How Much Money Can the New Stimulus Act Save One Family in 2009

After President Obama signed the new stimulus act into law Feb. 17, a long-time friend, Brian, called me.

He wanted to know, “What’s the maximum I can get out of those new tax breaks on my 2009 tax return?” (He’s always been a tad aggressive on his tax returns. I warn him that he needs to be careful if he ever hopes to get nominated for a presidential appointment).

Anyway, I thought it was an intriguing question.  Being a CPA, I can figure out tax law and add up the numbers. Here are the results. He can save $13,790 in taxes on his 2009 return! 

Now remember, this isn’t for everybody. Here’s Brian’s “ideal” situation. He’s married, has one child in college, and his adjusted gross income (taxable income prior to subtracting exemptions and standard or itemized deductions) is less than $150,000.  And here are the details broken down by credit and deduction.

1) Making Work Pay: This is a new $400 credit ($800 if married and filing jointly) that the taxpayer receives by reduced payroll withholding.  Since Brian will be filing joint for 2009, he’ll be getting $800 tax savings during the year through an increase in each paycheck for 2009.  So that’s $800 savings.

2) First-time Homebuyer’s credit:  Brian and his wife haven’t owned a home in more than 3 years.  Why? When they moved from the Midwest to San Diego, they couldn’t afford a house. Now with the drop in prices, they could buy that new home in 2009. Yeah! Since it’s in San Diego, the price will definitely be more than $80,000. Ka Ching… $8,000 credit. For more details see Taking First-Time Homebuyer Credit.

3) New car sales-tax deduction:  Since car sales are way down and so are car prices, Brian could decide it’s time to buy a new car.  Since he’s always wanted a luxury car, he’d use the excuse that he can get the maximum deduction for sales tax on a car priced up to $49,500.   That‘s a lot of money for a car but he does get a tax savings of $990.  (Price $49,500 times 7.775% (San Diego sales tax) = $3,836 deduction. Since his marginal tax rate is 25%, his tax saving is $990 (3,836 times 25%).   Let’s not talk about what his wife would say about that not so big tax savings for a very big car. 

4) Energy saving tax breaks: If Brian’s wife has been complaining about how chilly their family room and master bedrooms are (yes, it does get a tad chilly in San Diego!), now is the time to buy new energy-saving sliding-glass doors for those rooms. If the price of each door is $2,500, which would meet the maximum credit of $1,500 ($5,000 times 30%).

5) Bigger tax break on college costs: Their child is in her 4th year of college and her tuition is $10,000 and wouldn’t have qualified for the Hope credit under old law. Since the old HOPE credit has been extended and expanded (and now called American Opportunity credit), they’ll get the maximum credit of $2,500.

 Here’s the summary: 
 Making Work Pay Credit            $    800
 Homebuyer Credit                     $ 8,000
 New car deduction- tax savings  $    990 
Energy credit (new doors)           $ 1,500
College tuition credit                  $ 2,500 
 TOTAL                                     $13,790

For details on the new tax act, check out  2009 Stimulus Package: What's In It For You, and When.

Comments

[TurboTaxLee]

Hi tanya, Good question. If both of your names are on the car, only one of you can take the car sales tax deduction on your tax return. If only your father's name is on the registration/purchase of the car, only he can take the deduction. Hope this info was helpful.

[tanya]

please help have a questin..i have a question i bought a new car in april of 2009 but its in my dads, he was my cosigner. name but i pay the bill and purchased it will i be able to claim it on my taxes for the credit?? since all along ive been payin the car? dont want any trouble from irs...

[Julie]

You have got to be kidding me!! Take on $500,000 in debt so that you can save $13,900 on your taxes? I'll concede, if this is the right time for you to buy a first home - that credit makes sense. But no one - I mean no one - needs to buy a $50,000 car to save $1,000 on their taxes. This kind of thinking is what has put America in this position. Buy what you can afford and only that. Pay cash. Live within your means and save for the future. Stay away from credit and debt and your life will be less stressful and more productive.

[Bill from MN]

Why is it that those who benefited the most are willing to do the least? Something had to be done, or we could wind up like Japan, with a recession that lasted ten years. To me the risk was necessary, for the out come would be too horrible to contemplate. Having served in the military, and having had friends die for this country, most of these complaints just ring hollow.

[Larry L]

Send government a wake-up stimulus
All of us need to stop paying taxes. What could they do? Put us all in jail? Then who would support their 6 & 7 figure income?Once government learns we are not going to support their wasteful habits things could change.

