The American Recovery and Reinvestment Act Provides Tax Cuts for Working Families and Small Businesses

By Matt Erdman

The American Recovery and Reinvestment Act of 2009 is good news for taxpayers this year, both individuals and businesses. A number of different tax credits, new deductions, increased benefits, and tax incentives are provided for in the bill.

Some of the provisions affecting individuals include: The Making Work Pay Tax Credit will increase the take-home pay for many Americans. First-time homebuyers can now receive a credit of up to $8,000 with no payback requirement. Taxbuyers who bought certain cars in 2009 can now deduct the state and local taxes they paid. Enhanced education benefits include a tax credit up to $2,500 for college expenses and computer technology can now be paid for with a 529 college savings plan. The earned income tax credit (EITC) for married couples with three or more children has increased to $5,657. Employees can now exclude $230 per month in transit benefits and $230 per month in parking benefits from their gross income for income tax purposes. Up to $2,400 in unemployment benefits are tax free in 2009. Social Security recipients, veterans and railroad retirees will receive a $250 Economic Recovery Payment. New tax credits are available for taxpayers who make energy efficient improvements to their existing homes and buyers of plug-in electric and hybrid cars. Reduced COBRA health insurance premiums are available for a period of up to 15 months for workers who have lost their jobs. The Health Coverage Tax Credit will pay up to 80% of health insurance premiums for those receiving Trade Adjustment Assistance (TAA) benefits or pensioners over the age of 55 who belong to qualified health plans.

A number of tax breaks also apply to businesses: The work opportunity tax credit (WOTC) now applies to unemployed veterans and unskilled younger workers hired during the first part of 2009. A variety of energy tax credits are in effect for businesses who utilize alternative forms of energy. Small businesses can use a new net operating loss tax provision to get a refund of taxes paid over the past five years. The Build America Bonds and Recovery Zone Economic Development Bond programs have been expanded to provide more funding for the building of education, energy and other public projects.

These tax breaks should help considerably in their stated goals of creating new jobs as well as saving existing ones, spuring economic activity and investing in long-term economic growth. Most importantly they apply to the working families and small businesses which have been struggling the most.

Sources:
http://www.irs.gov/newsroom/article/0,,id=204335,00.html?portlet=6
http://www.recovery.gov/About/Pages/The_Act.aspx