Tax Credits and Incentives

The Federal Stimulus offers a number of benefits for both individuals through the federal tax code.  You can learn more by watching some of the videos created by the IRS which describe the Economic Stimulus and Your Taxes.  An overview of each of the key programs is below.

To calculate which tax credits you may be eligible for, click here.

Making Work Pay Tax Credit

What: The bill will cut taxes for more than 95% of working families in the United States. For 2009 and 2010, the bill will provide a refundable tax credit of up to $400 for working individuals and $800 for working families.  Taxpayers can receive this benefit through a reduction in the amount of income tax that is withheld from their paychecks, or through claiming the credit on their tax returns.
How much: A maximum of $400 for working individuals and $800 for working married couples.
Who Qualifies: This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, (or $150,000 for married couples filing jointly).
Video: http://www.youtube.com/watch?v=18KLVJTrh8U
Website: http://www.irs.gov/newsroom/article/0,,id=204447,00.html

First-time Homebuyer Credit Expands

What: First-time homebuyers may be able to take advantage of a tax credit for homes purchased in 2008 or 2009.  This credit reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.  It is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
How Much: For 2008 a tax credit for first-time homebuyers that can be worth up to $7,500; the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.  For 2009 however, the first-time homebuyer credit amount is $8,000 for purchases made in 2009 before Dec. 1, which does not have to be paid back unless the home ceases to be the taxpayer’s main residence within a three-year period following the purchase.
Who Qualifies: Applies to homes purchased as a taxpayer’s principal residence that close after April 8, 2008, and before Dec. 1, 2009.
Video: http://www.youtube.com/watch?v=5VgOWDq4Uyk&feature=related
Website: http://www.irs.gov/newsroom/article/0,,id=204671,00.html
Applicable Form: http://www.irs.gov/pub/irs-pdf/f5405.pdf

Money Back for New Vehicle Purchases

What: A deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles through 2009.  It also provides for the deduction of other taxes or fees paid in states with no sales tax. The deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A.
How Much: The deduction is limited to the tax on up to $49,500 of the purchase price of an eligible motor vehicle.
Who Qualifies: The vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010.  Taxpayers can claim this special deduction only on their 2009 tax returns to be filed next year.  The deduction is phased out for individuals with an adjusted gross income in excess of $125,000 and for joint filers with modified adjusted gross income in excess of $250,000.
Website: http://www.irs.gov/newsroom/article/0,,id=204519,00.html
Additional Information: http://www.irs.gov/newsroom/article/0,,id=206633,00.html

Enhanced Earned Income Tax Credits (EITC)

What: This provides a temporary increase in the earned income tax credit (EITC) for taxpayers with three or more qualifying children.  The earned income tax credit is a refundable credit intended to help people who work but earn modest incomes.
How Much: The maximum EITC for this new category is $5,657.
Who Qualifies: EITC participants.  The credit begins to phase out at $21,420 for married taxpayers filing a joint return with children and completely phases out at $40,463 for one child, $45,295 for two children and $48,279 for three or more children.  For married taxpayers filing a joint return with no children, the credit begins to phase out at $12,470 and completely phases out at $18,440.
Website: http://www.irs.gov/newsroom/article/0,,id=205666,00.html
Additional Information: http://www.irs.gov/individuals/article/0,,id=96406,00.html

Enhanced Additional Child Tax Credit

What: Increases your ability to receive the Child Tax Credit.
How Much: Up to $1,000 for each qualifying child under the age of 17.
Who Qualifies: Those with a qualifying child and below an income level of $75,000 for singles, $55,000 for those married filing separately, and $110,000 for those married filing jointly.
Website: http://www.irs.gov/newsroom/article/0,,id=205670,00.html
Additional Information: http://www.irs.gov/newsroom/article/0,,id=106182,00.html

