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How Does the Stimulus Plan Affect You? It's
Good to Get Some Advice Now
The biggest benefit from the $787.2 billion federal stimulus
package will hopefully be a noticeable improvement in the
nation's economy. But on an individual level, it's wise to check
if you might be eligible for benefits in health care, education,
various tax credits and housing.
A visit with a tax expert or a financial adviser such as a
CERTIFIED FINANCIAL PLANNER™ professional can help you
determine the best ways to use the following provisions that may
affect you. It's also a good idea to get a financial checkup in
an uncertain economy for the following reasons:
- As much as it might
hurt to look at the performance of your current retirement
accounts and other investments, the economy will recover.
When an upturn comes, it's wise to position your holdings to
take full advantage of the recovery.
- Your future plans
with regard to spending for your home, your family and your
education come into sharp focus under the stimulus plan, and
making these provisions work for you in the short-term
should be part of a long-term plan.
- If you fear your
job might be in danger in the coming months or you might be
facing pay or benefit cuts, it's good to talk through your
personal finances before your employer makes a move. The
best time to prepare for a job loss is while you're still
making a salary. Not only is it a good opportunity to build
an emergency fund, but it's generally easier to look for new
opportunities while you still have your current one.
Here's a quick summary of the stimulus plan provisions that
could affect your finances.
Educational provisions:
College student aid. The package awards $15.6 billion
to increase maximum individual student Pell grants by $500.
American Opportunity Tax Credit. This credit
temporarily provides taxpayers with a new tax credit of up to
$2,500 of the cost of tuition and related expenses, though it
phases out for taxpayers with adjusted gross income in excess of
$80,000 ($160,000 for married couples filing jointly). Forty
percent of the available credit is refundable.
529 Plans. The scope of allowable education expenses
expands to include computers and computer technology.
Tax credit provisions:
One more cap for the Alternative Minimum Tax (AMT).
Lawmakers put one more patch on the AMT to protect a wider
number of people from getting hit. This latest break for
potential AMT targets increases the exemption amounts to $46,700
($70,950 for married couples). The bill would also exclude
interest on all private activity bonds issued in 2009 and 2010
from the AMT.
"Making Work Pay" Tax Credits. This is the
refundable tax credit of up to $400 for individuals and $800 for
families for 2009 and 2010 that would phase out for taxpayers
with adjusted gross income in excess of $75,000 ($150,000 for
married couples). This isn't a lump sum payment, but instead is
reflected in reduced payroll taxes.
Car Buyers Tax Credit. This allows a deduction for
state and local sales and excise taxes paid on the purchase of a
new vehicle through 2009. This deduction is phased out for
taxpayers with adjusted gross income in excess of $125,000
($250,000 in the case of a joint return).
Expanded Child Credit. This increases the eligibility
for the refundable child tax credit in 2009 and 2010 by reducing
the minimum income for eligibility to $3,000.
Earned Income Tax Credit. This provision will create a
temporary tax credit increase for working families with three or
more children.
Housing provisions:
Refundable First-Time Homebuyer Credit. First-time
buyers can claim a credit worth $8,000 — or 10 percent of the
home's value, whichever is less — on their 2008 or 2009 taxes.
The added bonus is that the credit is refundable, which means
that filers will see a refund of the full $8,000 even if their
total tax bill was less than that amount.
Unemployment and healthcare-related benefits:
Extension of Unemployment Benefits. The package
provides 33 weeks of extended benefits through Dec. 31, 2009.
Unemployment Compensation. The first $2,400 a person
receives in unemployment compensation benefits in 2009 won't be
taxed.
Short-Term COBRA Subsidy for Involuntarily Terminated
Workers. This provides a 65 percent subsidy for COBRA
premiums for up to 9 months, which will put a dent in the
considerable cost of COBRA health benefits for the unemployed.
April 2009 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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