New Bailouts for Taxpayers ... Sort Of
A guide to some new measures meant to prop up family finances.
March 31, 2009 — -- Where's my bailout?
That's the question many struggling Americans ask when they hear about the trillions of dollars pumped into AIG, Bank of America, General Motors and other large corporations.
The truth is that there will be no trillion-dollar bailouts for individual Americans. But there are a variety of measures beginning to take effect that are meant to prop up family finances. Most of these measures are contained in the economic stimulus legislation known as the American Recovery and Reinvestment Act of 2009, which was enacted last month.
Some provisions, such as the $8,000 tax credit for first-time homebuyers, have been widely publicized. But there are others that have received less attention that will have a positive impact on household budgets in the weeks and months ahead.
Here's a rundown on three such provisions:
Social Security payments: Beginning in May, Social Security recipients will begin to receive a one-time "economic recovery" payment of $250.
Those eligible to receive the payment include adults receiving Social Security benefits and Supplemental Security Income recipients. Beneficiaries of Medicaid staying in a care facility and children under 18 receiving Social Security benefits will not receive the $250 payment. Adults who were disabled as children will.
With married couples, both spouses will receive $250 payments if both are collecting Social Security benefits.
One-time $250 payments also will be sent to recipients of Veterans Affairs and Railroad Retirement Board benefits by those agencies. Anyone receiving benefits from more than one agency will receive just one $250 payment.
To receive the payment, recipients must have been eligible for Social Security, Supplemental Security Income, Veterans Affairs or Railroad Retirement Board benefits this past November, December or January. Anyone who has become eligible for these programs since February will not qualify.
For Social Security recipients, the $250 payments will be sent separately from the usual monthly payments. No action is required to receive the payment. Recipients should only contact the Social Security Administration if they have not received the payment by June 4, the agency says.
For more information on the $250 payments, visit www.socialsecurity.gov/payment/.
Tax Credit for Workers
In the next few weeks, many Americans should see a little bit extra in each paycheck.
The reason for that is a tax credit for workers included in the economic stimulus package. The Making Work Pay credit amounts to up to $400 for singles and up to $800 for married couples, based on a rate of 6.2 percent of earned income.
Most workers will see the impact of the credit in their take-home pay. Employers are to lower tax withholdings for eligible employees based on new tax withholding tables issued by the Internal Revenue Service. The new tables are supposed to be in use by April 1, meaning most workers do not need to take any action to benefit from the credit and should see the difference within the next few weeks.
They will need to report the credit on their 2009 tax return filed next year. Also, individuals and couples with more than one job may want to review their overall tax withholdings after the change to make sure they have sufficient tax withheld for the combined income.
As with many such tax measures, there are income limitations. The credit begins to phase out at $75,000 in adjusted gross income for singles and at $150,000 for married couples, with full elimination at $95,000 for singles and $190,000 for couples.
This particular credit is refundable, which means taxpayers will receive it even if they owe little or nothing in federal income taxes. This will benefit low-income workers.
Self-employed individuals who are not subject to automatic tax withholding can benefit from the credit by adjusting their quarterly estimated tax payments.
More details on the Making Work Pay tax credit are available on the IRS Web site, www.irs.gov, and in IRS Publication 15-T.
Tax Break on Unemployment Benefits
A third provision within the American Recovery and Reinvestment Act exempts the first $2,400 of unemployment benefits from federal taxation. Normally, unemployment benefits are fully taxable.
For someone in the 15 percent tax bracket, this tax exemption amounts to a savings of $360. At this time, the exemption is in place for only 2009. Unemployment benefits received in 2008 remain fully taxable.
For a married couple, with both unemployed, the $2,400 exemption applies to each person separately, meaning the couple is exempt from taxation on the first $4,800 in benefits if both are out of work.
Unemployed workers can benefit immediately by adjusting their automatic tax withholdings or their quarterly estimated tax payments.
For information on the unemployment benefits tax exemption and the other measures outlined here, visit www.irs.gov and search for a page titled, IRS Information Related to the American Recovery and Reinvestment Act of 2009.
There's nothing there resembling a trillion-dollar payout for individual taxpayers, but it's still worth checking out.
This work is the opinion of the columnist and in no way reflects the opinion of ABC News.
David McPherson is founder and principal of Four Ponds Financial Planning in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at david@fourpondsfinancial.com.