Economic Stimulus Bill Cuts Taxes 

On February 13th, 2009, Congressman Sherman voted for the American Recovery and Reinvestment Act (also known as the Economic Stimulus Bill).

President Obama signed this bill into law on February 17, 2009.

The bill includes a tax credit for tax year 2009 and tax year 2010 worth up to $400 each year for most individuals and $800 each year for most couples who file taxes jointly. Most Valley couples will save $1,600 spread over two years. Below is a summary of some of the personal tax benefits under this bill for which most Valley families qualify.

Making Pay Work Credit

How much?: $400 for single taxpayers each year for both 2009 and 2010; $800 for couples each year for both 2009 and 2010. A bit less for those who earn less than $6,450 per year.

Who qualifies?: The tax credit begins to phase out for taxpayers with adjusted gross incomes in excess of $75,000 for single filers and $150,000 for joint filers. The tax credit will not be available to those with an adjusted gross income over $95,000 for single filers and $190,000 for joint filers.

How do I claim my credit?: You will not get a separate, special check mailed to you like last year's economic stimulus payment. You will receive your credit through a reduction in the amount of income tax withheld from your paycheck. If you are paid every two weeks, expect an increase in your paycheck of approximately $15 for individuals ($30 if you are married and your spouse is not employed). If your employer does not change your withholding, you may claim the credit on your tax return at the end of the 2009 and 2010 tax years and receive it as an increase in the tax refund you receive 2010 and 2011.

For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes beginning in early spring. It is not necessary to submit a Form W-4 to get the automatic withholding change. However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his or her combined income.

The Internal Revenue Service will be issuing further guidance on the credit and information on how employers should reduce withholdings.

Recovery Payment to Certain Recipients of Social Security, SSI, and Veteran Benefits

How much?: A one-time payment of $250.

Who qualifies?: Certain retirees, disabled individuals and SSI recipients receiving benefits from the Social Security Administration, Railroad Retirement beneficiaries, and disabled veterans receiving benefits from the U.S. Department of Veteran Affairs.

How do I claim my recovery payment?: You do not have to act to receive the payment. The Federal Agency(ies) from which you are receiving benefits will send you the payment no later than 120 days after the enactment of the bill.

What if I also am eligible for a Making Work Pay Credit?: Your recovery payment and any Making Work Pay Credit together cannot exceed $400 each year for an individual. The IRS has not yet provided guidance on how they will coordinate this payment with the administration of the Making Work Pay Credit; regardless, you do not have to act to receive this payment.

Alternative Minimum Tax Relief

The bill includes a one-year provision providing relief for 26 million American families from the Alternative Minimum Tax (AMT). The AMT was designed to ensure that certain wealthy taxpayers, who were escaping taxation through the extraordinary use of special tax deductions, paid a minimum amount of tax. But, because the AMT was never adjusted for inflation, the tax has become a severe potential burden on California's middle class families. Congress for the past few years has been providing temporary relief by raising the amount taxpayers can exempt from the AMT and by extending certain non-refundable personal credits that taxpayers can apply against their AMT liability.

The AMT provision enacted this month applies for 2009. It is very similar to a provision applicable to 2008. So the provision that was adopted is not so much a tax reduction as the prevention of what would have been a major tax increase for 2009 for most upper middle income families.

While this provision will prevent millions from paying the AMT and lessen its burden on others, it is only a temporary fix. I will continue to fight for a permanent, rational solution.

If you have any questions, please contact Carolina Krawiec of my district office staff at 818-501-9200 and continue to consult my website for updates.