American Recovery and Reinvestment Act of 2009 Highlights

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The House and Senate have reached an agreement on the American Recovery and Reinvestment Act of 2009, better known everywhere as “that huge stimulus bill“. I couldn’t stop myself from taking a peek. Here are some details that directly affect most taxpayers:

“Making Work Pay” Tax Credit: $400 per person, $800 per family
Apparently it won’t be sent out as a lum-sum check this time, but will directly increase your paycheck as an extra $13 a week in take-home pay starting in June (since it is retroactive to 2009), falling to about $8 a week in January 2010. I tend to think a lump-sum would have more “bang”. Starts to phase out at $75,000 modified adjusted gross income for single filers, $150,000 for married filing jointly.

“Not Working” Tax Credit: $250 per person
For retirees, disabled individuals and others who don’t work, they will receive a one-time $250 payment. This will probably be a check in the mail.

$8,000 First-Time Homebuyer Tax Credit
Although there was talk of a $15,000 tax credit for all homebuyers, it looks like it was greatly reduced and still restricted to first-time homebuyers. Starts to phase out at $75,000 modified adjusted gross income for single filers, $150,000 for married filing jointly.

If you bought your house between April 9, 2008 and December 31st, 2008, the first-time homebuyer tax credit remains at $7,500 and you will have to pay it back over 15 years, or when you sell the house. If you bought your house after January 1st, 2009 and before December 1st, 2009, the credit is now increased to $8,000 and you will not have to pay it back as long as your live in it for 3 years.

New Car Tax Deductions
If you buy a new car, you can deduct the interest you pay on your loan as well as the taxes you paid on it (on up to $49,500). Starts to phase out at $125,000 modified adjusted gross income for single filers, $250,000 for married filing jointly.

…and a whole lot more, including expanded unemployment benefits. An example of a tiny tidbit that got mixed in? In 2009 and 2010, you can now use your 529 plan money to pay for “computers and computer technology”, which could include peripherals, software, and even broadband internet fees.

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  1. “If you bought your house between April 9, 2008 and December 31st, 2008….If you bought your house after January 1st, 2009 and before December 1st, 2008”

    Is the second set of dates correct?

  2. There is logic behind the stimulus being spread out throughout the year rather just receiving a lump sum payment. Studies show people tend to save a one time “bonus” but they will increase their spending if they receive a small incremental increase in their paycheck.

    I read an article about this online.

  3. pinksprinkle says:

    For new home buyers, has the deadline that was June 30 been extended for the tax credit?


  4. “If you bought your house after January 1st, 2009 and before December 1st, 2008, the credit is now increased to $8,000 and you will not have to pay it back as long as your live in it for 3 years.”

    Is the Dec 1 2008 date correct?

  5. Alright, I can get an extra 12 pack of beer now with that $13, that should really stimulate the economy huh…

  6. So is the $15,000 available for first-time buyers only…I know I could probably look it up, but your post is confusing. (I still love your blog)

  7. First time poster, but this whole porkulus bill really has me shaking my head. Spending is what got us INTO this mess. We’ve (as a country) spent beyond our means and spending more isn’t going to get us out, it’ll only dig us a deeper hole or at the least delay the inevitable. We’ve been running a negative line for probably decades and we can’t just keep pushing that built up debt farther and farther into the future. Eventually it has to correct itself. To me this is all just one giant correction that needs to happen. We need to get back to our roots and the principles that founded this country, not big government and more debt spending. If this line of thinking continues it doesn’t matter who’s in the Oval Office, it’s going down the tank.

  8. Damn, $789,000,000,000 and I’m not going to see a penny of it 🙁

  9. @ChrisMR

    The correct date is December 1, 2009.

    I also don’t think the car deduction is correct. Everything I have read indicates only the taxes will be deductible and not the interest on the loan. Anyone able to point me somewhere to confirm this?

  10. Does it still apply that if I buy my first home between January 1, 2009 and April 2009, I can still receive the $8000 tax credit with my 2008 Tax Rebate? (Before, they said you could claim you bought the home on December 31st, 2008 and get the Tax credit for 2008, instead of waiting until next year to receive it).

    Does anyone know? I was hoping to get my money this year with my 2008 rebate, even though I’m not closing on the house until March 2009.

  11. No deduction for car loan interest; only sales tax.

  12. Nytimes says that the 529 money has to be for educational related computer expenses:

    529 PLAN EXPANSION When you withdraw money from a 529 college savings plan, you can use it for tuition, room, board, books and other college expenses. In 2009 and 2010, families can also use the money for computers and computer technology, which could include educational software and Internet service for students living at home.

