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Understanding the stimulus tax credit
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Posted on Feb 27 2009
Unlike past stimulus tax breaks, not everyone will get a check in the mail this year.
Under the American Recovery and Reinvestment Act signed into law recently, individuals earning $75,000 or less will receive a $400 tax credit, while couples filing jointly earning $150,000 or less will receive an $800 credit.
For people who receive a paycheck and are subject to withholdings, the employer will usually handle the credit through automated withholding changes in early spring. The changes may result in an increase in take-home pay, according to the Internal Revenue Service.
But because the credit is refundable, those individuals who owe less tax that the credit will receive a check for the remaining balance.
For example, if an individual owes $300 in taxes, the tax credit will cover that amount and the individual will receive a check for the remaining balance of $100.
The amount of the credit must be reported on the employee’s 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.
A one-time $250 payment will be made in 2009 to retirees, disabled individuals and Supplemental Security Income recipients receiving benefits from the Social Security Administration. Disabled veterans receiving benefits from the U.S. Department of Veterans Affairs will also receive the $250 payment.
Unlike last year’s economic stimulus program, the IRS will not make the payment. Anyone who may qualify for the payment should contact the respective agency for more information, the IRS said.
The new law should generally not change 2008 tax returns, according to the IRS. It will largely impact 2009 returns filed in 2010.
However, for some small businesses provisions could affect 2008 tax returns. And for first-time homebuyers there is an expanded credit available on 2008 tax returns.
