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Two items in the "American Recovery and Reinvestment
Act of 2009" that may be of particular interest
to many Americans are the proposed 'Making Work Pay'
tax credit and a newly added waiver of the repayment provision
of the first-time homebuyer credit (introduced in the
2008 Housing Bill). The bill was passed by the House this
week and now moves on to a Senate vote next week.
The 'Making Work Pay' tax credit will be equal
to the lesser of 6.2 percent of taxpayer income or $500
($1,000 for couples). The tax credit will essentially
be a payroll tax cut implemented by employers, thus reducing
taxes taken out of employee paychecks. The phase out for
the credit is 2 percent of the amount of modified adjusted
gross income over $75,000 per year ($150,000 for couples).
Although most employees will opt for a reduction in their
payroll taxes in order to get the tax credit at the earliest
possible date, the credit may alternately be claimed on
their tax return.
The current bill also calls for waiving repayment of
the first-time homebuyer tax credit of $7,500 that was
originally included in the "Housing and Economic
Recovery Act of 2008". The original terms of
the tax credit required repayment by the borrower over
15 years, with payments of $500 per year. The effect was
that of an interest-free loan. The intent of the current
modification to the tax credit is to entice first-time
homebuyers to enter the market now to stimulate the housing
sector. The waiver relates to purchases by eligible buyers
(those that have not owned a home for the past three years
and who will use the new home as their principal residence)
after December 31, 2008 and before July 1, 2009 (the Senate
version of the bill still under consideration runs the
credit until the end of August 2009). The credit phases
out for incomes above $75,000 for singles and $150,000
for couples. The credit becomes unavailable for individuals
with a modified adjusted gross income of more than $95,000
and for married taxpayers (filing jointly) adjusted gross
income of more than $170,000.
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