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Economic Stimulus 2009:
Frequently Asked Questions

"Making Work Pay" tax credit
Q: Will I be receiving a stimulus payment like last year?
A: Unlike last year, the check is not automatically in the mail for most taxpayers.  For approximately 95% of America’s working families, their refundable tax credit of up to $400 for working individuals and up to $800 for working families will be paid through a reduction of income tax withholdings (in other words, an increased paycheck) or via the 2009 tax return.  Retirees and disabled veterans will be receiving a $250 check sometime this year, however.
Q: What determines if I qualify for the full benefit?
A: The tax credit is calculated at a rate of 6.2% of your earned income (or joint income if filing MFJ - Married Filing Jointly). If you earn at least $6,450 and are not phased out of the credit, you will receive $400.

Eligibility for the 'Making Pay Work' credit starts to phase out for individuals with adjusted gross incomes over $75,000 and phases out completely at $95,000. For couples, the phase out starts $150,000 and completely phases out at $190,000.
Q: How do I receive my 'Making Work Pay' credit?
A: Workers have two options: 1) you can receive this tax benefit from the amount of income tax that is withheld from your paycheck, or 2) by claiming the credit when you file your 2009 federal income tax next year. If you do not receive the full amount you're entitled to through withholding, you can claim the balance as a credit when you file your tax return.
Q: If I want to start receiving the 'Making Work Pay' credit now, what do I need to do?
A: More details will be forthcoming, but workers will need to work directly with their employers to ensure an appropriate adjustment to their income tax withholding, based upon their tax situation. 
Q: Will it be more advantageous for me to receive it now or wait until next year?
A: That would be a personal decision that you or you and your family would need to make.

The amount that your withholding will be reduced depends on your earnings level and the number of pay periods remaining in the year when the reduced withholding starts.
Q: What if I elect to adjust my withholding, but at the end of the year I am not eligible for the full $400 credit = will I have to pay it back?
A: Awaiting clarity regarding whether an excess advance payment would have to be repaid. More details will be forthcoming.
Q: What if I'm self-employed and pay estimated taxes?
A: Eligible taxpayers who are self-employed can adjust their quarterly estimated tax payments to account for the 'Making Work Pay' credit.
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The Unemployed -

Q: I've heard that I will no longer have to pay tax on my unemployment benefits = is this true?
A: Not quite, but there is some good news for jobless workers in the 2009 stimulus bill.

The first $2,400 of benefits in 2009 is now exempt from federal income taxes. You will pay tax only on benefits received in excess of this amount.
Q: Is it also true that unemployment benefits have also been extended?
A: Yes. The bill extends to December 31, 2009, the date by which an individual must exhaust his regular unemployment benefits in order to qualify for extended unemployment benefits. The original ending date was March 31, 2009. Extended benefits continue for 20 weeks plus an additional 13 weeks in high unemployment areas.
Q: I heard that I may also be receiving more in benefits = true or false?
A: Yes. Unemployment benefits will temporarily increase by $25 per week.
Q: Since becoming unemployed, I'm faced with paying for health insurance through COBRA which is quite a lot more than what I paid as an employee, any help on this in the stimulus bill?
A: Yes, more good news for jobless workers.

As you know, COBRA coverage allows you to keep insurance coverage provided by your former employer, but often at a much greater cost to you.

Now, for workers laid off between Sept. 1, 2008 and Dec. 31, 2009, the government will subsidize 65% of your premiums under COBRA for up to 9 months.

And, for those of you that were laid off between Sept.1, 2008 and Feb. 17, 2009 (the day ARRA was signed into law), who did NOT sign up for COBRA, will receive an additional 60 days to do so and receive the 65% subsidy. Contact your former employer to find out if you qualify for the new subsidized COBRA insurance.

There is a phase out for this provision, however. The 65% subsidy is limited to those whose income for the year is $125,000 or less or $250,000 for couples filing jointly.
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Seniors and the disabled -

Q: For those of us who no longer work, is there anything in the stimulus to help us out?
A: Yes. As part of ARRA, a one-time payment of $250 will be available to retirees and disabled individuals receiving certain Social Security, Supplemental Security Income, Railroad Retirement benefits, and veterans' benefits. Retired government workers who do not receive Social Security benefits will be eligible to claim a $250 tax credit on their 2009 tax return.
Q: Are there any eligibility limitations?
A: It does not appear that there are any income limitations for eligibility of the one-time payment of $250.

Be sure to check back with us on Digits for further information as details are released.
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First-time home buyers' credit -

Q: I'm hearing about an $8,000 first-time home buyer credit that doesn't need to be repaid - is it too good to be true?
A: It's true. For eligible first-time home buyers who purchased a home after Jan. 1, 2009 and before Dec. 1, 2009, the stimulus bill provides for a refundable credit equal to 10% of the purchase price of the home, up to $8,000.

