Two late 2009 tax filers wondering about the stimulus package.
Nick and Paige first met at a party in the spring of 2009. Nick nursed a lukewarm beer in a corner; Paige wore a varsity sweat blazer in nebulous navy and did her best to look bereft of emotions. It would turn out to be a tumultuous year. Later, Paige crunched the last hard pebbles of ice in the parking lot at Rutt’s Hut with the heel of her boot while Nick waited in line for chili dogs. A few days of furious texting, coupled with some tentative sexting, much the rage that year, improbably flowered into a full-fledged relationship that set the new couple in a tizzy of by then unavoidable Facebook updates.
When the King of Pop moonwalked back to Neverland for the last time that summer, the stations flooded with endless waves of Beat It and Billie Jean that washed over the speakers of Paige’s new Camry. Paige had long been an ardent MJ fan; Nick, not at all; they squabbled; it was a first cloud in a formerly clear sky. Then, in late November, after a stormy Thanksgiving at their new home, the many minor disputes merged into a major mess. Nick’s ex Rachel or, as Paige was soon to call her, Rachel You-can-tell had been sighted; Paige found Nick’s reassurances too tepid. In the following weeks, he felt compelled to hide his golf clubs and cancel practice sessions at the local range, just in case.
Things had indeed gotten complicated, a fact immediately advertised on their Facebook relationship status page. Mutual threats of summary unfriending were brandished about. Paige angrily accused Nick of getting lost on his own Appalachian Trail after he returned home late one night, leading a baffled but blameless Nick to ponder Joe Biden’s immortal wisdom, words to the effect that even if you did everything right, with absolute certainty, there was still a 30% chance that things would go wrong. Nick wondered how the Vice President came upon that exact figure. He also wondered what Paige meant; he had never hiked the Appalachian Trail.
New Year’s Eve seemed colder than usual but the harsh winter of 2010 was soon forgotten when the couple reconciled following a hastily convened beer summit. With a firm press of the reset button, Nick and Paige were set again to sail on an ocean of shared felicity. Their conversation was henceforth peppered with snoogums and pooh bears. This was a new development in their relationship, and a fresh source of irritation for their close friends. The decision to marry came as a foregone conclusion. The union was set for May. Wedding preparations were typically hectic and loaded with the usual perils. April 15th came and went, with tax day forgivably the last thing on their minds. Paige wore a Vera Wang facsimile. Their soon-to-be-joint taxes went woefully unfiled.
Oh well, with multiple apologies to John Cougar Mellencamp, tax goes on long after the thrill of dating is gone. Nick and Paige must now address their unfiled 2009 taxes and, like all 2009 late filers, they want to be sure to take full advantage of the gigantic stimulus bill passed that year by verifying whether they qualify for any of the American Recovery Act tax cuts listed below:
- The Making Work Pay Tax Credit, also known as the payroll tax credit, equivalent to $400 for an individual and $800 for a married couple filing jointly. This tax credit would in principle have been disbursed incrementally over the year by way of an employer adjustment to the employee withholding. The self-employed, or those whose employers did not manage their withholdings, must file a Schedule M to collect the benefit. Please note that phase out of the credit starts at $75k (for individuals) and $150k (for couples) and is not applicable for filers making more than $95K and $190k respectively. Note further that the Making Work Pay Credit is provided in lieu of a stimulus check for 2009. Fully $116 billion of the $237 billion of tax incentives provided by 2009 stimulus package has been allocated for this credit.
- The stimulus bill also allows for a one-year increase for 2009 of the Alternative Minimum Tax to $46,700 for single and $70,950 for joint filers. $70 billion were earmarked to enable this augmentation.
- Those who qualify can also claim the American Opportunity Credit, which is an expanded college credit of up to $2500 applicable to college tuition and other related expenses. Please note that either the student or the parent, not both, can claim the credit. Filers will need to file Form 8863 to benefit, and the credit is phased out for couples making over $160k.
- Nick and Paige, who bought their first home in early October of 2009, will want to file their 2009 taxes to take advantage of the First Time Homebuyer Credit. It is applicable to homes purchased between the first of January and the first of December 2009 and involves a tax benefit of up to $8000 with no repayment required. Note that the repayment provision is also repealed for homes bought on 2009 and held for three consecutive years.
- Our couple replaced storm windows, improved the insulation of their new home, and even installed a few solar panels on the south-facing roof. These energy saving improvements entitle them to Residential Energy Credits of up to $1500 (or at least 30%) towards their expenses. Other home improvement may qualify. Be sure to consult with your tax preparer to see if you qualify.
- Nick had a thankfully short stint between jobs in the middle of 2009 when he collected unemployment and he should consider taking advantage of the tax exemption that makes the first $2400 of this compensation non taxable. These Unemployment Benefits provided by the stimulus bill should net him a larger refund or bring down his tax liability for the year.
- Paige also bought a new car in the summer of 2009 and is entitled to the Sales Tax Deduction for Vehicle Purchases. Paige’s pick was fairly modest but the Recovery Act allows the deduction to apply for sales and local taxes plus fees paid on up to $49,500 of the purchase price, a rather generous provision. There are two caveats: the vehicle must have been purchased between February 17th and December 31st of 2009, and the tax benefit is phased out for incomes above $250k.
- Nick and Paige did not of course have children in 2009 but couples that did should take note of the expanded Child Tax Credit made possible by the American Recovery and Reinvestment Act. The Child Tax credit in 2009 is now up to $1000 per dependent children and also applies to families that do not earn enough to pay any income tax.
- The Stimulus also outlays $4.7 billion for the expansion of the Earned Income Tax credit for low-income workers, especially those with families of more than three children. However, couples who have no children and singles should be aware that they can also claim the credit if they qualify although for a lesser amount. For more information, please consult the FS-2010-12 page of the IRS website.
Nick and Paige will do well to remember that they were not married before the end of the 2009 tax year, and cannot in fact file jointly for that period. They did purchase a home together, which makes their tax-filing situation somewhat more intricate than your average dating couple. They should seriously consider a qualified tax preparing service like priortax.com to file their late 2009 taxes.
Photo via Andrew Fecheyr on Flickr.