The American Recovery and Reinvestment Act Practical Applications of the Economic Stimulus Package April 21, 2009 Mark Bakko, Tax Partner Virchow Krause.

The American Recovery and Reinvestment Act

Practical Applications of the Economic Practical Applications of the Economic

Stimulus PackageStimulus Package April 21, 2009April 21, 2009

Mark Bakko, Tax Partner Virchow KrauseMark Bakko, Tax Partner Virchow KrauseRobert Keebler, Tax Partner Virchow KrauseRobert Keebler, Tax Partner Virchow Krause

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Today’s Agenda

• American Recovery & Reinvestment Act Highlights

• Individual and Business Income Tax Impact

• Energy Provisions

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Overview

Total Stimulus Plan cost:$787 Billion

Increase to the National Debt:$330 Billion (over ten years)

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Expected Outcomes

• Stimulate consumer spending• Assist those most impacted by the recession• Free up money for health care, transportation,

environmental protection, and other infrastructure• Prevent the dramatic cutback of State, County,

Municipal, and K-12 services

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Highlights

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• $787B plan includes: $14B in direct cash payments, $115B in individual tax credits, and $2.5B in sales tax deductions on new cars

• Creates or preserves 3 to 4 million jobs over the next two years

• Doubles renewable energy capacity over three years• Enacts the largest investment increase in roads, bridges,

and mass transit systems since the 1950s

Highlights

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• Computerizes every American’s health record in five years, reducing medical errors and saving billions of dollars in healthcare costs

• Lowers healthcare costs and ensures broader healthcare coverage

• Supports America’s working families through tax cuts and aid programs

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Timeline

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Developments

Changed significantly from the original $838B House Bill on February 2, 2009, to the current $787B plan

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Stimulus Plan Provision House (2/2/09)

Senate (2/11/09) Change

Fossil energy research $4.6 ▲$4.6Energy efficiency projects $11.4 $5.8 ▼$5.6Electricity grid $11.00 $4.5 ▼$6.5Broadband $6.0 $7.0 ▲$1.0Highways and bridges $30.0 $27.0 ▼$3.0

School construction and technology $21.0 ▼$21.0

Primary Provisions

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Provision Spend (B)

Tax Cuts Tax cuts to individuals, businesses, and state and local governments $240.00

Aid to States State fiscal relief, Medicaid spending, law enforcement $126.00

Individual Aid Heath insurance, Medicaid, Job training, hunger programs, unemployment $130.00

Transportation and Infrastructure

Highways and Bridges, environmental cleanup, transit, water resources, competitive grants, energy Smart Grid $111.00

New York Times, The Stimulus Plan: How to Spend $787 Billion”, Feb 17th, 2009

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Primary Provisions

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Provision Spend (B)

Education Educational programs, K-12 education, funding to states for public schools and universities $85.00

Energy Efficiency for federal buildings, fossil energy research, energy efficiency projects, Renewable Energy research $49.00

Science and Technology Broadband, Biomedical research (to National Institutes of Health), CDC, etc $20.00

Health Care Health Care Information Technology (primarily Electronic Health Records) $19.20

Other Accountability, census, Other $10.00

New York Times, The Stimulus Plan: How to Spend $787 Billion”, Feb 17th, 2009

Individual and Business Income Tax Impact

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Totals close to $185B• AMT Patch – Exemption amounts will increase to $46,700

(single) $70,950 (married)• Unemployment Compensation – Up to $2,400 of

unemployment benefits received in 2009 are exempt from tax

• One-time $250 Economic Recovery Payments – – Payments disbursed to those eligible for benefits from

Veterans Administration, Railroad Retirement Board, or Social Security Administration during November 2008, December 2008, or January 2009

– No AGI limitation

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Individual Tax Provisions

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• Refundable $250 Credit to Certain Government Retirees – Government retirees ineligible for Social Security receive refundable $250 credit against income tax on 2009 return ($500 for joint return where both spouses are eligible)

• “Making Work Pay Credit” – – Equal to the lesser of $400 (single) and $800 (joint) or

6.2% of earned income– Refundable even if no tax liability– Phases out as AGI increases from $75K to $95K (single),

$150K to $190K (joint)– Reduced by Economic Recovery Payment– Dependents do not qualify– In the form of lower withholding– Applies to calendar years 2009 and 2010

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Individual Tax Provisions

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• Deduction for Sales and Excise Taxes Imposed on New Vehicle Purchases –

– Limited to sales tax attributable to the first $49,500 of purchase price

– Standard and itemized deductions allowed– AGI phase out from $125K to $135K (single), $250K to

$260K (joint)– Applies to purchases made on or after Feb. 17, 2009 and

before 2010– Not allowed for AMT– Includes some light trucks and SUVs, motorcycles, and

motor homes– Original use of vehicle must begin with taxpayer (no used

vehicles)

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Individual Tax Provisions

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• First-Time Homebuyer Tax Credit – – Up to $8K refundable credit for first-time homebuyers

purchasing a home between Jan. 1, 2009, and Dec. 1, 2009 ($4K for married filing separately)

