On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009. With a projected cost of $787 billion, some key provisions include:

New Making Work Pay Tax Credit – This is a new refundable income tax credit for 2009 and 2010 equal to 6.2 percent of earned income, up to $400, or $800 in the case of a married couple filing jointly.

Earned Income Tax Credit – The earned income tax credit for families with three or more qualifying children increases to 45 percent for 2009 and 2010.

Child Tax Credit – For 2009 and 2010, the refundable portion of the child tax credit increases to 15 percent of earned income in excess of $3,000.

Hope Credit – For 2009 and 2010, the Hope credit is renamed the American Opportunity Tax Credit. The annual limit per eligible student increases to $2,500 and the credit is now available for the first four years of post-secondary education.

Tax Credit for First-Time Homebuyers – The existing first-time homebuyer credit now applies to qualifying home purchases made before December 1, 2009. The maximum credit amount is now $8,000. In addition, the recapture rules that require that the credit be paid back are waived for qualifying homes purchased after December 31, 2008, and before December 1, 2009, provided that the home continues to be the taxpayer’s principal residence for 36 months.

Deduction for Qualified Motor Vehicles – State sales tax and excise tax related to the purchase of a qualified motor vehicle after February 17, 2009 and before January 1, 2010 can be deducted as part of the deduction for state and local taxes paid on Form 1040, Schedule A, or as part of the standard deduction. The deduction is capped at the tax attributable to a maximum $49,500 purchase price, and is phased out for individuals with modified adjusted gross income exceeding $125,000 or $250,000 for married couples filing joint returns.

Alternative Minimum Tax (AMT) – 2008 temporary AMT provisions are extended to 2009; AMT exemption amounts are increased, and nonrefundable personal credits will continue to offset regular tax liability and alternative minimum tax liability.

Bonus Depreciation – The additional 50 percent first-year depreciation deduction applies for an extra year, through 2009 and through 2010 for certain longer-lived and transportation property.

IRC Section 179 Expensing – The increased limits relating to IRC Section 179 expensing now apply through 2009. As in 2008, the maximum amount that a taxpayer may expense is $250,000 of the cost of qualifying property placed in service for the taxable year. This amount is reduced by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $800,000.

Net Operating Loss (NOL) Carry-backs – Small businesses with average gross receipts of $15 million or less can elect to extend the existing two-year carry-back period for 2008 NOLs to three, four or five years.

Unemployment Compensation – Up to $2,400 of unemployment compensation benefits received in 2009 are excluded from gross income for federal income tax purposes.

Economic Recovery Payments – Individuals who are eligible for Social Security benefits, Railroad Retirement benefits, Veteran's compensation or pension benefits, or Supplemental Security Income (SSI) benefits will generally receive a one-time Economic Recovery Payment of $250.

COBRA – For involuntary terminations that occur on or after September 1, 2008 and before January 1, 2010, individuals who qualify will only need to pay 35 percent of COBRA premiums for a period of up to nine months. The remaining 65 percent of COBRA premiums will be subsidized.

Consult your friendly home town banker for assistance in putting the provisions of the 2009 stimulus package to work for your best advantage.







– Hayes Parnell III is the chairman and founder of Covenant Bank.