What’s Congress Up To Now?
Tax and Financial News
What’s Congress Up To Now?
It’s no secret that Congress is working on a massive stimulus plan that includes both spending and tax cuts. Recently, the House of Representatives passed its version of a plan that would cost $819 billion. Since many of the provisions of the House plan are identical to those of the Senate plan, and a final plan is likely to come out in mid-February, we thought we’d give you a rundown on some of the key tax provisions.
One of the key provisions of the plan is a credit reducing payroll taxes paid by individuals. If you work and pay Social Security and Medicare Taxes, you will be entitled to a credit against those taxes. The amount will be capped at $500 for singles and $1,000 for a couple. The credit begins to phase out at $75,000 for single filers and $150,000 for those filing married and joint. The credit will be available for 2009 and 2010.
The HOPE college credit will increase to $2,500 for 2009 and 2010. Not only that, but it will also be available for all four years of college instead of just the first two. Up to 30% of the credit will also be refundable, which means it can put cash back into your pocket. Additionally, textbooks will be a qualified expense for the credit purposes.
If you receive unemployment benefits, the first $2,400 in benefits will be excluded from income for 2009.
Finally, the first-time homebuyer credit of $7,500 will actually turn into a credit for those who own their new homes at least 36 months. Presently, the credit must be repaid over 15 years, essentially making it an interest free loan.
Businesses will also benefit from this package and chief among them will be the continuation of depreciation and expensing elections that expired on December 31, 2008.
First, the proposals would continue the higher allowance for expensing qualifying property. This higher $250,000 allowance would continue for assets purchased in 2009. Further, the amount at which the deduction begins to be reduced will remain at 2008’s $800,000.
For certain assets purchased in 2008, a special depreciation allowance equal to 50% of cost was allowed. Combined with the higher expensing election, the deduction for new equipment saved businesses a great deal in taxes, but the deduction was allowable only for assets purchased by December 31, 2008. The House bill will continue that allowance for assets purchased in 2009.
While increased deductions are nice, they don’t do a lot of good for businesses with a net operating loss (NOL), especially since the loss can only be carried back two years to get a refund of prior year taxes. Current proposals would allow losses to be carried back five years. This could free up cash for companies experiencing difficulties now and help them weather the present storm.
There are a number of provisions extending and expanding renewable energy credits. All-in-all, these provisions are expected to cost $31 billion. There are a number of other tools to help finance infrastructure expenditures and ease rules on the issuance of tax-free bonds.
In total, the House version of the economic stimulus plan will reduce taxes by $272 billion over the next ten years. Whether this, along with the spending provisions of the plan, will help spur the economy remains to be seen, but it’s a certainty that middle income earners and businesses will all benefit under the present proposals. We’ll let you know the final details in March.
Have a terrific month.
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