Stimulus Package Breakdown of Tax Relief

January 19, 2010

The Stimulus Package was brought into force, after it got a majority vote in the House and Senate. This stimulus plan proposed by President Obama is geared to boost the economy and give relief to people who are struggling under the present recession. The stimulus package apart from spending on different sectors of the economy will also provide various tax cuts. The total amount allocated for Tax cuts in the stimulus package is $288 billion. Many of these tax cuts are provided right now, for one to two years, but for the sake of correctly estimating the effects of the various tax cuts, the provisions are taken for a period of ten years. The tax cuts have been categorized under various headings for easy referencing. The following are the major categories and their breakdowns.


Tax Relief for Individual of the Stimulus Package

The major portion of the tax cuts in the stimulus package is for individuals amounting to $246.86 billion. From this amount a total of $116 billion is allocated to provide tax credit which is refundable, for the years 2009 and 2010. This credit is calculated at 6.2% of the total income which is earned and will discontinue gradually for gross earnings over $75000 for individual and double this amount for joint filings of married couples. The maximum tax credit available works out to be $400 and $800 for individuals and family respectively. This tax credit can be availed by claiming it on their tax returns or by reducing the amount withheld as tax from their salary checks.

A sum of $14.83 billion is allocated to decrease the floor on the earned income from $8500 to $3000 for claiming the child tax credit. This refundable tax credit is 15% over the floor amount.

$13.9 billion will be used for providing $2500 expanded credit on tax, for tuition fees of colleges and other related expenses like books and so on. This credit will be discontinued gradually for earnings more than $80,000 and $160,000 for individual and couples respectively.

A sum of $14.22 billion has been allocated to provide relief to disabled individuals, retirees, beneficiaries of Social Security schemes, veterans who are disabled and beneficiaries of railroad retirement. These people will receive $250 which would be a one time payment.

A sum of $69.75 billion will provide Alternative Tax Relief by way of personal credits which are non-refundable and increase in exemption of AMT to $46,700 and $70,950 for individuals and joint tax filers respectively.

$6.6 billion will be used to provide $8000 tax credit which is refundable for people who are buying homes for the first time. $4.7 billion is for expanded tax credit on earned income for families having three children or more. $4.3 billion is allocated for giving expanded tax credit to home owners who are going to make their homes energy efficient. This will be 30% of the cost of the project or $1500 whichever is less.

Tax Incentive of the Businesses of the Stimulus Package

A total of $6.15 billion has been allocated in the stimulus package to give tax incentive to different businesses. Of this amount the major part amounting to $6 billion is allocated for additional depreciation. In this the businesses can recover capital expenditures by following the prescribed schedule of depreciation. All kinds of equipments, machinery, solar panels, wind turbines and computers will qualify for an immediate 50% write-off.

The other areas where the tax incentive is given are -

  • Small businesses can have a carry-back of five years of their net operating losses.
  • Incentives will be given to businesses which hire veterans and youth who are unemployed.
  • Capital gains of small businesses.
  • The S corporation holding of built-in gains will be temporarily reduced.
  • Temporary relief in payment of tax which is estimated for small businesses.
  • AMT or R&D Credits recognition to be accelerated.

Other Tax Relief of the Stimulus Package

The Stimulus package provides other tax relief for an amount of $6.85 billion. Of this, a major share amounting to $5.37 billion will be used for bonds of tax credit, where the investment has been made in Zones which are economically recovering. This is a new category and the bonds will be available in 2009 and 2010, and the distribution to each state will be according to the job losses of that state. Bonds which are given to municipalities will have to use the money for education, infrastructure, economic development and training for jobs.

The other Tax reliefs are –

  • Tax credits for new markets.
  • Housing Grants will be provided by Treasury department to low-income individuals in place of tax credits.
  • Bonds for economic development of tribal areas
  • Bonds for high-speed rail facilities.

Renewable Energy Tax Credit of the Stimulus Package

A total of $19.96 billion has been allocated for Renewable Energy Tax Credit, and $13.14 billion of this amount is for modifying and extending Renewable energy production over a long term. $2 billion will be used for providing tax credit for Plug-in Electric Drive vehicles which have a battery that provides 5 kilowatts of power per hour. The credit base amount is $2500 and is increased if the kilowatt capacity per hour is more. $192 million will be used to provide tax relief to employers who provide fringe benefit to their employees for parking and transit. $5 million will be for Energy Grants by the Treasury Department in place of Tax Credits for producing electricity by individuals through renewable energy projects.


Infrastructure Financing Tax Tools of the Stimulus Package

A total of $19.35 billion has been allocated for Infrastructure Financing Tools under the stimulus package. Of this amount $9.87 billion will be for issue of tax credit bonds whose investment is used for repair and new construction of public schools and their facilities. State and local governments will be provided support by allowing them to issue tax credit bonds, for which a sum of $4.34 billion has been allocated. $3.23 billion has been allocated to modify the rules on expense of tax-exempt interest for Small Issuers of bonds. Alternative Minimum Tax relief for refunding of private activity bonds, for which a sum of $555 million has been allocated.

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Written by Uncle Sam · Filed Under Stimulus 

Comments

2 Responses to “Stimulus Package Breakdown of Tax Relief”

  1. Helen Lowell on February 17, 2010 at 10:32 pm

    This break of the stimulus package is quite well explained and in simple terms. However, no matter how good the stimulus plan is suppose to be, it doesnt do anything many people who needs help. People who dont work wont even participate since they need a taxable income to benefit of the tax reliefs of the stimulus package. Major investment are being delayed and the injection of money doesnt really help creating more jobs. Big companies who profit from these stimulus jobs dollars are not hiring more. At best it helped preserve some jobs but not create new one. The stimulus plan is a joke when you think of it.

  2. Louis Lavoie on January 20, 2010 at 1:46 pm

    This is a good stimulus package breakdown articles. With so many too read on the net, i like to find good source for reading. While the economic stimulus plan is good in writing, it does nothing to help small people like us. instead it help big companies make more money without hiring more employee. Banks and big enginneering firm are getting all the money for the big contracts. One positive point is that schools are getting more money and Obama wants to extend the stimulus money for schools. Lets hope that investing in big companies will increase production down the road and not increase bank rolls of those millionaires.

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