Law Office of Camron Hoorfar, PC

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.

For some people, getting a tax refund is nothing more than a passing dream.  For these same people, paying the full amount of the taxes owed in a timely manner is much more easily said than done.  But never fear, the IRS provides taxpayers with a few payment options in order to fulfill their tax obligations.

The first option, whicih comes to no surprise, is to pay the tax in full.  But lets be honest, if a person has already paid or has the capability of paying the full amount of their taxes on time, then that same person probably is not reading this blog.

The second option is to apply for an installment agreement.  An installment agreement allows a taxpayer to pay the full amount of the tax over an extended period of time or over the life of the ten (10) year statute of limitations.  Generally, there are three types of installment agreements that a taxpayer can qualify for depending on the amount of the individual’s tax debt.  An installment agreement is a fairly routine procedure that is relatively easy to obtain.

The third option is to apply for a currently not collectible status.  The currently not collectible status is a determination by the IRS that an individual has no money to pay the tax after considering their reasonable living expenses.  At first this option sounds like the best option to most people, but this status is very hard to obtain and is only used by the IRS as a last resort collection method.

The fourth option, and normally the most advertised on the radio and television, is the offer in compromise.  The offer in compromise, known to the world as the “pennies on the dollar plan”, allows an individual to work out a deal with the IRS allowing them to pay a portion of the tax debt in satisfaction of the entire tax amount owed.  Although this payment plan is harder to get than an installlment agreement, this payment option is also not uncommon and is performed on a daily basis.

Not all of these payment options is for every taxpayer.  It is important to know which payment plan you qualify for, which plan best suits your specific situation, and which plan will allow you to pay the least amount of interest and penalties.

For the 2008 tax year (filed by April 15, 2009), over 90 million taxpayers filed their tax returns by e-filing.  This amount is higher than last year’s by approximately 6%.

This record high amount could be due to ever-increasing tech-savy taxpayers or simply because the tough economy has caused people to save money by preparing their tax returns using computer software instead of going to their friendly lawyer, accountant, or tax office.

The following chart is based on the statistics provided by the IRS.