What does the economic stimulus package mean for you?

In an effort to jumpstart the American economy, on February 17, President Obama signed into law the American Recovery and Reinvestment Act of 2009. This massive bill contains provisions ranging from tax relief and education to health care and new infrastructure. A bill of this size and scale can be overwhelming to understand, so we've summarized the key provisions that could have the most impact on your personal finances.

Tax relief for individuals

Tax relief will be felt by a broad group of Americans, including:

• Those earning wages — Most wage earners will qualify for a 6.2% tax credit¹, up to $400 for a single tax filer and $800 for a married couple filing jointly. This will apply in both 2009 and 2010 and most workers will see it reflected in their paychecks. The credit phases out for individuals with income of $75,000 or more and married couples with income of $150,000 or more. (The credit is not available for dependents.)
• Retirees and others — Certain retirees, Social Security beneficiaries, SSI recipients and veterans receiving veterans' disability compensation benefits will receive a one-time, $250 payment. This also applies to certain federal and state pensioners who do not qualify for Social Security benefits.
• Taxpayers subject to the alternative minimum tax (AMT) — The bill provides a one-year “patch” that will help protect millions of taxpayers from the AMT.

Additional, more targeted tax incentives are available for:

• New home purchase — If you are a first-time homebuyer who purchases a new or existing home on or after Jan. 1, 2009 and before Dec. 1, 2009, you may be eligible for a tax credit of up to $8,000.  The credit phases out for individuals with income of $75,000 or more and married couples filing jointly with income of $150,000 or more. Furthermore, you (and your spouse) must not have owned a principal residence during the three-year period prior to purchasing the home.
• New vehicle purchase — You can now receive a tax deduction¹ for state and local sales and excise taxes associated with the purchase of a new car, light truck, motor home or motorcycle in 2009, up to $49,500. The deduction is phased out beginning at income levels of $125,000 for a single tax filer and $250,000 for married couples filing a joint return.
• College expenses — A new, more generous American Opportunity Tax Credit modifies the Hope Scholarship Credit and offers a tax credit of up to $2,500 (100% of the first $2,000 and 25% of the next $2,000) for tuition, certain fees and course materials related to the first four years of a post-secondary education in 2009 and 2010. The credit is phased out beginning at income levels of $80,000 for a single tax filer and $160,000 for married couples filing a joint return.

  In addition, more federal funds were made available for Pell Grants. The maximum award increased to $5,350 per undergraduate student in 2009 and 2010.

• Education savings — If you invest in a 529 college savings plan, for 2009 and 2010, computer, internet access and related services and software purchases are now considered qualified higher education expenses as long as the computer and internet access are used while the student is in school and the software is educational in nature.

Support for those who have lost their jobs

For those Americans and their families facing the difficulties of a job loss, several provisions expand unemployment benefits, including:

• As much as 33 additional weeks of unemployment compensation to workers who have exhausted their benefits.
• An increase of $25 in the weekly unemployment compensation.
• No federal income tax on the first $2,400 of unemployment compensation collected in 2009.
• A 65% subsidy for COBRA health insurance premiums for up to 9 months for those who were laid off from their jobs between Sept. 1, 2008 and Dec. 31, 2009. This may reduce the cost of retaining health insurance by about two-thirds for those individuals.

Incentives for small business owners

The legislation provides more tax leeway for small business owners, including:

• The ability to depreciate 50% of the cost of an asset placed into service in 2009, as under prior law.
• A continuation of a 2008 increase in maximum expensing limits to $250,000 this year, which begins to phase out at $800,000 of equipment costs.
• A 75% exclusion on capital gains taxation for individuals who sell certain small business stock held for more than five years. The stock must be acquired at original issue after Feb. 16, 2009 and before Jan. 1, 2011.
• A reduction in required estimated tax payments for 2009 (from 100% to 90% of the previous year's tax liability) for certain small business owners who had an adjusted gross income of less than $500,000 in 2008 and who certify that more than 50% of their gross income in 2008 was from a small business.

Look to your financial advisor for additional perspective

With all the market turmoil in recent months and now a new economic stimulus program in place, there has never been a better time to get a New Perspective on your personal financial situation. Your Ameriprise financial advisor can help you assess how you — and others you know — can benefit from elements of the stimulus package and other potential opportunities in today's changing economy. If you don't have a financial advisor, locate an advisor near you.

Also consider: Our Chief Market Strategist's perspective on the stimulus package.