
• Funding for Health Information Technology (IT) through Medicare and Medicaid Incentives. This provision promotes the use of IT by requiring the government to take an active role in developing standards that allow for a nationwide electronic exchange of health information as a means of improving quality and coordination of health care according to the Congressional Budget Office. It is anticipated that approximately 90 percent of doctors and 70 percent of hospitals will adopt certified electronic health records within the next decade. These IT changes are expected to reduce government costs.