  13. Tax Credits are not uselful as stimulus. Watching MSNBC last week they reported that every $1.00 in tax cuts returned $1.02 back into the economy… wow. That’ll give us a jolt! ha

    Here are some other numbers from Mark Zandi, chief economist and co-founder of Moody’s in testimony before the House Committee on Small Business:

    Take a look at the foodstamps…

  14. I think what I read said the new homebuyer credit is good until 12/1/2009 (not 2008). It’s basically separated into this year (no payback) and last year (have to pay back). So many news sources, I just tried to find the common points.

  15. Does anyone know how the “Making Work Pay” Tax Credit works? How does your employer know what your adjusted gross income is if filing as married? Does the IRS tell them whether you qualify?

  16. $800 per family and 250 for non-workers? so my wife who is working part time but soon will stop working and take care of our newborn, would we get the 800 and 250???
    and wait, my newborn will get 250 too? (she doesnt work)
    it’s all about the details
    according to this nytimes…
    250 seems to be disabled and ss beneficiaries

  17. I am frustrated by the “first-time homebuyer” stipulation. We were fortunately able to sell our house last August. We didn’t make anything on it after commissions and fees, but were able to move to an area that we prefer. We made the decision at that time to rent, as we weren’t very excited about anything currently on the market and prices are just still too high.

    It seems silly to me to exclude us, just because we have previously owned a home within the last two or three years. That credit might otherwise be a deciding factor on whether we choose to buy a house this year or continue to wait.

  18. What never made sense about the $13/week tax cut is that wouldn’t most of America not actually realize it until they file their 2009 taxes in early 2010? How many people are actually going to adjust their exemptions to compensate for a $52/month difference? I don’t think I would, which means everybody is just getting a “lump sum” anyway – and much later than a check mailed in 2009. Am a missing something?

  19. Can someone show me where it specifically says on any website one way or another that a house bought and closed before 4/15/2009 can be filed on 2008’s taxes and get $8k credit THIS YEAR?

  20. I’d like to understand the $13/week tax cut. What if you have a part-time job in addition to your full-time job? Will the IRS notify my 2 employers about which one should give me the $13? I’m more concerned about one employer finding out about the other job.

  21. I was seriously hoping to get more out of this. The best deals are for people that are out of work I guess. 250 for having no job and extended unemployment benefits. If you still work and pay taxes, you just have to suck it up and support those that aren’t working.

    Funny how Michelle Obama critized the last stimulus pay out saying “what am I going to do with 600 dollars”. This is even worse, what am I going to do with 400 dollars spread out over 12 months?

    I was also hoping to see more benefits to businesses. Maybe a reduction in payroll taxes or something directly related to hiring people. I mean, that’s the point of this whole bill right? To “create or save 4 to 5 million jobs”. You’d think some kind of incentives for businesses to start hiring again would have been included. All of the jobs this thing will create are government jobs or government contracts to do work for the government. The private sector got screwed on this one. They should rename this the “Goverment Recovery and Government Investment Act”.

  22. I wonder if they’ll extend COBRA…

    That is really all I’m hoping for. I’m self-employed and health insurance is impossible to come by. COBRA is expensive, but it covers my family and mine is due to run out in October.

  23. @Vern – No they don’t know if you qualify. Employers will get a new withholding schedule. They will withhold less. If it turns out you don’t qualify, you either pay more or receive a smaller refund when you file your tax return next year.

  24. I’ve owned two homes. Anyone know if my fiancee buys her 1st house after or before we are married in July, if we will get a credit when we file? I’m sure there are some pretty complicated rules around this?

  25. I’ve got one, what if I sell my fiance my house before we get married this year, do we get $8000? I’m guessing it would work if we weren’t getting married until next year… Damn, it would be great to get that money, we only make $20,000 each right now… and we could effectively refinance my high rate. Someone let me know if there’s anyway to pull this off.

  26. if my filing status is “married filing jointly”, but my wife doesn’t work, will we get $400 or $800?

