American Recovery and Reinvestment Act of 2009

The Tax Attic – May 28, 2008

May 28, 2009 // 0 Comments

Making Work Pay tax credit problematic The provision of the American Recovery and Reinvestment Act of 2009 that is of most concern to tax professionals around the state of Michigan and the entire country seems to be the one titled the Making Work Pay tax credit. I have written about this credit previously, but feel that it is so problematic that I have to write one more article about it. The basic premise of this credit is that taxpayers will receive an additional $13 to $25 per week of take-home pay during the years of 2009 and 2010. For a single person, this should amount to about $400. For joint filers, this should amount to about $800. The credit is the smallest of 6.2% of earned income or $400 single/$800 joint. When the 2009 tax return is filed next year, a single working taxpayer will claim the Making Work Pay tax credit of $400 on the return and, since that person’s withholding should have decreased by about $400, all things being equal, the tax return shouldn’t look much different than this year’s return. Similarly, when the joint working couple file their return in 2009, their withholding should be about $800 less, but they will get the $800 Making Work Pay tax credit, and all should be okay. The taxpayers’ tax burden will have been reduced by $400 or $800 and everyone is happy. However, there are potential problems that will result in some taxpayers not ending up in that happy place. One of the key words in the entire provision is the second word of the provision:  Making WORK Pay tax credit. In other words, for taxpayers who do not work and do not have earned income, there is no Making Work Pay tax credit. That is where problem number one arises. When the Internal Revenue Service was instructed to implement this credit and adjust the withholding tables so that taxpayers would get the $13 to $25 additional take-home pay, there was a small communication error. They did not instruct all of those entities issuing pensions to ignore the new tables. The Making Work Pay tax credit does not apply to pension recipients. Pension income is not earned income and does not qualify as work […]

Two Provisions on the Newly Signed Bill

February 26, 2009 // 0 Comments

by JERRY COON Information 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 […]