[Bert]

The stimulus package only helps some that others are paying for. i am retired withs ss and what iras i had are being taxed first even thou they were after taxed. Also, increase in city, county, federal taxes and in utility companies. trying to find work and not counted because not drawing unemployment. over qualified another term for too old.

[David S.]

Stimulus, schmimulus. Borrowing money from foreign governments (insert China) and printing more money does not, will not, can not possibly have a long term positive effect on the financial health of the country. If the effect lasts 3.5 years, then the democrat party might get re-elected. Perhaps that's the objective.

[Pamela Mills]

The talk show host that was posing as a CNN reporter was so irate tht the citizen did not realize he was getting $4oo from the government, hello, I just paid $9000 in income taxes plus SS, Medicare, State, City, County, Local and school taxes! Plus, that 400 was mine to start with the the government TOOK from me without my permission! HELLO!! Get a clue government, I want the fair tax or the choice of where I spend my mandated amounts!

[Making YOU Pay credit?]

Dear American Taxpayers and the CPA that wrote this article:

1. "Making Work Pay" is NOT a CREDIT.

2. "Making Work Pay" is NOT a deduction.

3. "Making Work Pay" IS a reduction in the amount that YOU are withholding to save enough money to pay your once a year Federal income tax.

As a result, you are going to get a BIG surprise on April 15, 2010. You know that money you were NOT saving for yourself in the withholding? The money the government decided to 'give' back to you?

YOU STILL OWE THE MONEY!

If I were a CPA I would NOT characterize this as a Credit but a warning to ALL Taxpayers that they had better use the new IRS withholding calculator to see if they need to INCREASE the amount they are withholding each pay period.

IRS GOV WEBSITE:

“The Withholding Calculator reflects the new withholding tables providing employees with the benefit of the Making Work Pay (MWP) Credit created by the American Recovery and Reinvestment Act (ARRA) of 2009. Employers should have implemented the new withholding rates by April 1.
You should use the withholding calculator to ensure that the reduced withholding will not result in having too little income tax withheld (possibly causing you to owe taxes next year) if:
• You are an employee with two concurrent jobs,
• You and your spouse both work, or
• You can be claimed as a dependent (since you are not eligible for the MWP Credit).”

[Will Brondell]

Can you tell me directly what stimulus money will be available for me and my wife, filing jointly. We are 73, and 72 years old, own our "new" townhome and two used cars, 6 & 8 years old.

[Tax Payer]

Dear Intuit:

I use your products because I thought they were accurate, but you are misleading your customers when you say that a reduction in withholding is a savings.

I withhold money from my paycheck each pay period to pay my once a year federal income tax. This is my choice and I can withhold more money if I want. If I withhold almost nothing, the IRS will decide for me how much to withhold.

I need to withhold the money to pay my income tax once a year. If I decide to claim 2 deductions and that will still allow me to withhold enough money at the end of the year to pay my income tax then I did the right thing.

But now, the Federal Government, has misled us, as has Intuit, by saying a 'reduction in the amount I withhold' is the equivalent to a 'credit'.

Has the definition for a credit changed with Turbo Tax? if so I need to know ASAP before I buy your product again next year.

Please explain what a credit is and what a reduction in withholding is to your customers.

A reduction in withholding simply means at the end of the year I may end up $800 short in the amount of money I was putting away to pay my taxes. There is no credit and my Federal income tax will probably even be more.

Quote from Intuit:
"Making Work Pay: This is a new $400 credit ($800 if married and filing jointly) that the taxpayer receives by reduced payroll withholding. Since Brian will be filing joint for 2009, he’ll be getting $800 tax savings during the year through an increase in each paycheck for 2009. So that’s $800 savings."

[Max]

Greed for things (most unnecessary), and people who buy on credit for more than they can afford are the cause of the weak exomomy. We have fools being taken advantage of in a most unscrupulous manner by credit companies regardles whether they be credit card comapnies or banks. I'd like to see real dramatically reduced interest limits on credit cards. It is absolutely criminal and unconscionable what credit cards are permitted to charge. I wonder who they are paying off in Congress?

[Stainless steel cooking]

The elected did exactly what they promised. A tax cut for a large percentage of workers. How do you like that $8 (or $16) per week tax cut now? Maybe the tea parties and the cries for the FairTax will be heard within the beltway.
http://affiloblueprintreviews.com

[Stainless steel cooking]

The elected did exactly what they promised. A tax cut for a large percentage of workers. How do you like that $8 (or $16) per week tax cut now? Maybe the tea parties and the cries for the FairTax will be heard within the beltway.

