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The Clock is Ticking – Taxpayers Need to Act Fast to Take Advantage of Temporary Tax Breaks

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clock_cnsmr_8_7RISMEDIA, August 7, 2009-If the first half of 2009 is any indication, taxpayers have their work cut out trying to keep up with available tax breaks and potential tax pitfalls of 2009, according to CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services.

In February 2009, Congress passed the Economic Recovery and Reinvestment Act of 2009. The nearly $800 billion economic stimulus package offers significant tax incentives; however, many of the incentives, as well as other tax breaks, are temporary.

“It’s always confusing for taxpayers when rules change,” said CCH Principal Federal Tax Analyst Mark Luscombe. “But with so many people struggling economically, it’s well worth their effort to see where they may be able to save on taxes, even if it’s only temporary relief.”

According to CCH, among the important temporary tax changes affecting individual taxpayers and set to expire during 2009 are:

-First-time homebuyer credit. This credit reaches $8,000 for purchases between January 1 and November 30, 2009. Taxpayers must be qualified buyers and satisfy income requirements. Eligible taxpayers also can file an amended 2008 tax return to receive the credit sooner.

-Motor vehicle sales tax deduction. Taxpayers can take an extra standard deduction for state and local sales taxes paid on the purchase of a new vehicle and, in states without a sales tax, taxpayers can deduct other fees to take advantage of the temporary motor vehicle sales tax deduction enacted as part of the 2009 Recovery Act. The amount of the deduction is limited to the portion of the state sales or excise tax imposed on the first $49,500 of the purchase price of the vehicle and is effective for vehicles purchased between February 17 and December 31, 2009.

-COBRA premium assistance. Individuals laid off from their jobs between September 1, 2008 and December 31, 2009 meeting income limits may qualify for nine months of COBRA premium assistance under the 2009 Recovery Act. Individuals pay 35% of the COBRA premium and employers must treat that as full payment. Employers claim a credit for the other 65% of the premium on their payroll tax returns.

-Economic recovery payments. The 2009 Recovery Act authorized one-time payments of $250 to individuals receiving Social Security benefits, disabled veterans and others on fixed incomes. The Social Security Administration began sending the bulk one-time payments by mail and direct deposit in May 2009.

-Exclusion of unemployment benefits. Individuals receiving unemployment benefits in 2009 can exclude the first $2,400 from their income. The exclusion is only available for 2009.

-Tax evasion forgiveness. In an effort to shore up tax revenues, the IRS is encouraging taxpayers to disclose unreported foreign bank accounts and assets. In exchange for full disclosure and paying all back taxes plus interest and penalties, the IRS agrees not to criminally prosecute tax evaders and to waive the 75% fraud penalty. The settlement offer is only available up to September 23, 2009.

Additionally, Luscombe pointed out that while the Making Work Pay credit, another outcome of the 2009 Recovery Act, is in effect for both 2009 and 2010, taxpayers and pension recipients need to take a look at their withholdings now to make sure they don’t end up owing more than they expected in taxes. Specifically, Making Work Pay is a credit against a worker’s income tax equal to the lesser of 6.2% of their earned income or $400 ($800 for married couples filing jointly). This amount can be reduced by any economic recovery payment an individual received and phases out beginning at adjusted gross income of $75,000 for single filers and $150,000 for joint filers. Individuals with multiple jobs may need to adjust their withholdings if the credit results in too little income tax being withheld from their wages. In May, the IRS also issued a withholding option for pension plans to offset the credit which could result in some pension recipients underwithholding.

Looking Ahead at Tax Legislation
The rest of 2009 will likely bring additional tax law changes, although many will not take effect until 2010 or beyond. In May, President Barack Obama released details of his tax proposals which included extensive reform of the international tax rules, higher tax rates on upper income individuals, extended middle income tax breaks and deficit reduction. Individual tax cuts would total $736.5 billion over 10 years and business tax cuts would total $71 billion over 10 years. In addition, in late July, the administration outlined tax proposals to help pay for health care reform, including a surtax on families earning more than $1 million a year.

“Congress has already noted its opposition to some of the president’s proposals,” said Luscombe. “However, there are several more months remaining in the year, a growing deficit, an economy that is still trying to find traction and an urgency to reform health care. As a result, it’s a fluid time where policymakers can shift their priorities and make concessions in order to move forward the programs they think are important.”

For more information, visit www.wolterskluwer.com.

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