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The ARRA and What it Means

Find out how the American Recovery and Reinvestment Act of 2009 can impact you and your clients.

By Brion Collins, CLU, ChFC, CFP

On Feb. 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act (ARRA) of 2009. Historically, “high”-income earners have not benefited from tax cuts, although the combination of difficult economic times (especially if you operate a pass-through business entity) and higher income phase-outs puts them in a position to benefit. For simplicity”s sake, the calculations below pertain to those filing jointly.

Tax relief
The Act provides for $116 billion in tax relief to workers by returning the first $400 of Social Security tax per person (reduced by 2 percent if the amount of the joint income exceeds $150,000) in 2009 and 2010. Another provision ($70 billion) is a one-year “patch” on the alternative minimum tax (AMT).

The housing crisis provides a significant opportunity for first-time homebuyers. In addition to current market discounts available to buyers, a $8,000 credit is available on purchases through the end of November 2009, provided that the owner continues to own the home and uses it as a principal residence for three years. This is a higher credit with fewer restrictions than last year's credit.

College becomes more affordable
Going to college has also become more affordable. The Hope credit receives a temporary boost for 2009 and 2010. The credit is for 100 percent of the first $2,000, plus 25 percent of the next $2,000 of qualified expenses (maximum $2,500 credit). Students and their parents will appreciate that.

The credit is also now available for the first four years of college (previously limited to the first two years). Qualified expenses are expanded to include course materials. The credit is allowed against AMT. Also, there's a provision that benefits students. It identifies qualified expenditures from 529 college savings plans to include amounts paid or incurred during 2009 and 2010 to buy computer technology, equipment, or services (including internet access) for use by a college student and his family.

The AMT will not apply to interest on private activity bonds issued in 2009 and 2010.

Impact on investments
There are several provisions that offer aid to certain investments; namely that the AMT will not apply to interest on private activity bonds issued in 2009 and 2010. Bonds issued from 2004 to 2008 may be transformed into fully exempt bonds if they are refinanced. Separately, mutual fund shareholders may receive a pass through of realized tax credits.

Financial-hardship provisions include a federal subsidy of 65 percent of COBRA health insurance premiums for nine months (joint income limitation of $250,000), a temporary increase of both the earned income tax credit and the refundable portion of the child tax credit, and $2,400 of unemployment income may be excluded from income for 2009 only.

To read the entire 575 pages of the ARRA of 2009, click here.

Brion Collins is owner of Integrated Financial Solutions, Delafield, Wis. The firm offers comprehensive financial- planning services and wealth management to individuals and businesses. Contact him at 262-646-3549.


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