The 2009 stimulus package offers a “tax break” for couples ($1,000) and singles ($500). What does that mean to you? Well, first we need to define “tax relief” to clear up the confusion.
One definition informs us that a “tax cut” is a tax benefit, a deduction that is granted in order to stimulate a certain commercial activity. Wikipedia defines a “tax relief” as a tax saving that includes an exemption, deduction, or credit
The promised “tax relief” applies to payroll taxes, which makes it even more confusing. Payroll taxes are the amount of tax your employer deducts from your paycheck each pay period. The employer pays some of these taxes, but the majority is his or her income. Taxes withheld in trust by your employer and turned over to the Internal Revenue Service. The Internal Revenue Service owes you. The proposed deduction is a deduction from your payroll tax.
Employers have mostly agreed to reduce the amount of employment tax deducted from your earnings each pay period by an amount that will total $500 for singles and $1,000 for couples.
Part of the stimulus plan was also the first-time homebuyer deduction, which could save you up to $8,000 on a new home purchase if you haven’t owned a home in the last three years.
Don’t count on getting the full $8000. Under the tax credit, you will get $8000 maximum. If 10% of the total cost of your home is less than $8,000, you will receive that amount instead of $8,000. If you are single and earn $75,000 or more a year, you will receive less than $8,000, and if you are married and earn $150,000 or more in combined annual income, you will also receive less than $8,000.
This is a refundable credit, which means that if you owe the federal government nothing or less than $8,000 at tax time, the full $8,000 refund is refundable minus what you owe. So, if your total tax liability as of April 15, 2010 is $2,000, you’ll get $6,000 back if you used the first-time homebuyer tax credit in 2009.
This “tax relief” was intended to stimulate business activity in the real estate industry.
It is recommended that you consider consulting with a tax professional and file your return. Filing an income tax return can often be a bit confusing, but with all the tax changes resulting from the recession, your next filing could be more difficult than ever. Tax professionals are trained on all changes to the code and will know which ones will benefit you and exactly how you qualify or not to take advantage of them.