[DON RILEY]

Just some more or Obama's PR Bull C____p. 95% of us will get tax relief ! Maybe, but only if one spends money to buy a house or a car, or improves one's house with green stuf, or has a student in college does one get any relief. So far, Zero, unless you spend your money that most unemployed don't have to spend. And, those on SS who get $250 will only have it added to the total SS amount that get taxed at the end of the year. One thing for sure is Obama's PR team is supurb.

[Dean Nitz]

Hey OldDad...

Do you and your friends really feel this way? I don’t understand where you are coming from….

As for the problems in the Tax Code and Financial challenges of this country... You'd have to go back to September 1993 in order to trace where today's problems stem from. As for the REPUBLICAN remark, You are WAY OFF and out of line!!! It isn't about NOT helping people that need help, it’s about helping someone that is unwilling to help themselves. I have friends that have taken the easy way out of their financial messes, and filed bankruptcy, but one friend was over $1.5 Million in debt when his small business folded a while back. This man did not file bankruptcy. He didn’t ask for help. He simply worked his tail off and made good on 100% of that debt. It took a while, but he did get it paid off. That is something to be proud of. I have another friend that has bought cars, toys, a house, and has recently been divorced. His total debt was about $110,000, and he filed for bankruptcy. And, I can tell you these two guys DO NOT vote the same as each other. And can you tell me which way each of them voted in November? If you can, your remark earlier is … well I guess you have your right to your opinions… God Bless…

[Jim O]

I think we shouldn't be borrowing to buying anything that depreciates. Save up the money and buy used cars with cash. Buy furniture as you've got the cash saved. Pay the credit card bills off every month. I've been doing this for the last 30 years and it works great. I bought my first home two months before the magic April 9th. Oh well!

[Chip]

"Once the Nation's finances get squared away, we will all benefit in the future."

Not trying to pick a fight, but by that time, we'll all be dead and our grandchildren will still be paying for this stimulus.

[OldDad]

No stimulus package can be retroactive enough to satisfy everyone. The idea here is to help as many as possible, today. Once the Nation's finances get squared away, we will all benefit in the future. We can't correct ALL of the past: how far back would we have to go? Quit your Republican bitching about not getting your share of the pot and be thankful that at least some people will get help, which in the long run will help all of us.

[Mike M.]

Dear TurboTaxLee-

I appreciate your post and anecdotal information. Although the stimulus package does not help me (I'm divorced, no longer a homeowner, can't claim any education payments since my college-attending daughter lives with her mom, and have a 3-year-old car)your examples do help clarify, which is the point of your article. I won't shoot the messenger, or whine about the people it does help (like married parents and first-time homebuyers). I also won't suggest who should get or deserves money. Sometimes we just need to help ourselves. Thank you!

[OldDad]

Ediots:

Even though the tax tables do not change (already printed and distributed), when you fill out your tax forms at the end of the year, you will find an automatic taxes owed reduction of $400/$800 on the line just before the taxes due line. That is what the payroll reduction is geared to. Use your head for something besides a ball/truck cap on backwards (or is it your head that is on backwards?).

[David Oates]

I agree with John Hyder's post ealier; retired, small pension, collecting SS no children in college... I found that my stimulas/rebate was only $300 because I receive social security!
My living expenses are going up with inflation but I don't get to stimulate the economy as much as others. Those receiving Social Security are penalized.

[Mickee]

Bend O : Try getting a small business on the side anything you like doing ...this way you will have lots to write off (cell ph & bills, gas, mileage, office space, supplies, parking, stamps etc)on your taxes and get money back. Also dont throw anything of use in the trash...write it off by taking it to goodwill...increase your exemtions thru the year ...then at tax time put it back to file "head of household" . Use turbo tax. These are the things I do and I always get large refunds back. Also, if you attend church your milage to and from, your cash giving and even your time (by way of milage) can be written off under charity-this to increases your return.

Mickee from Houston

[Kimberly Boyd]

What if your a single mom, who was finally able to buy a home (before April 8, 2008) and only barely makes enough to get by each month? (still working 2 jobs)
One child is fully grown, and the other 2 are nowhere near college. That little bit of extra money in my check each month doesn't even buy a tank of gas! That's the only stimulus I'm eligible for right now. I would love to go back to school, but who has time? Why was that first time homebuyer credit only available if you purchased after April 8th, 2008 anyway? 4 days back and I could've paid off all my credit and had a little extra money each month for the kids.

[Bent O. Again]

Well, I've worked and paind taxes for over 40 years in the aerospace business, and still not quite at the 6 figure level. I'm single (divorced) and own a small house that I bought last year. And no, I didn't get the first time buyer's BS then either. Had to buy to get some tax break! So I read through this, and again, I notice the only stimulus I'll get is that same one I get every year as the government has me bent over the table. What a crock..............