American Recovery and Reinvestment Act   The recently enacted "American Recovery and Reinvestment Act of 2009" contains a wide-ranging tax package that includes tax relief for low and moderate-income wage earners, individuals and families with college expenses, and home and car purchasers. I'm writing to give you an overview of the more widely applicable tax changes affecting individuals and families in the new law. Please call our offices for details of how the new changes may affect you and your family. "Making Work Pay" credit. The new law provides an individual tax credit in the amount of 6.2% of earned income not to exceed $400 for single returns and $800 for joint returns in 2009 and 2010. The credit is phased out at adjusted gross income (AGI) in excess of $75,000 ($150,000 for married couples filing jointly). The credit can be claimed as a reduction in the amount of income tax that is withheld from a paycheck, or through a credit on a tax return. Under the credit, workers can expect to see perhaps $13 a week less withheld from their paychecks starting around June. Next year, the extra take-home pay will go down to around $7.70 per week.   Economic recovery payment. The new law provides for a one-time payment of $250 to retirees, disabled individuals and Social Security beneficiaries and SSI recipients receiving benefits from the Social Security Administration and Railroad Retirement beneficiaries, and to veterans receiving disability compensation and pension benefits from the U.S. Department of Veterans' Affairs. The one-time payment is a reduction to any allowable Making Work Pay credit.   Refundable credit for certain federal and state pensioners. The new law provides a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. This one-time credit is a reduction to any allowable Making Work Pay credit.   Unemployment compensation exclusion. A provision temporarily suspends federal income tax on the first $2,400 of unemployment benefits received by a recipient in 2009.   Expanded earned income tax credit. The new law provides tax relief to families with three or more children and increases marriage penalty relief. The changes apply for 2009 and 2010.   Expanded child tax credit. A measure increases the eligibility for the refundable child tax credit in 2009 and 2010 by lowering the earned income threshold to $3,000 (from $8,500 in 2008). Expanded and revised higher education tax credit. The new law creates a $2,500 higher education tax credit that is available for the first four years of college. The credit is based on 100% of the first $2,000 of tuition and related expenses (including books) paid during the tax year and 25% of the next $2,000 of tuition and related expenses paid during the tax year, subject to a phase-out for AGI in excess of $80,000 ($160,000 for married couples filing jointly). 40% of the credit is refundable. The new credit temporarily replaces the Hope credit.    Computers as an education expense. A provision permits computers and computer technology to qualify as qualified education expenses in 529 education plans for tax years beginning in 2009 and 2010.   Expanded credit for first-time home buyers. Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10% of the purchase of a home (up to $7,500) by first-time home buyers. The provision applied to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit were required to repay any amount received under this provision back to the government over 15 years in equal installments (or earlier if the home was sold). The credit phases out for taxpayers with AGI in excess of $75,000 ($150,000 in the case of a joint return). The new law enhances the credit by eliminating the repayment obligation for taxpayers that purchase homes on or after January 1, 2009. It also extends the credit through the end of November 2009, and bumps up the maximum value of the credit from $7,500 to $8,000.   Tax break for new car purchasers. The new law allows taxpayers to deduct State and local sales taxes paid on the purchase of a new automobile, including light trucks, SUVs, motorcycles, and motor homes. The tax break phases out starting with taxpayers earning $125,000 per year ($250,000 for joint returns). The deduction is allowed to both those who itemize their deductions as well as to nonitemizers. However, the deduction cannot be taken by a taxpayer who elects to deduct state and local sales taxes in lieu of state and local income taxes.   Alternative minimum tax (AMT) patch. To hold the number of taxpayers subject to the AMT at bay, the new law increases the AMT exemption amounts for 2009 to $46,700 for unmarried individuals, to $70,950 for joint returns, and to $35,475 for married individuals filing separate returns, and allows the personal credits against the AMT. Energy-efficient existing homes The new law extends the tax credit for improvements to energy-efficient existing homes through 2010. For 2009 and 2010, the amount of the tax credit is increased from 10% to 30% of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements during the tax year. The property-by-property dollar caps on the tax credit are also eliminated, and an aggregate $1,500 cap applies to all property qualifying for the credit. Quick Links   We have included a link to Energy Star's website which details products that qualify for energy credits. www.energystar.gov/index.cfm?c=products.pr_tax_credits         Residential Energy Property The new law removes the dollar limitations on certain energy credits, e.g, for qualified small wind energy property ($4,000 cap); for qualified solar water heating property ($2,000 cap); and qualified geothermal heat pumps ($2,000).  Grants in lieu of electricity production credit and energy credit Under current law, taxpayers are allowed to claim a production tax credit for electricity produced by certain renewable energy facilities and an investment tax credit for certain renewable energy property. These tax credits help attract private capital to invest in renewable energy projects. If you need more information please let us know. Vehicles The new law provides a tax credit for purchases of plug-in electric drive vehicles ranging from $2,500 to $7,500 depending on battery capacity. The new law also restores and updates the electric vehicle credit for plug-in electric vehicles that would not otherwise qualify for the larger plug-in electric drive vehicle credit and provides a tax credit for plug-in electric drive conversion kits. Bonds More funding for bonds. The new law authorizes additional funds for new clean renewable energy bonds and qualified energy conservation bonds.