Tax Benefits for Families and Individuals

So what does this mean for you?

A single adult earning up to $75,000 is now eligible for a Making Work Pay Credit of $400. A married couple with two children and a combined income of up to $150,000 is eligible for an $800 Making Work Pay Credit and a $2000 increase in the Refundable Portion of your Child Credit.

If you or your dependent child is in college, you qualify for an American Opportunity tax credit of up to $2,500 of the cost of tuition and related expenses.   You are eligible for this credit if you are filing as a single person and your income is less than $80,000 or $160,000 if you are filing your tax return jointly.

If you purchase a new car, you are eligible to receive a tax credit equivalent to about one-third of the value of the titling taxes you pay.  For a car with a value of $20,000 you are eligible to receive a $390 tax credit if you are filing as a single person and your income is less than $150,000 or $250,000 if you are filing your tax return jointly.

If you are a first time home buyer you are eligible for a First Time Homebuyer Credit of up to $8,000.

This year you will also see a suspension on the income Tax on the first $2,400 of Unemployment Benefits that could result in a $780 savings.

ARRA – Summary of Major Tax Provisions

Making work pay credit
For 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns. This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

Effect on Maryland: Increased purchasing power for Marylanders eligible for the credit. It is estimated that about $3 Billion of this money will flow to Marylanders over the next two years, providing a much needed simulative effect to the State economy.

Temporary increase in earned income tax credit
The bill would temporarily increase the earned income tax credit for working families with three or more children. Under current law, working families with two or more children currently qualify for an earned income tax credit equal to forty percent (40%) of the family’s first $12,570 of earned income. This credit is subject to a phase-out for working families with adjusted gross income in excess of $16,420 ($19,540 for married couples filing jointly). The bill would increase the earned income tax credit to forty-five percent (45%) of the family’s first $12,570 of earned income for families with three or more children and would increase the beginning point of the phase-out range for all married couples filing a joint return (regardless of the number of children) by $1,880.

Effect on Maryland: There will be a positive economic effect, since the increase in the income tax credit will put additional money in the hands of people more likely to spend it.

Temporary increase of refundable portion of child credit
The bill would increase the eligibility for the refundable child tax credit in 2009 and 2010. For 2008, the child tax credit is refundable to the extent of 15 percent of the taxpayer’s earned income in excess of $8,500. The bill would reduce this floor for 2009 and 2010 to $3,000.

Effect on Maryland: There will be a positive economic effect, since the increase in the child tax credit will put additional money in the hands of people more likely to spend it.

Suspension of tax on portion of unemployment compensation
Under current law, all federal unemployment benefits are subject to taxation. The average unemployment benefit is approximately $300 per month. The proposal temporarily suspends federal income tax on the first $2,400 of unemployment benefits per recipient. Any unemployment benefits over $2,400 will be subject to federal income tax. This proposal is in effect for taxable year 2009.

Effect on Maryland: Increase in purchasing power for unemployed Marylanders.

Additional deduction for State sales tax and excise tax on the purchase of certain motor vehicles
The bill provides all taxpayers with a deduction for State and local sales and excise taxes paid on the purchase of new cars, light truck, recreational vehicles, and motorcycles through 2009. This deduction is subject to a phase-out for taxpayers with adjusted gross income in excess of $125,000 ($250,000 in the case of a joint return).

Effect on Maryland: The credit decreases the cost for purchasing a vehicle by Marylanders who qualify for the credit. For example, if someone purchases a new $20,000 car with no trade-in, they will pay $1,200 in Maryland titling taxes.  The average Marylander would be in the 25% federal tax bracket and save $300 on their federal taxes from this new federal law.

American opportunity tax credit
The bill would provide financial assistance for individuals seeking a college education. For 2009 and 2010, the bill would provide taxpayers with a new “American Opportunity” tax credit of up to $2,500 of the cost of tuition and related expenses paid during the taxable year. (The maximum Hope credit was $1,800 and applied to only the first two years of postsecondary education.) Under this new tax credit, taxpayers will receive a tax credit based on one hundred percent (100%) of the first $2,000 of tuition and related expenses (including books) paid during the taxable year and twenty-five percent (25%) of the next $2,000 of tuition and related expenses paid during the taxable year. Forty percent (40%) of the credit would be refundable. This tax credit will be subject to a phase-out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly).

Effect on Maryland: Increase in purchasing power for Marylanders who qualify for the credit.

Extension of and increase in first-time homebuyer credit; waiver of requirement to repay
Last year, a refundable credit equal to 10% of the purchase price of a principal residence was made available to qualified first-time homebuyers. This credit was set to expire July 1, 2009, but ARRA extends its availability to purchases made before Dec. 1, 2009. For qualifying purchases made after Dec. 31, 2008, the act also increases the maximum credit from $7,500 to $8,000. The act eliminates the repayment obligation for taxpayers whose qualifying purchase occurs after Dec. 31, 2008 — except in situations where a home is sold within three years of purchase.

Effect on Maryland: This may affect the demand for owner-occupant housing as it directly decreases the cost of buying a home. In so far that additional demand spurs extra spending on home furnishing and related expenses, and contributes to the stabilization in housing prices through lower inventory, as well as other channels, the credit will have some positive economic effect.

Extension of AMT Relief for 2009
The bill would provide more than 26 million families with tax relief in 2009 by extending AMT relief for non-refundable personal credits and increasing the AMT exemption amount to $70,950 for joint filers and $46,700 for individuals.

Effect on Maryland: Without this provision, more middle-income Marylanders would have had to pay the Alternative Minimum Tax (AMT). The AMT tax is not indexed for inflation, and as such, it tends to engulf more and more people over time – an effect called “bracket creep.”


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