Posts Tagged ‘stimulus bill’

Stimulus Bill 2.0 & Taxpayers Tax credits and more – Final Part

May 4th, 2009 Vijaianand

We been looking at Obama Tax credit in series of blogs (Taxpayer Tax credit, New Home buyer Tax credit and Energy Credit) adding my personal view on each of them and how we tax payers can take advantage of it. This is last part of the blog series which talks about unemployment insurance help and other credits.

Unemployement Benefits: Jobless get a little extra help

Many of those who are unemployed will get a boost from the stimulus bill,including a $25 increase in weekly benefit checks through 2009 that should help not only those who are out of work but the broad economy as that money gets spent.

Currently, the nationwide average weekly check to those receiving unemployment benefits is $295.05, ranging from $179.08 in Mississippi to $408.28 in Hawaii, according to the National Employment Law Project. Increasing payments is a good way to stimulate the economy, because, “You can get money into the hands of people right away” as per analyst.

And people who are unemployed are likely to spend it. More than 4.8 million people were collecting unemployment benefits at the end of January, up 78% from a year earlier and the highest since records began in 1967, the Labor Department said.

The bill includes other measures to help those who have lost their jobs. They are:

•Lengthen the period in which people can be eligible for extended unemployment benefits. The program, which provides up to 33 weeks of extra jobless benefits after workers exhaust the regular 26 weeks received in most states, was passed last year and was set to expire at the end of March. Under the stimulus bill, the extended benefits would be available through the end of 2009. The NELP estimates this will help about 3 million people.

•Provide money to states that agree to make benefits available to more workers. That would help at least 500,000 people, including some low-wage and part-time workers, who wouldn’t otherwise receive unemployment benefits, the NELP says.

•Suspend the taxation of unemployment benefits up to $2,400.

The measure also helps the unemployed and others by increasing the maximum monthly food-stamp benefit by 13%, which lawmakers estimate will help 31 million Americans, half of them children. And the bill provides a subsidy to cover 65% of a worker’s COBRA health insurance premiums for up to nine months. COBRA lets workers continue their former employer’s coverage for at least 18 months.

Vijai’s 2cents:

It is really a much needed help the unemployed. Unless you experienced the unemployment, it hard to understand how each dollar values. So I would give 100% kudo’s to Obama adminstration on this benefit. Adding on top of it, suspending the taxation upto $2,400 is a bonus. Every dollar adds value to these jobless folks.

Other tax provisions in the stimulus package:

•An expanded earned income tax credit and child tax credit for low-income families.

•A higher education tax credit. Parents of college students would be eligible to claim a tax credit of up to $2,500. The credit is more generous than the existing Hope Scholarship Tax Credit, which maxes out at $1,800 and is available only for the first two years of college, says Amy McAnarney, executive director of H&R Block’s Tax Institute. The tax credit, which would be available in 2009 and 2010, phases out for single taxpayers with AGI of $80,000 to $90,000 and married taxpayers with AGI of $160,000 to $180,000.

•A stopgap measure designed to prevent the alternative minimum tax from hitting more than 24 million households in 2009. The AMT was designed to prevent extremely wealthy taxpayers from using loopholes and deductions to avoid taxes. But because it was never indexed to inflation, it has expanded to encompass more upper-middle and some middle-class taxpayers. About 4 million owed the AMT last year.

These are just few other credits which many of can take advantage either in this year tax return by filing an extension and save for next year.

Here is a nice article from kiplinger on 7 misconception about tax credit.

I hope this series of blogs about obama’s tax credits with my detail insights on how you can make use of it were helpful. I will come back later with an interesting topic from my valise.

Some content source courtesy: usatoday.com

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Stimulus Bill 2.0 & Taxpayers Tax Credits and more – Part 2

April 15th, 2009 Vijaianand

Last week, I started the blog series on Stimulus 2.0 Tax credits. I talked about the first and foremost Tax credit which tax payers should take advantage in their 2009 and 2010 paychecks. Next is the Home and Car Buyer Tax credit.

Home Buyers Tax Credit

To boost the housing and auto industry, this 2nd stimulus package has come out with modest tax break for New home buyers and car buyers.

