March 29 , 2009 - What additional provisions of the recent stimulus program should I be aware of for my individual income tax preparation?

Making Work Pay Credit: Low- and moderate-income workers may be eligible for the refundable earned income tax credit (EITC). Eligibility for the EITC is based on earned income, adjusted gross income, investment income, filing status, and immigration and work status in the U.S. The amount of the EITC is based on the presence and number of qualifying children in the worker's family, as well as on adjusted gross income and earned income.

New law. The Recovery Act provides eligible individuals with a refundable income tax credit for tax years beginning in 2009 and 2010. The credit is the lesser of (1) 6.2% of an individual's earned income or (2) $400 ($800 for a joint return).

An eligible individual is any individual other than: (1) a nonresident alien; (2) an individual with respect to whom another may claim a dependency deduction for a tax year beginning in a calendar year in which the eligible individual's tax year begins; and (3) an estate or trust. An individual is not eligible if he does not include his social security number on the return. For joint filers, this requirement is met if the social security number of one of the spouses is included on the return.

It is anticipated that taxpayers' reduced tax liability under the provision will be expeditiously implemented through revised income tax withholding schedules produced by IRS. These revised schedules should be designed to reduce taxpayers' income tax withheld for each remaining pay period in the remainder of 2009 by an amount equal to the amount that withholding would have been reduced had the provision been reflected in the income tax withholding schedules for the entire tax year.

Computers as Education Expenses under 529 Plans: A person can make nondeductible cash contributions to a qualified tuition program (QTP, or 529 plan) on behalf of a designated beneficiary. The earnings on the contributions build up tax-free and distributions from a QTP are excludable to the extent used to pay for qualified higher education expenses.

New law. Under the Recovery Act, expenses paid or incurred in 2009 or 2010 for the purchase of any computer technology or equipment or Internet access or related services qualify as qualified education expenses under QTPs if such technology, equipment, or services are to be used by the QTP beneficiary or his family during any of the years the beneficiary is enrolled at an eligible educational institution. Expenses for computer software designed for sports, games or hobbies do not qualify unless the software is predominantly educational in nature.

New Temporary Deduction for Sales and Excise Taxes on Car Purchases: Currently, taxpayers who itemize deductions may elect to deduct state and local general sales and use taxes instead of state and local income taxes, for tax years beginning before 2010.

New law. For purchases on or after Feb. 17, 2009 and before Jan. 1, 2010, the Recovery Act provides a deduction for State or local sales or excise taxes imposed on the purchase of a qualified motor vehicle. Only taxes on that portion of the qualified motor vehicle's purchase price not exceeding $49,500 may be deducted. The deduction is available to those claiming the standard deduction, and itemizers.

A qualified motor vehicle is a (1) passenger automobile, light truck or motorcycle the gross vehicle rating of which is not more than 8,500 pounds and (2) a motor home. The original use of the motor vehicle must commence with the taxpayer.

Limited-Time-Only Subsidy for COBRA Continuation Coverage of Unemployed Workers: The Recovery Act provides a 65% subsidy for COBRA continuation premiums for up to 9 months for workers who have been involuntarily terminated, and for their families. This subsidy also applies to health care continuation coverage if required by states for small employers. To qualify for premium assistance, a worker must be involuntarily terminated between Sept. 1, 2008 and Dec. 31, 2009. The subsidy terminates upon offer of any new employer-sponsored health care coverage or Medicare eligibility. Workers who were involuntarily terminated between Sept. 1, 2008 and Feb. 17, 2009, but failed to initially elect COBRA because it was unaffordable, must be given an additional 60 days to elect COBRA and receive the subsidy. Participants must attest that their same-year income will not exceed $125,000 for individuals and $250,000 for families. The subsidy is not taxable .

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