The American Recovery and Reinvestment Act of 2009, also known as the ARRA, was signed into law on February 17, 2009 and contains tax relief and other benefits for individuals as well as businesses.
The following provisions of the ARRA benefit individual taxpayers:
1. Making Work Pay Credit – Allows individuals who are employed or self-employed to receive a refundable credit of up to $400 for single individuals and $800 for married individuals. Unlike previous years, the tax benefit will not come in the form of a check. Instead, taxpayers will receive a slight increase in their paychecks in 2009 and 2010 due to a reduction in income tax withholdings for these years. But come tax time, taxpayers must claim the credit on their 2009 and 2010 income tax returns.
2. Economic Recovery Payment – Allows individuals who receive Social Security, Tier 1 railroad retirement benefits, VA pension or disability benefits, or SSI to receive a one time payment of $250 in the form of a check that will be mailed to the individuals. The U.S. Government should be issuing the checks automatically, so taxpayers should not need to do anything in order to receive the $250.
3. Additional Child Tax Credit – This tax credit has become even easier for qualifying individuals and children to take advantage of due to an increased eligibility for the refundable portion of the tax credit. Taxpayers will receive this benefit when they file their 2009 and 2010 income tax returns.
4. Unemployment Compensation – The first $2,400 of unemployment benefits will be tax free in 2009. When filing their 2009 income tax return, taxpayers should reduce their unemployment benefits received by $2,400.
5. Earned Income Credit – Allows for an increased credit for families with three or more children. The maximum additional benefit for such families is $629.
6. COBRA – Individuals who were involuntarily terminated from their jobs from September 1, 2008 to December 31, 2009 will receive a subsidy of 65% of their monthly COBRA premiums. Regularly, individuals are responsible for 100% of their COBRA premiums, but under the ARRA qualifying individuals are only responsible for 35% of their COBRA monthly premiums for 9 months.
7. First Time Home Buyer Credit – Allows first time home buyers who purchase a home between December 31, 2008 and December 1, 2009 an $8,000 refundable tax credit that is claimed on the taxpayers’ 2008 or 2009 income taxes. The difference between this credit and the old home-buyer credit is that this credit does not have to be repaid back to the U.S. Government.
8. Nonbusiness Energy Property Credit – Allows taxpayers who invest in energy improvements to their residential property a tax credit of up to $1,500 for qualifying residential energy improvements. Individuals can take the credit on their 2009 or 2010 income tax returns.
9. Residential Energy Efficient Property Credit – Allows taxpayers who invest in energy improvements to their residential property an increased tax credit for larger residential energy efficient improvements. Individuals can take the credit on their 2009-2016 income tax returns.
10. American Opportunity Tax Credit – Allows individuals who pay for qualified education expenses for the first four years of higher education to receive an enhanced Hope credit of up to $2,500, of which 40% is refundable. Individuals can take the enhanced credit on their 2009 and 2010 income tax returns.
11. Section 529 Plan Distributions – Allows individuals who use their Section 529 qualified educaiton plan to purchase computer and related equipment for college to have an expanded list of what constitutes qualifying higher education expenses. Individuals can take advantage of this tax benefit on their 2009 income tax return.
12. New Vehicle Purchase Credit – Allows individuals who purchase new vehicles after February 16, 2009 and before January 1, 2010 to receive a tax credit for the state and local sales tax paid on the purchase of a new vehicle in 2009 costing up to $49,500. Individuals may claim this tax credit on their 2009 income tax return. Taxpayers are not required to itemize their deductions in order to receive this tax credit.
13. Plug-in Electric Vehicle Credit – Allows individuals who purchased a qualified plug-in electric motor vehicle after 2009 to receive a tax credit up to $7,500 on their 2010-2014 income tax returns. However, the tax credit will no logner be available for certain vehicles once manufacturers sell their 200,000th plug-in vehicle.