IRS Stimulus Details

The Internal Revenue Service (IRS) is actively participating in the economic stimulus plans, in the form of tax credits, tax deductions, and tax rebates.

Of the $787 billion economic stimulus package signed into law by President Barack Obama in February 2009, approximately $300 billion represented tax provisions.

Below are details about the main categories of IRS economic stimulus. Almost all of them have stipulations, and most don’t apply to people in high-income categories. Consult with an accountant for specifics.

Making Work Pay Tax Credit

Starting in April 2009, American workers average weekly paycheck bumped by $10, for a total of $400 per person per year, or 6.2% of wages, whichever is less. This little windfall continues through 2010. It’s similar to the tax rebate program introduced by the Bush Administration in 2008, when an average of $600 was sent to taxpayers. This time, around, however, the money is being handed out in smaller increments, instead of all at once.

$250 Economic Recovery Payment

A one-time $250 recovery payment will be sent to Social Security recipients, disabled veterans, and retired government and railroad workers in late May or early June 2009. This economic stimulus check will come separate from the monthly benefits check. It’s similar to the $300 economic stimulus checks that were handed out by the Bush Administration in 2008.

First Time Home Buyers Credit

Home buyers who purchase a property between January 1, 2009 and November 30, 2009 will receive up to $8,000 in tax credit (this has increased from the Bush Administration’s $7,500 level in 2008). None of this money has to be repaid, as long as you stay in the home for at least three years. First time home buyers are defined as anyone who hasn’t owned an interest in a principal residence within three years of the purchase date of the new home. Click here for more information on first time home buyers stimulus packages.

Mortgage Debt Forgiveness

Debt forgiveness is typically treated as taxable income. However, for mortgage debt that was partially or completely forgiven in 2007-2010, you may be able to claim up to $2 million in special tax relief. The debt must have been used to buy, build, or substantially improve your principal residence (i.e. not used to pay off a car loan or credit card bills). You’ll receive a 1099-C from your lender when the debt is forgiven. Click here for more information on mortgage stimulus packages.

New Car Tax Deduction

If you buy a vehicle between February 17, 2009 and December 31, 2009, you’ll be able to deduct state, local, and excise taxes. This applies to purchases only, not leases, and only applies to the first $49,500 of the purchase price of the vehicle. Foreign and domestic cars, light trucks, motorcycles, and RVs (gross weight less than 8,500 pounds) all qualify. Click here for more information on new car stimulus packages.

Unemployment Compensation Taxes

In 2009, the first $2,400 worth of unemployment benefits are tax-free. You should either elect to have withholding taxes taken from additional unemployment checks, or be prepared to pay the IRS at the end of the year. Click here for more information on unemployment benefits stimulus.

Small Business Tax Change – Carry Back Net Operating Losses

Sole proprietorships, partnerships, and corporations with gross receipts of less than $15 million can choose to carry back 2008 net operating losses for three, four, or five years. Click here for more information on small business stimulus packages.

Small Business Tax Change – Estimated Tax Payments

In 2009, small business owners (adjusted gross income of less than $500,000) only need to make tax payments of 90% of their 2008 taxes, not the typical 100% or 110%. Click here for more information on small business stimulus packages.

Other IRS Stimulus

There are also tax credits available for:
•Higher education
•Transportation (van pooling, transit passes, parking)
•Energy, including a beefed up tax credit for plug-in motorized vehicles
•529 tuition programs
•Tax relief for families with three or more children
•Alternative minimum tax “patch”

For more details on the tax cuts that came out of the 2008 and 2009 economic stimulus bills, plans, and packages, call an accountant.