If you’re in the market for a new car or your first house, the compromise stimulus bill offers modest tax breaks for both kinds of purchases.


First-time home buyers would receive an $8,000 tax credit or upto 10% of their home value, and they wouldn’t have to repay the government later as is required for the last stimulus bill $7,500 credit if they stay in that home for 36 months at least. An earlier Senate proposal would have provided all home buyers with a $15,000 credit which was later cut down to $8000.


According Mark Zandi of Moody’s Economy.com to USATODAY.COM, The home buyer tax credit is a plus for the housing market, but only a small plus.”. “The credit … covers only a part of the down payment needed to make a purchase.


The housing market will take any help it can get, but it needs more.” Other economists point out that the tax credit will still provide a mild jolt to the market by encouraging home purchases, which in turn should help curb the rapid rate of home price declines. It is expected to induce more home sales in 2009 and this will be an important support for the housing market and the housing industry. It should also buffer the rate of decline of home prices.


Vijai’s 2cents:


A tricky tax credit to tackle the new home supply and demand problem in a way to stabilize the housing industry. As the demand increase and supply decrease, the price equilibrium should shift upwards stabilizing the drop in home sales. It is a good tax credit to help many tax payers who been thinking about getting a new home. People who have a home in their to get list is now thinking about really getting one with free money coming from government. It comes with few caveats.


Caveats:

1. It is either $8000 or 10% of your home purchase price. If you buy a home for the value $100k, you can only claim the maximum of $8000.

2. It is only applicable for first time home buyers whether you are single or married who never owned a primary residence in the past 36 months.
 
3. Only homes purchased on or after January 1, 2009 and before December 1, 2009 are eligible.

4.The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return.

5. It is a tax credit you can either claim this in 2008 return by filing an extension if you already filed 2008 return or you can file in 2009 tax return.


I see lot of people wanting to use this $8000 asking for suggestions in many finance forums. I am telling them, Don’t rush it. If you are getting something for free, it doesn’t mean you have to risk your financial health. It is similar to having a pill for a temporary relief without considering the longer term side effects.


Please don’t rush into getting a home whether are qualified easily with a good credit score or not. Take your time, analyze your financial situation to decide whether you really can afford it in a long run.

Ask yourself some practical questions like,


1. Can I pay monthly mortgage and yearly insurance?
2. Do I have a steady job or expecting lay off?
3. Do I have a 3-6 months worth of funds to cover my expenses including mortgage?
4. am I ready to spend some extra dollars every month for home maintenance?


If you can answer these questions in a truthful way without convincing yourself, you might be able to use this credit to get a good home and help the economy.

Check out for more details at http://www.federalhousingtaxcredit.com/

Car Buyers Tax Credit


This bill would allow new car buyers to deduct the purchase’s sales tax from taxable income.  But Ever-increasing credit score requirements by lenders, and slipping consumer credit ratings take many potential buyers out of the pool as per many analyst.


Vijai’s 2cents:

We all know US auto industry is a total mess. General Motors, largest of all in the verge of announcing bankruptcy and becoming Government Motors. With this bill,  Government is hoping to help the auto industry in large by increasing the sales.

Let us say, if you are getting new car which is $25,000 and trading in your old own for $10,000. Most states typically tax the difference of price which is $15,000. A 8.25%  sales tax in the Houston, Texas would be $1238. It is amount that would be reduced in your taxable income. It is similar to $1238 refund from IRS which is a good junk of money.

Many of you might ask,  we already have this provision to deduct our sales taxes in Itemized deductions. What is the difference now? That is true. Texas and few others states don’t have income tax and we have the option to get our sales taxes deduced from Itemized deductions Sch – A but other state residents most likely use to deduct their Income taxes. But this bill is different. It is a tax credit not tax deduction and it is available for all the states and will reduce the taxable income. Check out the previous post to understand the difference between tax credit and tax deduction.

But real question, how many people are going to buy US made cars compared to foreign cars. I am not sure how this will really help US auto makers but it will surely help your pockets to put some money back. If you are thinking about getting a new car, this is the right time. You also don’t have to worry about getting a hybrid car to avail this credit because that is  totally different credit.

We will see Energy Tax credit and others in the next blog post.


