Stimulus Payback Changes This Year
Feb 25th, 2009 by Afiya
Updated: Feb 25, 2009 03:00 AM
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Taxpayers can expect hundreds of dollars back from the government. It will come in tax credits and reductions, rather than a one-time payment. If you’re waiting for a check to come in the mail like last year’s stimulus checks, don’t hold your breath; most of the stimulus money won’t reach you that way.
The American Recovery and Reinvestment Act does include plenty of incentives to get people spending. For example, there’s a sales tax break if you buy a new car, truck, motorcycle or RV under $49,500. The sales tax applies for individuals making more than $125,000 a year and for a couple making $250,000 annually.
Another incentive is an $8,000 tax credit for first-time homebuyers, available to single buyers earning less than $75,000 a year or couples making $150,000. The credit is similar to one passed by Congress last year, but that tax credit was for a maximum of $7,500 and it had to be repaid to the IRS.
First-time homebuyers who live in their homes for at least three years do not have to repay the tax credit included in this year’s stimulus.
“This is a great opportunity to have this money and use it to your benefit and hopefully allow people to get started, because you’ve got to start get in the market,” says Michael Guthrie with Wheeler Real Estate.
The stimulus also encourages spending by cutting the amount of payroll tax the government takes out of your paycheck. With the Making Work Pay tax credit, single people making under $75,000 can expect to keep about $400 extra this year, just over $30 a month. Couples who make under $150,000 will keep $800, which puts an extra $60 in their paycheck each month.
The money will come in small payments, not one lump sum like the stimulus checks that millions of Americans received last year.
“The way it’s envisioned this time is that people are going to essentially see small increases in their monthly or bi-weekly paycheck,” says Ron Wilcox, a professor at the Darden School. “The money will come into people’s pockets but it will come in more slowly than it did before.”
Wilcox says the logic behind giving taxpayers money back in small payments is that they’re more likely to spend it on monthly expenses. With a lump-sum payment, Wilcox adds, people are more likely to save it or buy one big-ticket item. The gradual spending, says Wilcox, will hopefully give the economy a boost.
“Things like cars and houses are budgeted on monthly bases, so over the long term, that’s the way that money would enter the economy,” says Wilcox.
For retired or disabled Americans who no longer receive a paycheck, there’s a one-time payment of $250 built into the stimulus, but Wilcox says that most likely won’t make a huge impact on their financial situation.
He also adds that no one part of the stimulus is a silver bullet; rather, the combination of all the tax incentives, breaks, and payments are designed to collectively boost the economy.
