Preliminary Overview Shows Scope of Tax Changes in Stimulus Act Conference Agreement

Late on February 11, Nancy Pelosi (D-CA), Speaker of the House of Representatives, issued a Fact Sheet carrying a preliminary overview of the Conference Report on the American Recovery and Reinvestment Act. Although it lacks details, it is a valuable overview of the key tax provisions that survived the Conference Agreement on the Stimulus Act.

According to Speaker Pelosi, the tax provisions, which make up roughly 35% of the entire stimulus package, include the following:

Tax Incentives for Businesses

o Extended bonus depreciation and increased expensing for making investments in plants and equipment in 2009.

o Longer loss carryback for small businesses, a delay of the 3% withholding tax on payments to businesses that sell goods or services to governments, and a cut in the capital gains tax cut for investors in certain small businesses who hold stock for more than five years.

o Delaying the tax on businesses that have discharged indebtedness.

o Incentives to create new jobs with tax credits for hiring recently discharged unemployed veterans and youth that have been out of work and out of school for the 6 months prior to hire.

Tax Relief for Individuals and Families

o A Making Work Pay credit, consisting of a refundable tax credit of up to $400 per worker ($800 per couple filing jointly), phasing out completely at $200,000 for couples filing jointly and $100,000 for single filers.

o Expansion of the child tax credit (allowing families to begin qualifying for the child tax credit with every dollar earned over $3,000).

o Eased Earned Income Tax Credit rules (tax relief to families with three or more children and increased marriage penalty relief).

o A new, partially refundable $2,500 higher education tax credit.

o A one-year AMT patch.

o An enhanced credit for first-time home purchases with the removal of the repayment requirement.

o A tax deduction for state and local sales tax paid on the purchase of new cars, including light trucks and SUVs.

o Temporary suspension of tax on some unemployment benefits.

o A 60% subsidy for COBRA premiums for up to nine months.

Energy Incentives

o $20 billion in tax incentives for renewable energy and energy efficiency over the next 10 years.

o Three-year extension of the production tax credit (PTC) for electricity derived from wind (through 2012) and for electricity derived from biomass, geothermal, hydropower, landfill gas, waste-to-energy, and marine facilities (through 2013).

o Grants of up to 30% of the cost of building a new renewable energy facility to address current renewable energy credit market concerns.

o Extension through 2010 and expansion of tax credits for home energy efficiency for purchases such as new furnaces, energy-efficient windows and doors, or insulation.

o A tax credit of up to $7,500 for families that purchase plug-in hybrid vehicles.

o Clean renewable energy bonds for State and local governments.

o A new manufacturing investment tax credit for investment in advanced energy facilities, such as facilities that manufacture components for the production of renewable energy, advanced battery technology, and other innovative next-generation green technologies.

Tax Incentives for State and Local Economic Development

o Changes to enhance the marketability for state and local government bonds, which will reduce the costs they incur in financing state and local infrastructure projects.

o A new bond-financing program for school construction, rehabilitation, and repair.

Posted in Status of Tax Legislation, WillPlan Blog.

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