Tax Provisions of Recovery Act
Most taxpayers to receive benefits
By Kaye A. Thomas
Posted February 13, 2009
(Page 2 of 2)
Enhanced benefits for education
The new law offers enhancements to certain benefits for taxpayers paying college costs.
More Hope
The Hope credit, created under the Clinton administration, receives a temporary boost under this law. These provisions apply only for 2009 and 2010:
- Without the change, the amount allowed for the Hope credit for 2009 would have been 100% of the first $1,200 of qualified expense plus 50% of the next $1,200, for a maximum credit of $1,800. Instead it will be 100% of the first $2,000 and 25% of the next $2,000, for a maximum credit of $2,500.
- Without the change, the credit is allowed only for the first two years of college. For 2009 and 2010 it will be allowed for the first four years of college.
- Qualified expenses will include required course materials in addition to tuition and fees.
- Instead of beginning to phase out at income of $50,000 ($100,000 on a joint return), the credit will begin to phase out at income of $80,000 ($160,000 on a joint return).
- The credit is allowed against AMT.
- Forty percent of the credit is refundable for taxpayers other than children to whom the "kiddie tax" would apply. This means low-income taxpayers with qualified expenses can receive a refund that exceeds the amount of tax paid.
The law also directs the Treasury and the Department of Education to conduct certain studies, including one on the feasibility of requiring community service as a condition to using this credit.
Computer costs allowed for 529 accounts
Qualified expenditures for college savings accounts in 529 plans will include amounts paid or incurred during 2009 and 2010 to buy computer technology, equipment or services (including Internet access) for use by a college student and his or her family. This is similar to a provision already in place for Coverdell accounts.
Credits pass through to mutual fund shareholders
The law allows tax credits to holders of bonds used to finance certain types of projects (forestry conservation, clean renewable energy and so forth). Mutual funds have been allowed to buy these bonds and use the credits to reduce their own tax, but have not been able to pass through the credits to their shareholders. Beginning this year, they will be allowed to pass the credits through so that investors can claim these credits on their own tax returns.
AMT bonds
Certain bonds, generally known as private activity bonds, pay interest that's exempt from regular income tax but subject to the alternative minimum tax (AMT). The effect is to make these bonds somewhat less desirable, so they have to offer a somewhat higher rate of interest than other tax-exempt bonds. AMT will not apply to interest on private activity bonds issued in 2009 and 2010. It appears that private activity bonds issued in the years 2004 through 2008 can be transformed into fully exempt bonds if they are refinanced.
Safety net provisions
The new law contains several provisions designed to alleviate financial hardship:
- A temporary increase in the earned income tax credit,
- A temporary increase in the refundable portion of the child tax credit, and
- For 2009 only, an exclusion from income for up to $2,400 of unemployment compensation.
Other provisions
There's more, of course. A number of provisions offer renewable energy incentives, there's an enhanced credit for health insurance costs, and various tax benefits for small business. The official print of the tax portion of this law weighs in at 575 pages.