American Opportunity Tax Credit to Pay for College Expenses

What: More parents and students will qualify over the next two years for the American Opportunity Credit to pay for college expenses.
How Much: Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
Who Qualifies: The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, (or $160,000 or less for married couples filing a joint return).  The credit is phased out for taxpayers with incomes above these levels.  These income limits are higher than under the existing Hope and Lifetime Learning Credits.
Website: http://www.irs.gov/newsroom/article/0,,id=205674,00.html
Additional Information: http://www.irs.gov/publications/p970/index.html
FAQs: http://www.irs.gov/newsroom/article/0,,id=211309,00.html
Video: http://www.youtube.com/watch?v=i215QA-YIzY

Increased Transportation Subsidy

What: The monthly tax exclusion for employer-provided commuter highway vehicle transportation and transit pass benefits increased to $230, effective from March through December 2009.  These qualified transportation fringe benefits are excluded from an employee’s gross income for income tax purposes and from an employee’s wages for payroll tax purposes.
How Much: Employees may exclude from income $230 per month in transit benefits and $230 per month in parking benefits –– up to a maximum of $460 per month.  The monthly exclusion amount for 2010 will be adjusted for inflation.
Who Qualifies: All employees that participate in the employer-provided commuter highway vehicle transportation and transit pass benefits.
Website: http://www.irs.gov/newsroom/article/0,,id=205664,00.html
Additional Information: http://www.irs.gov/pub/irs-pdf/p15t.pdf

Up to $2,400 in Unemployment Benefits Tax Free in 2009

What: The first $2,400 of unemployment benefits an individual receives in 2009 are tax free. These benefits have been taxable, and this provision applies only to benefits received in 2009.
How Much: $2,400 of tax free unemployment benefits.  For a married couple, the exclusion applies to each spouse, separately.
Who Qualifies: Every person who receives unemployment benefits during 2009 is eligible.
Video: http://www.youtube.com/watch?v=sSzp8OdvOpc&feature=channel_page
Website: http://www.irs.gov/newsroom/article/0,,id=205643,00.html
Additional Information: http://www.irs.gov/newsroom/article/0,,id=205633,00.html

$250 for Social Security Recipients, Veterans and Railroad Retirees

What: A one-time payment of $250 to more than 50 million individuals who get Social Security and SSI benefits which were distributed on a staggered basis throughout the month of May 2009.
How Much: A one-time payment of $250.
Who Qualifies: Retirees, disabled individuals, Railroad Retirement beneficiaries and Supplemental Security Income (SSI) recipients receiving benefits from the Social Security Administration.
Video: http://www.socialsecurity.gov/pgm/flash/payment.htm
Website: http://www.irs.gov/newsroom/article/0,,id=204468,00.html
Additional Information: http://www.socialsecurity.gov/payment/

Tax Credits for Energy-Efficient Improvements to Existing Homes

What: An energy tax credit for homeowners who make energy efficient improvements to their existing homes.
How Much: Increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010, (certain improvements have no upper limit and are valid until 2016 – see below “Who Qualifies”).
Who Qualifies: For existing homes only, the 30% credit with a $1,500 limit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.  For existing homes and new construction there is no upper limit through 2016 to the 30% tax credit for Geothermal Heat Pumps, Solar Panels, Solar Water Heaters, Small Wind Energy Systems, and Fuel Cells.
Website: http://www.irs.gov/newsroom/article/0,,id=206875,00.html
Additional Information: http://www.energystar.gov/index.cfm?c=tax_credits.tx_index
FAQs: http://www.irs.gov/newsroom/article/0,,id=211307,00.html
Video: http://www.youtube.com/watch?v=cdbliMuK4es
Podcast: http://www.irs.gov/pub/newsroom/marketing/internet/home_energy_tax_credits.mp3

Plug-in Electric Drive Vehicle Credit

What: This bill modifies and increases a tax credit passed into law at the end of last Congress for each qualified plug-in electric drive vehicle placed in service after Dec. 31, 2009.  The full amount of the credit will be reduced after the manufacturer has sold at least 200,000 vehicles.
How Much: The minimum amount of the credit for qualified plug-in electric drive vehicles is $2,500 and the credit tops out at $7,500, depending on the battery capacity.
Who Qualifies: To qualify, vehicles must be newly purchased, have four or more wheels, have a gross vehicle weight rating of less than 14,000 pounds, and draw propulsion using a battery with at least four kilowatt hours that can be recharged from an external source of electricity.
Website: http://www.irs.gov/newsroom/article/0,,id=206875,00.html
Additional Information: http://www.irs.gov/newsroom/article/0,,id=206871,00.html
FAQs: http://www.irs.gov/newsroom/article/0,,id=211307,00.html

