The American Recovery and Reinvestment Act of 2009, which was signed by President Obama on February 17th, includes many provisions applicable to individual taxpayers.  The following is a summary of those that will affect the greatest number of people.  Please note that where a number is typed in the format of “$___/$___,” it refers to the benefit or limit for single taxpayers / married persons filing a joint return.

Making Work Pay Credit
This $400/$800 tax break is provided to working persons who earn less than $70,000/$140,000.  Unlike the 2008 tax “rebate,” this credit is “paid” thru reduced withholding taxes and will show up in most peoples’ paychecks beginning in April.  The credit is for 2009 and 2010.

New American Opportunity Tax Credit
In 2009 and 2010, the Hope Credit, for money spent on college tuition and costs and other qualifying post-secondary education, is modified and increased to $2,500 per year.  The new credit is equal to 100% of the first $2,000 in eligible costs and 25% of the next $2,000.  The credit phases out for taxpayers with modified AGI (approximately the income at the bottom of page one of your tax return) in excess of $80,000/$160,000 and is reduced to $0 for taxpayers with modified AGI in excess of $90,000/$180,000.

Computers as Education Expenses Under 529 Plans
In 2009 and 2010, the purchase of a computer for use by the plan’s beneficiary (usually a child or grandchild) qualifies as an expenditure under a 529 plan.  Accordingly, money can be withdrawn from the plan to pay for the computer.

First Time Homebuyer Credit
For homes purchased after December 31, 2009 and before December 1, 2009 (not the 31st, the 1st), the credit is increased to $8,000 and no longer has to be repaid.  This change does not apply to people who bought homes in 2008 and receive the $7,500 credit that is to be repaid $500 a year for 15 years.  Also, although there was discussion of making this credit apply to all homebuyers, it only applies to “new” homebuyers (i.e. those who have not owned their principal residence for three years prior to the purchase).  The credit is also limited to 10% of the home cost (not generally an issue in this market).  Lastly, the credit phases out for taxpayers with modified AGI exceeding $75,000/$150,000 and is reduced to zero at $95,000/$170,000 of modified AGI.

Deduction for Sales Tax on New Car Purchases
Taxpayers are allowed a deduction for state taxes on the purchase of a new car, whether or not they itemize.  The deduction is limited to the tax on the price of the car not in excess of $49,500.  Also, the deduction phases out for taxpayers with modified AGI exceeding $125,000/$250,000 and is reduced to zero at $135,000/$260,000 of modified AGI.

Limited-Time-Only Subsidy for COBRA Continuation Coverage of Unemployed Workers
If a worker is involuntarily terminated (other than for gross misconduct), the Act provides a subsidy equal to 65% of the COBRA cost for continuing health insurance for the worker and his/her family.  The subsidy lasts for nine months and is not taxable income.  Participants must attest that their income will not exceed $125,000 (single) or $250,000 (families) in the year the subsidy is received.  If a person was terminated after September 1, 2008 and before enactment of the Act and did not elect COBRA coverage (presumably because of cost), they have 60 days from enactment to elect COBRA coverage.