Lawrence Jackson/AP
Treasury Secretary Timothy Geithner, left, with National Economic Council Director
Lawrence Summers

How Will the Stimulus Bill Help You?

February 18, 2009 10:32 AM
by Anne Szustek
With tax season upon us, many Americans wonder how the new bill will affect their wallets.

Benefits in the Stimulus Package

Nearly two-fifths of the stimulus package, also known as the American Recovery and Reinvestment Act of 2009, is targeted toward tax cuts and credits of some sort.

The stimulus’ most immediate impact will be from $115 billion in tax credits: up to $400 per individual tax filer and up to $800 per married couple in 2009 and 2010. This works out to approximately $8 to $13 more in each paycheck per week, starting in June. The tax credits phase out for individuals with annual adjusted gross incomes of $75,000 to $90,000 and married couples with adjusted gross incomes of $150,000 to $190,000. The tax credits work out to $500 a year per individual, after taxes. Those on Social Security and individuals on disability will get $250, likely in the form of a one-time check.

Some 24 million taxpayers near the threshold for having to pay the Alternative Minimum Tax will be spared that tax burden, thanks to a $70 billion provision in the stimulus bill. There are also tranches in the stimulus to provide tax credits for higher education, first-time home buyers, new car purchases and businesses buying equipment.

Individuals earning less than $125,000 a year and those filing taxes as married jointly making less than $250,000 will be able to deduct sales tax on the purchase of a new car or truck, costing up to $49,500.

Any one who buys a home before Dec. 1 will be eligible for an $8,000 credit. The same income parameters apply for eligibility as for the tax credits. Unlike with the previous home-buyer credit, this credit does not need to be repaid.

Portions of the aid and social spending provisions of the bill also stand to alleviate some of the more immediately noticeable ills of the current recession. Some $27 billion will go toward extension of unemployment benefits. In addition to regular jobless aid, unemployment benefits are to be extended under the bill beyond the current 26 weeks of eligibility to 33 weeks, and will be available through the end of 2009.

Expected to go into effect soon, unemployment benefits under the package are to increase by $25 a week. The jobless also stand to benefit from not having to pay income taxes on the first $2,400 received in unemployment during 2009. 

The package also has provisions for states that agree to provide more benefits to part-time and low-wage workers, estimated to benefit at least 500,000 people nationwide.

Maximum monthly food stamp benefits are to be extended by 13 percent, “which lawmakers estimate will help 31 million Americans, half of them children,” writes USA Today.

Recently laid-off workers can also take advantage of a stimulus-backed subsidy extending COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) premiums for up to nine months. This applies to anyone who was laid off between Sept. 1, 2008, and Dec. 31, 2009. In addition, those who lost their jobs since last September and declined COBRA benefits have 60 days to sign on for benefits. The cut-off for eligibility is $125,000 in annual income for individuals and $250,000 for families in the year they would be getting COBRA benefits.

Background: Other provisions of the stimulus

The biggest slice of aid is $87 billion to go toward a temporary bump in federal funding for state Medicaid programs, followed by $40.6 billion for local school districts. Fourteen billion is to go toward credits for education expenses such as books and tuition, and $17.2 billion is for increasing student financial aid. This includes raising the maximum amount available under the Pell Grant to $5,350 in 2009 and $5,550 the following year. College work-study programs would also get $200 million in extra funding.

Local governments are also to receive a total of $2 billion to acquire and refurbish foreclosed and unoccupied real estate.

Of the social spending portions of the stimulus, $30 billion is to be allocated toward refurbishment of the electric grid, and $29 billion is to go toward modernizing roadway infrastructure. Other funding for transportation infrastructure includes $8.4 billion for public transit refurbishment and $8 billion for high-speed rail. Water infrastructure, including preventative measures against flooding and environmental relief, is to receive some $18 billion in funding.

Medical funding tranches include $19 billion to hospitals and physicians to help them convert their medical records into electronic format and $8.5 billion for research at the National Institutes of Health.

The social spending portion also includes funding for home improvement efforts, including $5 billion for weatherization for low- and middle-income homeowners and $6.3 billion in energy efficiency upgrades for public and federally-supported housing.

Related Topic: Alternative Minimum Tax (AMT)

The alternative minimum tax, or AMT, was first devised in 1969 to prevent the top one percent of earners from using deductions and tax shelters to evade tax. People falling in that bracket were required to calculate a second, alternative tax payment and pay whichever amount is the greater. 

Thanks to inflation, however, a much larger proportion of Americans have to calculate the alternative tax than was originally intended. Owing to inflation, by 2010 about one-fifth of taxpayers may be liable to the alternative tax, according to statistics available in December 2007. Nina Olson, the national taxpayer advocate, in a report given to Congress in 2001, called the AMT “the most serious problem faced by taxpayers.”

Reference: Stimulus text; Recovery.gov; online tax help


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