President Obama has signed into law an economic stimulus package that covers 2009 and 2010. The stimulus plan, which costs $787 billion over two years, is more than 700 pages long. To break it down for you and to summarize the key provisions, we have developed this 2009 Economic Stimulus Package FAQ.
Economic Stimulus Payment and Check
Q. What is President Obama’s economic stimulus package called?
A. The stimulus package is called the American Recover and Reinvestment Act of 2009, and it was signed into law on February 17, 2009. You can read the full version of the Act here, but be warned that it’s more than 700 pages long, which is why we’ve developed this Q&A.
Q. Does the plan include an economic stimulus payment?
A. This is probably the most important question on everybody’s mind. The stimulus plan provides for what is called the Making Work Pay Tax Credit. The credit pays up to $400 to working individuals and $800 to married taxpayers who file joint returns.
Q. Do I qualify for the Making Work Pay Tax Credit?
A. The tax credit will begin to phase out (be reduced) for individual taxpayers with adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly. The credit is eliminated altogether when an individual taxpayers adjusted gross income reaches $100,000, or $200,000 for married couples filing jointly.
Q. How is the Making Work Pay Tax Credit calculated?
A. The stimulus payment is actually what is called a refundable tax credit. This means that taxpayers can receive the stimulus payment even if they do not owe any taxes. The refundable credit is calculated by multiplying earned income by 6.2%.
Q. How big will my stimulus payment be?
A. The amount of the stimulus payment depends entirely on your earned income. For individual tax filers, earned income must be at least $6,452 to receive the full $400. Married couples filing joint returns would need earned income of at least twice that amount to receive the full $800 stimulus payment.
Q. Will I receive an economic stimulus check?
A. No. Unlike the 2008 stimulus plan under President Bush, this 2009 economic stimulus package distributes the payments by reducing the tax withholdings your employer takes from your check.
Q. What if my employer does not withhold taxes from my check?
A. According to the IRS, for those who are not subject to income tax withholding, they can claim the credit when they file their 2009 income tax returns.
Q. When will I receive my economic stimulus payment?
A. June 2009. Under current plans, the reduced income tax withholdings are set to begin in June.
Q. How long will the stimulus payments last?
A. The stimulus payments are for 2009 and 2010. So in effect, there are two stimulus payments under the package.
Q. How much more money will I see in my paycheck?
A. Assuming you qualify for a $400 stimulus payment, you will see your monthly take home pay increase by about $15 per week in 2009 and about $7.70 in 2010. For those qualifying for a $800 tax credit, double these amounts.
Q. Do retirees who do not work receive a stimulus payment?
A. Yes. Because the payroll tax credit only goes to employees and the self-employed, the bill includes a one-time payment of $250 to recipients of Social Security benefits, Railroad Retirement benefits, Supplemental Security Income payments, and pension and disability benefits from the Veterans Administration.
Government retirees who don’t get Social Security will also get a one-time refundable tax credit of $250 in 2009.
For additional information, you can visit the IRS Making Work Pay Tax Credit page.
More than Economic Stimulus Checks
The American Recovery and Reinvestment Act provides for numerous tax breaks beyond direct stimulus payments. Here’s a list of the key provisions that affect individuals and small businesses.
Enhanced Child Tax Credit: The Child Tax Credit will cover more low-income earners. In 2008, the credit was refundable to the extent of 15 percent of an individual’s earned income in excess of $8,500. For 2009 and 2010, that floor drops to $3,000.
First-time Homebuyer’s Credit: The stimulus package increases the $7,500 first-time homebuyer credit to $8,000 for primary residences purchased between January 1, 2009 and November 30, 2009. And so long as the home isn’t sold within three years, the plan eliminates the requirement that the credit be repaid.
The Obama Administration also has implemented the Making Home Affordable Refinance and Modification Program for those struggling to make payments on an existing home.
New car sales tax deduction: Buyers of new cars, light trucks, SUVs, motorcycles and motor homes during 2009 can deduct the state sales or excise tax they pay, even if they don’t itemize their deductions. This break starts phasing out for single taxpayers with Adjusted Gross Income over $125,000 and couples with AGI over $250,000. Note that if you already itemize and choose to deduct state and local income tax, this deduction won’t help you.
Extended energy-saving credits: The 10 percent tax credit for energy-saving home improvements is increased to 30 percent and is extended through 2010. Improvements that qualify for the credit include energy-efficient skylights, windows and outer doors, along with energy-saving water heaters, central air conditioners and biomass stoves.
One-year “patch” on the Alternative Minimum Tax: To keep millions of middle-income taxpayers from being forced to pay the Alternative Minimum Tax (AMT) for 2009, the measure increases the minimum tax exemptions to $70,950 for couples filing jointly and $46,700 for single filers.
Bonus depreciation: A special 50 percent, first-year bonus depreciation is revived for assets bought and placed in service during 2009.
Loss carrybacks: Businesses that averaged $15 million or less in gross receipts over the past three years will be allowed to carry back losses for five years instead of two. The easing applies only to 2008 losses.
Reduced taxes on unemployment income: Normally, people receiving unemployment benefits must report them as income and can be taxed on them. The new bill makes the first $2,400 of unemployment income nontaxable.
Expanded Hope Credit: The Hope Credit for college costs is increased to $2,500 for 2009 and 2010, covering 100 percent of the first $2,000 of tuition and related expenses per year and 25 percent of the next $2,000. The credit is available for all four years of college, up from only two years, and covers the cost of books. It is 40 percent refundable, and begins to phase out at $80,000 of Adjusted Gross Income for singles and $160,000 of Adjusted Gross Income for married couples. The bill also allows tax-free distributions from Section 529 College Savings Plans to cover computer purchases.
Facts and Figures of the 2009 Economic Stimulus Plan
Q. How much does the stimulus plan cost?
A. The stated cost of the stimulus bill is $787 billion. That price tag is a bit misleading, however, because many of the programs in the plan will likely be extended beyond what the bill provides. According to the CBO, the 10-year cost of the package, including interest on the debt necessary to pay for the plan, tops out at $3.27 trillion.
Q. Will the American Recovery Plan help or hurt our economy?
A. As you might imagine, there is much debate and disagreement on this question. According to the CBO, however, in the long run, the stimulus program will hurt economic growth. By 2019, CBO estimates that the plan will reduce GDP by 0.1 to 0.3 percent.
Q. How is the stimulus money being spent?
A. The $787 billion package is divided into two parts. About $499 billion goes toward spending, and about $288 billion goes to tax relief. The spending portion will get distributed to federal agencies and state governments to be spent on projects and programs specified in the stimulus package. Here’s a high level breakdown of the spending:
- State and Local Fiscal Relief: $144 billion
- Infrastructure and Science: $111 billion
- Protecting the Vulnerable (e.g., food stamps): $81 billion
- Health Care: $59 billion
- Education and Training: $53 billion
- Energy: $43 billion
- Other: $8 billion
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