– No repayment of credit if taxpayer uses as principal residence for 36 months

– May elect to treat pre-Dec. 1, 2009, home purchases as made in 2008

• Qualified Higher Education Expenses Under §529 Plans – – In 2009 and 2010, 529 plan disbursements can be used

to purchase computer technology or equipment– Includes educational software, Internet access, and

related services

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Individual Tax Provisions

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• “American Opportunity Tax Credit” – – Replaces Hope Credit for 2009 and 2010– Increases max credit to $2,500 per eligible student per year– Course materials are included as eligible expenses– Allowed for the first four years of student’s post-secondary

education– Can be claimed against AMT– Phase out for modified AGI between $80K and $90 K (single),

$160K and $180 (joint)– 40% may be refundable

• Child Credit – Increases Eligibility– Earned income formula for refundable credit modified to apply

to 15% of earned income in excess of $3K (instead of $12,550 for 2009)

– Applies to 2009 and 2010

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Individual Tax Provisions

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• Earned Income Credit Changes – – Phase out ranges is increased for joint filers for 2009 and

2010– Credit percentage is increased for families with three or more

qualifying children for 2009 and 2010

• AMT Preference for Private Activity Bond Interest – – None for tax-exempt interest on private activity bonds issued

in 2009 and 2010

• Nonrefundable Personal Tax Credits– Can offset both regular and AMT tax through 2009 (instead of

2008)

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Individual Tax Provisions

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• Decreased Required Estimated Tax Payments in 2009 for Certain Small Businesses –

– For any tax year beginning in 2009, qualified individuals required annual payment is the lesser of (1) 90% of the tax shown on the return for the tax year or (2) 90% of the tax shown on the return of the individual for the preceding tax year

– Qualified individual means an individual if (1) AGI on the return of that individual for the preceding tax year is less than $500K and (2) that individual certifies that more than 50% of the gross income shown on the return of that individual for the preceding tax year was income from a small business

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Individual Tax Provisions

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Totals close to $27B

• Extension of bonus depreciation – For new equipment placed in service by Dec. 31, 2009

• Extension of enhanced small business expensing – – Can expense up to $250K of equipment purchases– Phased out at $800K of equipment purchases

• Five year carry-back on net operating losses– Can carry-back losses up to five years, but only if gross

income is less than $15M

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Business Tax Provisions

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• Hiring Incentives – veterans and disconnected youth• Repeal of Treasury §382 Notice• Refundable credits in lieu of bonus depreciation –

Extended for one year• Delayed recognition of certain cancellation of debt

income – Deferral for five years of COD income and then income is included at the rate of 20% per year

• Low income grants in lieu of tax credits• Qualified transportation fringe benefits – Increased from

$120 to $230 per month• §1202 small business stock exclusion – Increase from 50%

to 75% exclusion for stock issued after the enactment date and before Jan. 1, 2011

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Business Tax Provisions

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• Temporary reduction of S Corporation built-in gains holding period – Changes the recognition period from ten to seven years for 2009 and 2010

• COBRA benefits for laid off workers – Former worker will pay 35% and the former employer 65%. Employer would be able to credit its share of the subsidy against payroll taxes for nine months

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Business Tax Provisions

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Energy Provisions

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• Major renewable energy projects – Not too many clients in this space

• Energy-efficient purchases made for residential property – Reduction of costs

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Energy Incentives

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• Extension of production credits for three years• Extension of 30% energy investment tax credit (basis

reductions repealed)• Monetized credit in the form of government grant

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Major Renewable Energy Projects

Variety of Financing Alternatives Allow Project Planning for Renewable Energy Producers

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• Wind• Closed and open looped biomass• Geothermal• Landfill• Other alternative sources

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Types of Major Projects

Provisions apply to facilities that produce energy from:

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New Credit for Advanced Energy Projects

• Facilities that manufacture components that produce alternative energy are eligible for the Advanced Energy Project Credit

• Credit is 30% of costs that are certified by the Secretary of Treasury, capped at $2.3B

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• For public power companies – $1.6B available for companies that generate and sell electricity for renewable energy sources

• For community conservation programs – $2.4B available to programs that:

– Reduce consumption– Educate– Conduct research– Implement green community programs

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Bond Financing

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• 30% credit for replacement on windows, doors, and insulation (up from 10%)

• 2009 and 2010 aggregate credit equals $1,500 (up from $500)

• No maximum credit on:– Electric and solar water property– Fuel cells– Small wind and geothermal heat pump property

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Individual Energy Incentives

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• Plug-in electric vehicle credit equals $7,500 (no weight limit)

• Converted plug-in vehicle yields a 10% credit (up to $4K)• Low speed vehicles get a 10% credit (up to $2,500)

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Alternative Vehicle Incentives

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Incentives on infrastructure to deliver clean fuels• 50% credit (up from 30%) up to:

– $200K for hydrogen refueling property– $50K for non-hydrogen property

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Clean Fuels and Businesses

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