Tax Updates
Below are some of the tax law changes that are in effect for 2009. Some may be prior tax laws that have been extended.
Tax laws change daily, therefore this information is proved as a reference and is not intended to be a direct quotation of the tax laws.
Making Work Pay Credit (Stimulus)
The refundable credit is equal to 6.2 percent of a taxpayer’s earned income with a maximum credit of $800 for a married couple filing a joint return and $400 for other taxpayers, but it is phased out for higher income taxpayers. The phase-out applies for those with adjusted gross income above $75,000 for individuals and $150,000 for married couples filing jointly. The credit is available for 2009 and 2010, but may be extended under President Obama’s budget proposals (See the article on the Obama budget below.) Ineligible individuals include nonresident aliens, those claimed as a dependent on another person’s tax return and those who do not include a social security number on their tax return. For joint filers, only one social security number is required on the return.
The credit is being implemented through revised income tax withholding tables which employers were required to start using by April 1 of this year. Employers and payroll companies will handle this change, so taxpayers do not need to fill out new W-4 withholding forms to have the credit amount reflected in their take-home pay.
Two Important Points: Taxpayers will not get a separate check mailed to them from the IRS like last year’s economic stimulus payment. Also, with the adjusted withholding tables, employees need to ensure that enough taxes are withheld, as the credit could reduce the withholding for a married couple with dual income by too much if the couple is ineligible or only partially eligible for the credit.
2009 Mileage Rates
- Optional Standard Mileage Rate ………. 55.0 cents
- Medical Mileage Rate …………………….. 24.0 cents
- Moving Mileage Rate …………………….. 24.0 cents
- Charity Mileage Rate …………………….. 14.0 cents
Beginning January 1, 2010, the standard mileage rates for the use of a car (or van, pickup or panel truck) will be:
- 50 cents per mile for business miles driven
- 16.5 cents per mile driven for medical or moving purposes
- 14 cents per mile driven for charitable purposes
Tax Brackets:
So far, tax brackets for 2009 remain at 10%, 15%, 25%, 28%, 33% and 35%.
2009 Standard Deduction Amounts:
- Single ………………………….. $ 5,700
- Married Filing Jointly ………….$11,400
- Married Filing Separately …… $ 5,700
- Head of Household ……………$ 8,350
Personal Exemption Amounts:
For 2009, the Personal Exemption Amount is $3,650.
First Time Home Buyer’s Credit:
Qualifying taxpayers who purchase a home before December 1, 2009 receive a credit of 10% of the cost of the home purchase up to $8000 or $4,000 for married individuals filing separately. You can qualify if you have not owned a home for the past three years. Taxpayers have the option of claiming the credit either on their 2008 tax returns or on their 2009 tax returns next year. The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for married couples filing jointly. Taxpayers buying the home after December 31, 2008 do not have to repay the credit. (Taxpayers who bought a home under the previous provision during calendar year 2008 have to repay the credit over 15 years.)
Some filing options to consider are:
1) Amend the 2008 tax return. Taxpayers who buy a home after they filed their 2008 return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on their 2009 return.
2) Claim the credit in 2009 rather than 2008. For some taxpayers, it may make more financial sense to wait and claim the homebuyer credit next year when they file the 2009 tax return, rather than claiming it on the 2008 tax return. This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return because they have less income in 2009 due to a job loss or a drop in investment income and, thus, will not be penalized by the phase-out provisions.
IR-2009-108, Nov. 24, 2009
A new law that went into effect Nov. 6 that extends the first-time homebuyer credit five months and expands the eligibility requirements for purchasers.
The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.
The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.
But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.
For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.
Retirement Plan Contributions for 2008 and 2009:
In order to maximize the tax benefits of your retirement contributions the following amounts reflect the maximum contributions for the respective years.
| Type of Retirement Plan | 2008 | 2009 |
|---|---|---|
| Individual Retirement Account (IRA) | $5,000 | $5,000 |
| Catch-up amount, age 50 and older | $1,000 | $1,000 |
| 401K | $15,500 | $16,500 |
| Catch-up amount, age 50 and older | $5,000 | $5,000 |
| SIMPLE Plan | $10,500 | $10,500 |
| Catch-up amount, age 50 and older | $2,500 | $2,500 |
| SEPIRA contribution limit | $45,000 | $45,000 |
First $2400 of 2009 Unemployment Benefits Tax Free
The first $2,400 of unemployment benefits received by taxpayers in 2009 are tax free. For a married couple, the exclusion applies to each spouse separately. Unemployed workers can choose to have income tax withheld from their unemployment benefit payments. Those who choose this option will have a flat 10 percent tax withheld from their benefits. The IRS has instructed taxpayers to use Form W-4V, Voluntary Withholding Request, or the equivalent form provided by the payer, to request withholding to begin or end.
