February 23, 2009
“Making Work Pay” Credit and AMT Provisions Drive Tax Savings in Final Stimulus Bill
Washington, DC, February 13, 2009 - Three provisions in the final stimulus bill are driving significant, but temporary tax savings for American families.
In Tax Foundation Fiscal Fact No. 163, "Update: The Tax Savings from Final Fiscal Stimulus," Tax Foundation Analyst Mark Robyn analyzes the conference agreement on the fiscal stimulus bill, showing that families are going to see significant tax savings from the stimulus bill.
"Most of the tax benefit for 2009 and 2010 comes from the new 'Making Work Pay Credit' and the 'American Opportunity Tax Credit,' which replaces and expands the existing Hope credit for certain higher education expenses," says Robyn.
The stimulus also includes a higher Alternative Minimum Tax exemption (the so-called AMT patch) for 2009.
"Oddly, the calculation of a person's AMT liability is so confusingly interwoven with the calculation of regular tax liability that the so-called AMT patch can actually provide tax relief to people who would not have had to pay the AMT, even without the patch," Robyn explains. "In permanent law, the AMT prohibits the full use of certain tax credits, but with the one-year patch, the full value of those credits can be taken, and so even taxpayers with modest incomes often see significant savings from the AMT patch."
The table below shows the tax savings for a family with two kids, one in college and one under the age of 17, under some of the major tax provisions included in the stimulus bill.
| Table 1: Tax Savings in 2009 under ARRA 2009 for a Typical Family of Four with College Expenses (a) | |||
| Couple with Two Children Earning: (a) | Tax with No Stimulus Bill | Tax under the Stimulus Bill | Savings |
| $40,000 | ($1,721) | ($3,915) | $2,194 |
| $60,000 | $2,900 | ($33) | $2,933 |
| $80,000 | $5,604 | $2,518 | $3,086 |
| $100,000 | $10,180* | $4,978 | $5,202 |
| $200,000 | $35,750* | $30,191 | $5,559 |
| Single Parent with Two Children Earning: (a) | |||
| $20,000 | ($5,274) | ($6,674) | $1,400 |
| $40,000 | $0 | ($1,100) | $1,100 |
| $60,000 | $4,753 | $1,853 | $2,900 |
| $80,000 | $9,103 | $6,303 | $2,800 |
| $100,000 | $14,105* | $13,953 | $152 |
| $200,000 | $41,113* | $37,746* | $3,367 |
| (a) The couple is assumed to be a two-earner couple with equal earnings and income from no other source. One child is assumed to be under age 17 and the other child of college age with college expense of $4,000. Itemized deductions are assumed to be 18 percent of earnings. It is assumed that the taxpayer does not purchase a first home in 2009. The same assumptions apply for the single parent. | |||
| *Indicates taxpayer is required to pay the Alternative Minimum Tax. | |||
Fiscal Fact No. 163 can be found at: http://www.taxfoundation.org/publications/show/24382.html.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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