Sales Tax Deduction for Vehicle Purchases—Individuals will receive a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, RVs and motorcycles bought before Jan. 1, 2010. The deduction is limited to the tax paid on up to $49,500 of the purchase price, and is phased out for individuals with AGI between $125,000 and $135,000 ($250,000 – $260,000 MFJ). Note that this deduction is generally available regardless of whether taxpayers itemize or claim the standard deduction.

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Expansion of Refundable Child Tax Credit—Previously, the $1,000 credit taxpayers receive for each qualifying child under the age of 17 was refundable only to a limited extent. The Act reduces the earned income threshold from $8,500 to $3,000 in 2009 and 2010, which will result in the credit being refundable for more individuals and families.

Extension of AMT Relief—Two provisions of the Act will help shield more than 26 million families from having to pay the AMT this year: 1) increasing the AMT exemption amount by $46,700 for individuals ($70,950 MFJ) in 2009, and 2) allowing nonrefundable credits to offset AMT as well as regular tax.

Suspension of Tax on Unemployment
Benefits—Federal taxes on the first $2,400 of unemployment benefits will be suspended in 2009—but remind your clients that the amount of unemployment benefits in excess of $2,400 will be taxable.

Larger Earned Income Tax Credit—Families with three or more qualifying children can claim an EITC of 45 percent of earnings up to $12,570 in 2009, resulting in a maximum credit of $5,656.50.

Refundable Credit for Government Retirees—Certain federal and state government retirees who aren’t eligible for Social Security benefits will receive a one-time refundable tax credit of $250 in 2009.

Federal Subsidy for COBRA Continuation Coverage for the Unemployed—The federal government will provide involuntarily terminated workers with a 65 percent COBRA premium subsidy for up to 9 months. In other words, these individuals can continue to participate in their former employers’ group health plans at a cost of only 35 percent of their normal COBRA premium.