Thursday, January 29, 2009

TAX PROVISIONS IN THE STIMULUS BILL

The House of Representatives has passed the American Recovery and Reinvestment Tax Act of 2009. The Senate will take up the bill next week. Pending reconciliation of the two bills, we can’t tell what the final provisions will be. Nonetheless, based on common provisions in both bills, it is likely that the following tax provisions will soon be enacted into law:

-a new tax credit of up to $500 for working individuals and $1,000 for working families, calculated at a rate of 6.2% of earned income, and phased out at adjusted gross income (AGI) in excess of $75,000 ($150,000 for married couples filing jointly)

-an expanded earned income tax credit that would temporarily increase the EITC to 45% of the family's first $12,570 of earned income for families with three or more children

-first-year 50% bonus depreciation will be extended to 2009

-Enhanced Code Section 179 expensing will be extended to 2009

-NOL carrybacks for 2008 and 2009 may be carried back up to six years (instead of currently 2 year carryback for most NOLs, and the 90% limitation on use of NOLs for alternative minimum tax will be suspended

-The work opportunity tax credit will be expanded to include unemployed veterans and disconnected youth

-easier eligibility for the refundable child tax credit in 2009 and 2010

-a new educational tax credit for 2009 and 2010 of up to $2,500 of the cost of tuition and related expenses paid during the tax year. The credit would be based on 100% of the first $2,000 of tuition and related expenses (including books) paid during the tax year and 25% of the next $2,000 of tuition and related expenses paid during the tax year, subject to a phase-out for AGI in excess of $80,000 ($160,000 for married couples filing jointly)

- an enhanced 20% research & development credit for tax years beginning in 2009 and 2010 for research expenditures incurred in the fields of fuel cells, battery technology, renewable energy, energy conservation technology, efficient transmission and distribution of electricity, and carbon capture and sequestration

There are additional items that are included in either the Senate or House bills, but not in both, so we will report on those once it is determined if they make it into the final bill.

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