Some content are taken and modified from usatoday.com

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Stimulus Bill 2.0 & Taxpayers Tax Credits and more – Part 1

April 7th, 2009 Vijaianand

America is been critised for all the recent bailouts to banks, insurance companies and auto makers. It is even called as Bailout nation these days. The 2 stimulus bills passed totalling apx 1.5 trillion feeding the bailouts are expected to tackle the malice created by subprime crisis. 

The recent stimulus package of 787 billions dollars which is in works is hope to slowly boost the economy in many different ways as per obama administration. Financial analyst say it will take atleast a year or two to know whether this new package really helped to stimulate the economy or not. 


The major diffference between the last stimulus package compared to this new one is gradual and slow infusion of money to the economy. Because Bush adminstration failed to boost economy by sending tax rebate cheques to tax payers and it really didn’t help. So this new stimulus bill will not quickly solve the historic problems besetting the economy, but it could reduce the damage by adding jobs, infusing money gradually thru tax credits and same time providing relief for the unemployed and the uninsured.

Lets first understand what is Tax credit and see what are various tax credits which many of us can take advantage from this stimulus package 2.0

What is a Tax credit?

A tax credit is a dollar for dollar reduction in your income taxes. If you have a $1000 tax credit, you will pay $1000 less tax that year regardless of your tax bracket. A good example is the hybrid vehicle credit, if you purchase one you can deduct the amount directly from the taxes you owe. If you owe $2500 US Dollars in taxes and you have a $2000 USD tax credit, you subtract that credit directly from $2500 USD, reducing total taxes owed to $500 USD.


Difference btw Tax Credit and Tax Deduction

It’s important to understand the distinctions between a tax credit and a tax deduction, since they are two different ways of reducing the total taxes you will pay. A tax credit lowers your tax bill dollar for dollar. A deduction shaves money off your taxable income, so the value depends on your tax bracket. If you’re in the 25% bracket, a $1,000 deduction lowers your tax bill by $250. But a $1,000 credit lowers the bill by the full $1,000, no matter in which bracket you are.


What are various Tax credits announced in Stimulus 2.0?

1. New Tax Credit for tax payers upto $800
2. Firsttime Homebuyer Tax credit
3. Energy Tax credit and
4. Extended Unemployment Benefit


1. From Paycheck: A $400 to $800 credit for many taxpayers


A key element of the stimulus bill would provide most Americans with a tax credit of $400, or $800 for married couples. The tax credit would phase out for single taxpayers with adjusted gross incomes of $75,000 to $90,000 and married couples with AGI of $150,000 to $190,000.


The tax credit would increase the average taxpayer’s paycheck by about $8 a week, prompting some to question whether it will do much to stimulate consumer spending. But for a single worker, the credit is the equivalent of a $500 salary increase, after taxes. In this economy, it is tough to get a hike and it will be even ridiculus to ask for one when lot of people don’t even have a job.

Instead of receiving a check from the government, most single taxpayers will see an adjustment to their tax withholding in their paychecks in 2009 and 2010, giving them about $45 extra per month for the rest of this year (married workers will receive an extra $65). If you’re self-employed, you can adjust your quarterly tax payments to benefit from the tax credit. Then you will claim the credit when you file your 2009 tax return next spring, bringing your tax bill in line with your reduced payments.

See Kiplinger article on How the Self-Employed Get Stimulus Money for the details.

Retirees who receive Social Security benefits and individuals on disability would receive a $250 tax credit. Because these individuals typically don’t have withholding, they’ll likely receive a check.

Vijai’s 2Cents: Don’t expect a rebate cheque this time. If you are employed, look out for a slight increase in your paycheck for 2009 and 2010 which can total to $400 (single) or $800(married) for each year. If you are self employed like me, you can either take the qtrly cut $100(single) or $200(married) from your estimated payment.

I already reduced my estimated payment for this quarter. This way you can save that money and earn some interest. If you don’t want to have the pain, just continue pay your estimated and when you file your return take the credit as a lumpsum. This way you miss out on interest for money you could have earned which is not big with 1-2% interest in savings account these days.

I will First time home buyer credit and other tax credits in my next blog post. Keep looking…

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