Economic Stimulus: What does the American Recovery and Reinvestment Act do for individuals?
The American Recovery and Reinvestment Act (ARRA) expands existing tax credits, creates new credits and a deduction for sales tax paid on new automobiles, provides alternative minimum tax relief for 2009, and exempts unemployment benefits from tax. All of the provisions are temporary; some apply to tax year 2009 only and others to both 2009 and 2010. The Joint Committee on Taxation estimates that the 10-year revenue cost of these provisions will total $232 billion. In 2009, 93% of tax units have a tax cut compared to their pre-stimulus liability (T09-0112).
- Making Work Pay Credit
- New refundable credit equal to 6.2% of earned income up to a maximum credit of $400 ($800 for couples)
- Reduced by 2% of income above $75,000 ($150,000 for joint filers) so fully phased out when income exceeds $95,000 ($190,000 for joint filers)
- Applies to tax years 2009 and 2010
- Estimated 10-year revenue loss: $116.2 billion (JCT-19-09)
- Expansion of Earned Income Tax Credit
- Increases credit from 40 percent to 45 percent of qualified earnings for families with 3 or more children, raising maximum 2009 credit from $5,028 to $5,657
- Makes the income phase-out range for couples $5,000 higher than for other filing statuses; in 2009 it was $3,120 higher
- Applies to tax years 2009 and 2010
- Estimated 10-year revenue loss:$4.7 billion (JCT-19-09)
- Expansion of Child Tax Credit Refundability
- Child tax credit is refundable up to 15% of earnings above a threshold
- Reduces this income threshold from $12,550 in 2009 and $12,600 in 2010 to $3,000 for those two years
- Estimated 10-year revenue loss:$14.8 billion (JCT-19-09
- American Opportunity Tax Credit
- Replaces the existing Hope education credit for tax years 2009 and 2010
- Raises the maximum credit from $1,800 to $2,250 and makes it 40% refundable
- Doubles covered period from the first two to the first four years of higher education
- Adds required course materials to qualified expenses
- Estimated 10-year revenue loss: $13.9 billion (JCT-19-09)
- Refundable First-time Homebuyer Credit
- Creates a refundable tax credit equal to 10 percent of home purchase price, up to a maximum $8,000 credit, for first-time homebuyers who purchase homes between January 1 and November 30, 2009.
- Defines first time homebuyers as people who did not own a principle residence during the three years prior to purchasing a new home.
- The credit phases out for individual taxpayers with modified adjusted gross income between $75,000 and $95,000 ($150,000 and $170,000 for joint filers)
- Recipients who sell their home within three years must repay the credit.\
- Estimated 10-year revenue loss: $6.6 billion (JCT-19-09
- Suspend Taxation of Unemployment Benefits
- Exempts from income taxation first $2,400 of unemployment benefits received in 2009 by each beneficiary
- Estimated 10-year revenue loss: $4.7 billion (JCT-19-09)
- Automobile Sales Tax Deduction
- Creates a deduction for the sales tax paid on the purchase of a new domestic or foreign car or light truck purchased between January 6, 2009 and January 6, 2010
- Deduction would be “above-the-line,” making it available to itemizing and non-itemizing taxpayers
- The deduction phases out for individual taxpayers with income between $125,000 and $135,000 ($250,000 and $260,000 for joint filers)
- Estimated 10-year revenue loss: $1.7 billion (JCT-19-09
- Extension of the Alternative Minimum Tax Patch
- Raises the amount of income exempt from the alternative minimum tax in 2009 from $33,750 to $46,700 (from $45,000 to $70,950 for couples filing jointly)
- Reduces the number of tax units that will pay AMT in 2009 from 30.3 million to 4.6 million.
- Estimated 10-year revenue loss: $69.8 billion (JCT-19-09)
The individual tax provisions in ARRA will reduce taxes for households at all income levels. The child tax credit and EITC provisions focus tax cuts on low income tax units, extending the alternative minimum tax patch substantially lowers taxes for wealthy households, and other provisions primarily benefit the broad middle class. The largest gains, measured as a percentage of after-tax income, go to the poorest tax units: average after-tax income will climb 4.6 percent for those in the bottom quintile. In contrast, taxes will fall much less for the top quintile of tax units, whose average after-tax income will rise only 1.5 percent.
Economic Stimulus: How does the American Recovery and Reinvestment Act change the tax code?
Economic Stimulus: What does the American Recovery and Reinvestment Act do for businesses?
Economic Stimulus: When is fiscal stimulus appropriate?
Economic Stimulus: What characteristics make fiscal stimulus most effective?
Economic Stimulus: What fiscal stimulus options would be most effective?
Urban-Brookings Tax Policy Center, “Tax Stimulus Report Card: Conference Bill” (Washington, February 13, 2009). http://www.taxpolicycenter.org/UploadedPDF/411839_conference_reportcard.pdf
Text of Tax Provisions in AARA, http://taxpolicycenter.org/legislation/upload/ARRA-tax-provisions-as-enacted-2.pdf
U.S. Congress, Joint Committee on Taxation, “Description of the American Recovery and Reinvestment Tax Act of 2009” (Washington, January 27, 2009). http://jct.gov/publications.html?func=startdown&id=1239
U.S. Congress, Joint Committee on Taxation, “Estimated Budget Effects of the Revenue Provisions Contained in the “American Recovery and Reinvestment Tax Act of 2009," (Washington, February 12, 2009). http://www.jct.gov/x-19-09.pdf
Tax Policy Center Distribution Tables for the Stimulus: http://www.taxpolicycenter.org/taxtopics/stimulus_distribution_tables.cfm
Katherine Lim and Roberton Williams
Last Updated May 5, 2009
This estimate excludes the automobile sales tax deduction provision and includes economic recovery payments for recipients of social security, SSI or veterans benefits.