What Is The American Recovery And Reinvestment Act (arra) Of 2009?

By Author: Jeff Parrack
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Signed by President Barack Obama on November 6, 2009, the American Recovery and Reinvestment Act of 2009 (ARRA) is popularly known as part of "the stimulus package." It not only directs government spending to industries and infrastructure, but it includes a number of programs that can help taxpayers reduce their liabilities or receive a bigger refund. ARRA includes both new legislation and revisions to previous programs, and amends various parts of the tax code to help fuel an economic recovery.

As tax season gets into full swing, it is far past time to debate the political or economic merits of ARRA. People need to know how it will affect them in terms of their tax bill, first of all, and must then investigate other ARRA programs and provisions affecting their employment, housing, car purchases and energy use. This article can present a decent overview and the highlights, but readers are encouraged to read as much as possible about the portions of ARRA directly affecting them, even the legislation itself (available free online).

American dream survives

Several of the law's provisions go straight to the ...
... heart of what defines the "American dream," namely, work and housing. The "Making Work Pay" tax credit was designed so taxpayers would see more take-home income on their paychecks, and a revised "First-Time Homebuyer Credit" was aimed at encouraging home purchases. Taxpayers can get a credit of up to $8,000 (no repayment required) if they buy a principal residence on or before April 30, 2010 and the transaction closes by June 30, 2010. The credit can be taken on either the 2009 or 2010 tax return.

ARRA expanded the homebuyer program to include the purchase of a replacement principal home, and raised the amount of allowable income so more buyers could claim the credit. For government employees, including military, there are some special provisions to account for being deployed overseas, and the deadlines and income guidelines are different, too. People with these special situations should look closely at the details, and make sure to use a tax preparer that is up to date on ARRA.

Driving, schooling and kids

The federal government had a short-lived auto rebate and trade-in program in 2009, but did not neglect to include this other ingredient of the American dream in ARRA. For certain vehicles purchased in 2009, taxpayers can deduct the state and local taxes, and possibly some fees. In states without sales tax, other taxes and fees are deductible, but once again it will take a little research to discover how any particular situation is handled in a certain locale.

Another part of ARRA deals directly with education, key to any modern nation's future (and present, too). ARRA includes the new "American Opportunity Credit" and an expanded "529 College Savings Plan" to assist students and their families in finding money for college. The revised "529" program expands the 2009 and 2010 credit to include families with higher incomes -- up to $80,000 for individual filers and $160,000 for married persons filing jointly -- plus those with no tax liabilities whatsoever. It amends the list of required course materials that are considered qualified expenses, and makes the credit good for four post-secondary school years (up from two). The annual credit cannot exceed $2,500.

Taxes and unemployment

For taxpayers that have three or more qualified children, ARRA also includes a temporary increase in the "Earned Income Tax Credit." The maximum amount of the credit is $5,657. It starts phasing out for married couples filing jointly at $21,420, and for married couples without children the phase-out period begins at $12,470. The allowable income for homes with one, two, three and more children varies, but the limits have been raised across the board. Good tax preparers will have the new tables on hand to do 2009 returns according to the new guidelines.

Normally, unemployment benefits have been fully taxable, but under ARRA up to $2,400 in these payments are tax-free on 2009 returns. Because of the change, taxpayers should double-check their withholding to ensure it is not more than anticipated or desired.

Energy wisdom

ARRA includes incentives for greater home energy efficiency as well as renewable energy products and projects. Under the new provisions, the credit rate is now 30% of all qualified improvements while the maximum credit for qualifying energy improvements completed in 2009 and 2010 was raised to $1,500.

Originally part of the Energy Improvement and Extension Act of 2008, Internal Revenue Code Section 30D -- "Qualified Plug-in Electric Drive Vehicle Credit" -- was amended by ARRA for new vehicles that were placed in service after December 31, 2008 and bought before December 31, 2009. The credit amount is $2,500 plus $417 for each kilowatt-hour of "traction battery capacity" over four kilowatt-hours. Depending on vehicle weight, this can result in a credit from $7,500 to $15,000.

Internal Revenue Code Section 30 also has a credit for qualified plug-in electric vehicles that can include low-speed vehicles and/or ones with two or three wheels. The credit is 10% of the vehicle cost, up to $2,500. The purchase has to be made after February 17, 2009 and before January 1, 2012, but you can only use one of the Section 30 credits on a single vehicle.

Summary

Politics aside, ARRA touches on homes, jobs, autos and energy in an attempt to encourage just what its name suggests -- recovery and reinvestment. Everyone can play a part by becoming familiar with ARRA, taking the tax breaks and continuing in the American tradition of hard work and determination.
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