Two Provisions on the Newly Signed Bill

by JERRY COON

jerrycoonInformation is slowly trickling out, detailing how the American Recovery and Reinvestment Act of 2009 will affect us here in Rockford. All 1,107 pages of this historic bill were signed into law by President Obama on February 17. An additional 285-page report has been issued by a joint Congressional committee that explains just the tax provisions of the bill. Needless to say, we are in the heart of the tax season and even skimming through 285 pages would be a difficult task, let alone trying to look over the full bill.

For that reason, tax professionals like me belong to tax organizations such as the National Association of Tax Professionals. They have the staff to research these bills and the accompanying committee reports and give us a 20- or 30-page synopsis of what it all means to you and me. I can deal with 20 to 30 pages.

I would like to pass on what we are being told about two provisions of the bill: the One-Time Emergency Payments provision and the Making Work Pay Credit. Both of these credits will put a tremendous amount of money back into people’s hands with the hope they will spend that money and thus stimulate the economy.

The One-Time Emergency Payment consists of the Department of Treasury issuing a $250 check to the following taxpayers: those receiving Social Security benefits; railroad retirement benefits; veteran’s benefits; and certain taxpayers receiving supplemental security income benefits. There is quite a group of taxpayers, however, who will not qualify for the $250 payment, including those currently in prison, those currently on probation or who have violated parole, those who have committed fraud, and those currently receiving SSI while receiving Medicaid benefits.

The Social Security Administration (SSA), the Veterans Administration (VA), and the Railroad Retirement Board (RRB) are all required to submit lists of eligible taxpayers to the Department of Treasury. The checks are required to be issued no later than 120 days after February 17. That means those $250 checks or direct deposits should show up no later than about June 17. That also means that taxpayers will not be required to file a tax return to get the benefit. We all thought that was hokey last year when millions of taxpayers who haven’t filed a return in years were forced to file a return to get last year’s stimulus payment. Now we know it really was hokey. The SSA, VA and RRB are now required to give up names of qualifying recipients, and it’s no problem at all. I guess all Congress had to do was ask.

The second provision putting cash back into the public’s hands is the Making Work Pay Credit. We have all heard something about this credit by reading stories in The Grand Rapids Press or USA Today or watching an interview on television or seeing something on the Internet, but most of these stories don’t deal with the details. They give the overall picture and that is a nice picture to see. Anyone working will receive a refundable credit equal to the smaller of $400 for a single person or $800 for married-filing-joint taxpayers or 6.2 percent of the taxpayer’s earned income. There is one key word and one phrase in the previous sentence: “smaller” and “earned income” that need further explanation.

First, “earned income” is narrowly defined as only income earned via a W-2. Only those taxpayers getting a paycheck are eligible for this credit. Apparently, that means no paycheck, no credit.

Second, “smaller” means that taxpayers with minimal income will qualify for some credit but may not get the full $400/$800. There is also a phase-out provision involved for “rich” taxpayers. Singles with earnings over $75,000 and joint filers with earnings over $150,000 will only get partial or no credit. It is uncertain if and how taxpayers who are self-employed and run their own business will qualify for this credit, since they are not allowed to issue themselves a W-2. Evidently, Congress doesn’t feel they are part of working America.

However, the Making Work Pay Credit will allow millions of taxpayers who do receive a weekly paycheck to begin receiving a weekly benefit very soon. The bill directs the Department of Treasury to adjust the withholding tax tables and get these tables out to employers as fast as possible. The date we have heard is that paychecks beginning April 1 should reflect the credit. Single filers will see an extra $13 in take-home pay and joint filers will see $26 per week. Even taxpayers who actually pay no tax will still receive this credit because it’s based on a paycheck not on a tax return. However, due to one quirk in the bill, the extra take-home pay could result in a balance due on some tax returns and I will discuss that quirk in next week’s column.

This is Jerry Coon signing off. I have some more reading to do.

Jerry Coon is an Enrolled Agent.
He owns Action Tax Service on Northland Dr in Rockford.
His email address is jcoon@actiontaxservice.com

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