  27. TFB is correct, the auto deduction is only for sales taxes. The original Senate bill allowed deduction of interest as well, but the provision was scaled back in the final bill. See page 3 of the summary:

  28. the new bill – (SEC. 1006 starts on pg. 24)
    Amends the old bill – (SEC. 3011 starts on pg. 235)

    Here is the gist:
    • It is 10% of the home price up to $8,000 (8,000 is the max whether single, married, roommates, etc.)
    • It is for first-time home buyers – people who have had an ownership interest in their primary residence within 3 years of the purchase do not qualify.
    • you have to purchase by Dec 1, 2009; if it is a new construction, you have to move in by Dec 1, 2009
    • if you hang on to the place for 36 months, you don’t have to pay the credit back
    • You can file for the credit on 2008 or 2009 tax return.
    • If your total tax obligation is less than 8,000, then the tax credit will only be the amount you owe.
    • If adjusted gross income (for the year filed on) is more than 75,000/150,000 for couples – then the formula is:
    – $8,000 * (1 – ((Income-75000)/20000)) — double the 75000 for couples
    • A person who makes more than $95,000/year (190,000 for couples) gets $0 credit
    • You can’t buy from someone you are related to
    • you don’t have to pay it back if you are force out of the home (eminent domain, etc.) – see 26 USC 1033a
    • if you sell the place within 3 years, you have to pay back the credit up to up to the amount of gain made (up to the whole $8,000)

    (not a lawyer)

  29. “Can someone show me where it specifically says on any website one way or another that a house bought and closed before 4/15/2009 can be filed on 2008’s taxes and get $8k credit THIS YEAR?”

    pg 24 – line 21 in new bill above

  30. That sucks for those of us who bought houses in 2008.

  31. @JD – You wrote “If your total tax obligation is less than 8,000, then the tax credit will only be the amount you owe.” The old $7,500 credit/loan is refundable. I don’t see where the new law changed that. So I would think the new $8,000 credit is still refundable, i.e. people will still get $8,000 even if their total tax obligation is less than $8,000.

    @James – You get $800 provided you earn at least $800 / 6.2% = $12,904, and your AGI is not more than $150k.

  32. Actually, studies have shown that people are much more likely to spend money that is simply included in their paycheck than if they receive it in a “lump sum.” Lump sums are much more likely to go right into a savings account. The New Yorker had an article about it. So, even though it won’t be as much fun, his refund idea is more likely to stimulate the economy.

  33. I see where the $8,000 credit excludes purchases from Related Persons, but the definition of Related Persons says they are only treated as such if it would result in the disallowance of losses under “section 267 or 707(b)…” – what document is this referring to? I’m looking to sell my house to my sister and her husband, who would be first time buyers. Would they be eligible for the credit since they aren’t “lineal descendants”?

  34. wow – the government is now giving people money to buy houses…what a sad state of affairs our country is currently in. Once a nation full of people with pride in providing for themselves and their families and entrepreneurs who could make money by providing a useful item or service to others. Now, our great country is falling into the grips of socialism and nationalized everything. We are now a country which rewards those who fail and tax those who succeed.

    Read Atlas Shrugged!

  35. I hate these 75,000 rules! It’s completely unfair for individuals who live in high market areas. The federal gov’t still assumes that 75k in California is the same as 75k in Oklahoma! I don’t think so. So it the limit adjusted gross or modified adjusted gross? How does the formula work if you make over 75k but less than the 95k limit?

  36. Similar to the post above, if you live in a state where they don’t charge sales tax on cars to begin with (New Hampshire) , there’s no incentive to buy a new car.

  37. denise juarez says:

    i have a question this year is the year that minnum wage increases in july so will we still recieve this and plus the 13 or 15 dollars in our pay check every two weeks i only work 35 hrs per week ,i work for a cleaning company and my husband is retired no social security ,how would i know what i would actually get in my check when it willcome from the goverment to the company on what amount to be recieved to me by the company sincerley concernd

  38. I am unemployed and have been paying COBRA insurance
    payments since November 2008. How do I apply for the
    subsidy? Are the reimbursements proactive to 2008?

  39. Ok everyone,

    I just filed my taxes and my tax assesor told me that this 8000.00 and 7500.00 first time home buyer tax credit works like a loan. You have to pay it back. The only thing is that they are not charging intrest but everyone that takes out this tax credit will be resposible to pay it back either directly or when you file your taxes. Look into this tax credit more before decising you have 7500 – 8000 to spend.

  40. wow!!!! What month can i afford medicine on social security with my $250 one time credit????? what a joke and you all be sure to run buy a home or new car with your $13.00!!!!


  42. Will the new withholding tables continue to the tables used to calculate income tax at the end of the year, or do we need to increase our monthly withholding so we won’t be screwed at the end of the year?

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