According to the press release, “This groundbreaking plan will provide critical tax, health and job-training benefits to American families, incentives for businesses to grow and create jobs and assistance for those who have lost their jobs or are economically disadvantaged”.
The tax provisions that provide “recovery” for individuals include –
* A refundable “Making Work Pay” credit of up to $500 for singles and $1,000 for joint taxpayers based on 6.2% of “earned income” (note that 6.2% is the Social Security withholding tax rate). The credit will phase-out as AGI exceeds $75,000 for singles and $150,000 for joint filers. The money is distributed via a reduction in income tax withholding or by claiming a credit on their federal income tax returns (I expect to cover self-employed individuals). This credit applies for 2009 and 2010.
* An increase in the Earned Income Credit to 45% (from 40%) of a family’s first $12,570 of earned income for families with three (3) or more children and increase the beginning point of the phase-out range for all married couples (regardless of number of children).
* Elimination the current $8,500 “floor” on the refundable portion of the Child Tax Credit for 2009 and 2010. Currently the credit is refundable to the extent of 15% of a taxpayer’s earned income in excess of $8,500. Under this bill the $8,500 would become “0”.
* A partially refundable “American Opportunity” education tax credit of up to $2,500 of the cost of qualified tuition, fees and books determined as 100% of the first $2,000 and 25% of the next $2,000 paid during the year. 40% of the credit will be refundable. The credit will phase-out as AGI exceeds $80,000 for singles and $160,000 for joint filers. The credit applies for 2009 and 2010. I expect this credit would replace the existing education tax credits and the above-the-line deduction for tuition and fees.
* Eliminate the obligation to repay the First-Time Home Buyer Credit on home purchases made after January 1, 2009. The credit would have to be recaptured if the home is sold within three (3) years of purchase.
* Increase and extend through 2010 the residential energy credits that were recently extended for tax year 2009.
The bill would also extend the 50% bonus depreciation and increased Section 179 expensing limit and phase-out threshold through tax year 2009 and extend the net operating loss carryback period from two (2) to five (5) years for 2008 and 2009.
Just a reminder – more refundable tax credits = increased tax fraud.
So what do you think?