On Feb. 17, 2009 President Obama signed a $787 billion stimulus package, designed to kick-start the sagging economy and get millions of Americans back to work, and the country back on its feet.

So what is the 2009 stimulus plan and how might if affect me and my family as I file my 2009 tax return?

Officially known as The American Recovery & Reinvestment Act (ARRA), the stimulus plan included tax relief for middle-income families and spending programs for things like transportation, environmental and broadband infrastructure projects, aid for states, and energy assistance.

The good news is that 95% of America’s taxpayers will benefit from at least one of the tax breaks provided by ARRA. For many taxpayers, relief in the form of a tax credit was advanced during the year. Many taxpayers will also benefit from tax relief when they file their 2009 returns.  Below are some of the key provisions of AARA for 2009 taxpayers. 

Note: Most provisions below are subject to phaseout for higher-income individuals.

Key taxpayer provisions:

Tax credit for workers: for 2009 and 2010 there is a “making work pay” tax credit of up to $400 for working individuals and up to $800 for couples filing joint returns. The credit was advanced to most taxpayers through reduced withholding throughout the year.

Temporary suspension of taxation on unemployment benefits: the jobless get a little more help with a $25 increase in weekly benefit checks through 2009 and suspension of federal tax on the first $2,400 of unemployment benefits received in 2009 

Retirees and disabled individuals: those receiving government benefits, including Social Security, Railroad Retirement, SSI, and VA benefits received a one-time payment of $250 in 2009

First-time home buyer credit: increased to $8,000 for qualified first-time homebuyers purchasing homes after Dec. 31, 2008 and before May 1, 2010; repayment requirement waived unless sold or no longer principal residence within 36 months.  Also, if you enter into a binding contract to buy the home by that date you still qualify if the closing is before July 1, 2010.

A reduced credit up to $6,500 is also now available for long-time homeowners. These are homeowners who have lived in their homes at least 5 consecutive years out of the 8 years before buying and moving into a new principal residence. This new credit is for homes purchased after Nov. 6, 2009.

“American Opportunity Tax Credit” for education: an ‘enhanced’ Hope credit applies to the first four years of college; it provides 100% credit for the first $2,000 and 25% for the next $2,000 on qualified expenses such as tuition and books; the credit is 40% refundable, meaning even taxpayers who have no tax liability can receive a credit for 40% of qualified college expenses, up to $1,000

529 plans: qualified computer technology and equipment is now allowed as higher education expenses from the plan, so distributions from 529 plans to buy a computer, for example, for college will not be taxable

Earned Income Tax Credit: increased EITC amounts for families with 3 or more children and additional marriage penalty relief

Additional Child Tax Credit: earnings threshold is lowered to $3,000, helping more people qualify for the credit and receive more money; for 2008 the earnings threshold was $8,500

Vehicle purchase: state and local sales taxes paid for purchases of qualified new motor vehicles are deductible either as part of the standard deduction or as an itemized deduction; the per vehicle deduction is limited to the tax that would be paid on a vehicle that cost $49,500.

AMT: the  one year typical patch for 2009 of the Alternative Minimum Tax (AMT) to prevent as many as 24 million middle-income households from being hit with a tax that was originally designed to prevent the very wealthy from avoiding taxes.

This Tax Tip is brought to you by The Tax Institute at H&R Block. The Tax Institute is a national leader in providing unbiased research, analysis and interpretation of federal and state tax laws. Staffed by Enrolled Agents, CPAs and Attorneys, The Tax Institute provides industry expertise for matters related to taxes and the professional tax preparation industry.

This Tax Tip is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice, nor is it intended to be used to avoid IRS penalties. As always, everyone’s tax situation is different, so be sure to consult a tax professional or financial advisor before making important financial decisions.