Plug-In Electric Vehicle Credit

What: The new law also creates a special tax credit for two types of plug-in vehicles; certain low-speed electric vehicles and two- or three-wheeled vehicles.
How Much: The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500.
Who Qualifies: To qualify, a vehicle must be purchased after Feb. 17, 2009 and before January 1, 2010.  The vehicle must be either a low speed vehicle propelled by an electric motor that draws electricity from a battery with a capacity of 4 kilowatt hours or more or be a two- or three-wheeled vehicle propelled by an electric motor that draws electricity from a battery with the capacity of 2.5 kilowatt hours. A taxpayer may not claim this credit if the plug-in electric drive vehicle credit is allowable.
Website: http://www.irs.gov/newsroom/article/0,,id=206875,00.html
Additional Information: http://www.irs.gov/newsroom/article/0,,id=206871,00.html
FAQs: http://www.irs.gov/newsroom/article/0,,id=211307,00.html

Conversion Kits

What: A tax credit for plug-in electric drive conversion kits.
How Much: The credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle, up to a maximum credit of $4,000.
Who Qualifies: Vehicles placed in service after Feb. 17, 2009 and before Dec. 31, 2011.  A taxpayer may claim this credit even if the taxpayer claimed a hybrid vehicle credit for the same vehicle in an earlier year.
Website: http://www.irs.gov/newsroom/article/0,,id=206875,00.html
Additional Information: http://www.irs.gov/newsroom/article/0,,id=206871,00.html
FAQs: http://www.irs.gov/newsroom/article/0,,id=211307,00.html

Health Coverage Tax Credit

What: The HCTC is available on a monthly basis to help individuals pay their health insurance costs as they become due or on a yearly basis when they file their federal tax return.  The HCTC Program partners with various federal and state agencies and Health Plan Administrators (HPAs) to deliver the tax credit to eligible individuals.  Through ARRA, the HCTC now pays a greater portion of your health insurance costs.  The tax credit has increased from 65% to 80% of qualified health insurance premiums.  If you are a monthly HCTC participant, the 80% tax credit amount will be reflected on your HCTC invoice.
How Much: The HCTC changes make health coverage more affordable by paying 80% of health insurance premiums for individuals who are eligible for the tax credit.  The HCTC is a refundable tax credit – it is paid in full no matter how much federal income tax an eligible individual owes.
Who Qualifies: The HCTC helps certain trade-affected workers, retirees, and their families pay their health insurance premiums.  The changes to the HCTC – including the new timeframes for extended benefits – are valid for the remainder of 2009 and 2010.
Website: http://www.irs.gov/individuals/article/0,,id=109960,00.html
Additional Information: http://www.irs.gov/individuals/article/0,,id=187948,00.html
FAQs: http://www.irs.gov/newsroom/article/0,,id=211308,00.html

CARS Program – Ended August 28, 2009

What: A buyer incentive program designed to help consumers purchase new fuel efficient vehicles and boost the economy at the same time. The Car Allowance Rebate System (CARS), commonly referred to as Cash for Clunkers, is a new federal program that gives buyers up to $4,500 towards a new, more environmentally-friendly vehicle when they trade-in their old gas guzzling cars or trucks.
How much: Consumers receive a $3,500 or $4,500 discount from a car dealer when they trade in their old vehicle and purchase or lease a new qualifying vehicle.
Who Qualifies: In order to be eligible for the program, the trade-in passenger vehicle must: be manufactured less than 25 years before the date it is traded in; have a combined city/highway fuel economy of 18 miles per gallon or less; be in drivable condition; and be continuously insured and registered to the same owner for the full year before the trade-in.  Transactions must be made between now and November 1, 2009 or until the money runs out.
Website: http://www.cars.gov/
Additional Information: http://www.dot.gov/affairs/2009/dot11009.htm
FAQs: http://www.cars.gov/index.php/faq