Workers, retirees and other Social Security recipients will receive new tax relief. The ARRA created a new tax credit called the Making Work Pay credit. It provides anywhere from $400 to $800 for filers, without a phase-out for higher income households. Unlike 2008’s recovery rebate check, this credit will be distributed through a reduction in income tax withholdings.
Also, many people on fixed incomes will benefit from the act because it offers a one-time payment of $250. Social Security recipients and disabled vets will usually qualify for this. Likewise, for those that don’t qualify for Social Security benefits, the act offers certain government retirees a one-time refundable tax credit of $250. The Making Work Pay credit will be applicable for both the $250 payment and the $250 credit.
The volume of the tax relief for individuals involves increasing existing breaks. Here are the most important changes to be aware of:
Credit for first-time homebuyers. First-time homebuyers that qualified last year could receive a refundable credit equal to 10% of the purchase price of a principal residence. Originally set to expire on July 1, 2009, ARRA decided to extend this credit to purchases made before Dec. 1, 2009. The act would also increase the highest credit from $7,500 to $8,000, if the qualifying purchase was made after Dec. 31, 2008. Perhaps most noteworthy about the act, qualifying purchases that take place after Dec. 31, 2008 eliminate the repayment compulsion for taxpayers. The only exception to this would be when a home is sold within three years of purchase.
American Opportunity education credit (previously called the Hope credit). This credit, expanded by ARRA, covers 100% of the first $2,000 of tuition for 2009 and 2010. This would also apply to related expenses (including books) and 25% of the next $2,000 of such expenses. For the first four years of postsecondary education, the maximum credit is $2,500 per year. (The most you could receive with the Hope credit was $1,800 and it only applied to the first two years of postsecondary education.) For joint filers with AGIs more than $160,000 and for filers with AGIs more than $80,000 the credit is phased out.
529 savings plans. 529 plan distributions used to pay qualified education expenses tuition, room, board, mandatory fees and books are generally tax free. For expenses paid in 2009 and 2010, ARRA expands the definition of qualified education expenses to include computers and computer technology.
Laid-off workers receive help. This year, ARRA offers tax relief for laid-off workers by suspending income tax on the first $2,400 of unemployment benefits.
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