And, yes, unlike the credit provided last year, this first-time home buyer credit does NOT have to be repaid, unless you sell the home or it no longer is your principal residence within 36 months of purchase.

The Tax Institute has asked the IRS for guidance on how the credit should be claimed on a 2008 tax return until the IRS can update Form 5405 to reflect the increased credit.
Q: Are there income phase-out with this first-time home buyer credit?
A: Yes. The new $8,000 credit begins to phase out for individuals with incomes over $75,000 or married couples with incomes over $150,000 filing jointly.
Q: But what about those of us who purchased a home in early 2009 and took advantage of the $7,500 credit when we filed on our 2008 federal tax return = are we just out of luck?
A: No, you can still take advantage of the $8,000 credit if you purchased your home in 2009, but you will have to file an amended return to claim the additional credit, up to $500, to which you're entitled.

You must have purchased your home in 2009, however, to be eligible for the up to $8,000 credit. Homes purchased in 2008 do not qualify.
Q: I purchased my home in 2008 and was eligible for the $7,500 first-time home buyers' credit, will I still have to repay it?
A: Unfortunately, yes. Those who purchased homes in 2008 and received the first-time home buyers' credit are still required to repay the credit over a 15-year period, or sooner if they do not continue to live in the home as their principal residence for the full 15 years.
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My family: education -

Q: I will soon have a child in college and with expenses only going up, can you tell me about the 'American Opportunity' Education Tax Credit and if I qualify?
A: The American Opportunity Tax Credit provides eligible taxpayers in 2009 and 2010 with a credit up to $2,500 of the cost of tuition and related expenses paid during a taxable year. You will need to spend at least $4,000 to get the full credit, however.

Taxpayers receive a tax credit based on 100% of the first $2,000 of qualified expenses paid during the tax year and 25% of the next $2,000 ($500). Forty percent of the credit is refundable, which is good news for lower-income students and families paying for college.

There credit begins to phase out for taxpayers with adjusted gross income in excess of $80,000 for individuals and $160,000 for couples filing jointly.
Q: My kids have 529 plan savings to pay for college = is there good news for me?
A: Yes. Generally when you withdraw money from your 529 plan(s), it's to help pay for college expenses such as tuition, books, room & board, and equipment required for attendance at the school.

Now, in 2009 and 2010, you can also use your 529 plan money for qualified higher-education computers and computer technology = such as software and Internet service for students living at home.
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My family: earned income tax credit -
Q: I have 3 children and qualify for the earned income credit but only receive benefit for 2 children. Is there something in the stimulus for me and my kids?
A: Yes. The stimulus bill now temporarily expands the earned income tax credit for working families with 3 or more children. These families will receive up to $629 more EIC based on this change.

The bill also increases the beginning point of the phase out range for all married couples filing a joint return, regardless of the number of children.
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My family: additional child tax credit -
Q: I have not qualified in the past for the child tax credit, is there any chance I will now that the stimulus bill is law?
A: The good news is that the eligibility for the refundable child tax credit in 2009 and 2010 has been increased and more taxpayers will now qualify for the credit.

The earnings threshold to qualify for the refundable credit is now lowered to $3,000. For 2008, it was $8,500.
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New automobile purchases -

Q: I've heard that the stimulus allows me a 'pass' on paying sales tax on any new vehicle I purchase. This sounds too good to be true = is it?
A: Yes, and no. You'll still have to pay the sales tax, but the new law will allow you to deduct sales tax on new vehicle purchases through 2009 on your tax return.

Included in the definition of "new vehicle" are cars, light trucks, recreational vehicles and motorcycles qualify.

And, the deduction can be claimed as an itemized deduction or as an additional standard deduction for non-itemizers. The deduction is limited to the lower of (1) the sales tax paid or (2) the sales tax that would have been paid on a vehicle costing $49,500.

Phase-out of eligibility begins for individuals with adjusted gross incomes of $125,000 and $250,000 for married couples filing jointly.
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Alternative Minimum Tax (AMT) -
Q: What is AMT and why am I hearing about another 'patch?'
A: AMT stands for the Alternative Minimum Tax. First introduced in 1969, the AMT was created to ensure that the wealthiest American households didn't avoid paying income tax.

Unfortunately, the AMT has not been adjusted for inflation over the years, and therefore, the tax now affects middle-income tax filers. The AMT was never intended to hit middle-income taxpayers, but without a 'patch,' 24 million more middle-income Americans could have fallen prey.

An AMT 'patch' for 2009 is part of the stimulus. Exemption amounts were also slightly increased from 2008 to $46,700 for individuals (up from $46,200) and $70,950 for couples filing jointly (up from $69,950).
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