Earlier this week the Senate Finance Committee approved approximately $522 Billion in tax cuts and incentives in an effort to stimulate the US economy.

The bill includes over $340 Billion in tax cuts for families and businesses, with a special focus on creating jobs and helping unemployed Americans keep their health care coverage and find new jobs.  States who are struggling will also be helped by this bill.

Also included in the bill is a much-needed AMT patch, which should protect people from the alternative minimum tax this year.

This bill has not passed yet… the House and Senate each have their own version and will need to hammer out their differences before it can be made into law.

You can read more about the bill here.

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One of the tax cuts I talked about in ‘Obama’s Proposed Tax Cuts Total $300 Billion’ was the payroll tax cut for low to mid-income workers.

Since this is the tax break that will affect most American’s I wanted to share some more details on what is being called Obama’s paycheck bonus (the official name, right now anyway, is the ‘Make Work Pay Credit’.

The details are still being hammered out, but basically it looks like the tax plan will include a payroll tax break that will mean anywhere from $83 to $166 extra per paycheck for workers, during the first quarter of the year.

By reducing payroll taxes, Obama is getting money into the hands of the greatest number of people as quickly as possible.  The hope is that taxpayers will spend this money to help boost the economy.

This tax credit will essentially work out to be $500 a year for individuals and $1,000 for couples, with the full credit being limited to those making $75,000 or less ($150,000 or less for married couples).  People who earn between $75,000 and $85,000 will get a partial credit (the phaseout range for couples is $150,000 to $170,000).

In addition, this will be a refundable tax credit, which means you don’t have to actually owe any tax liability to receive the credit.  This means that lower income families who typically qualify for the child tax credit or earned income credit (and thus may not have any tax liability after the credits are calculated) will still receive the payroll tax credit.

Breaking the numbers down, workers who get paid every two weeks can expect to receive an extra $19.23 per paycheck.  However, it depends on the timing of the tax break.  The tax credit could be implemented during the first quarter of the year (instead of being spread out over the entire year), which would mean larger paychecks during the first part of the year (then normal paychecks once the full credit is received).  According to economists, the earlier American’s receive the credit, the greater the potential impact on the economy, so this it’s very possible we’ll see this tax credit early in 2009.

Remember, this is just a proposal right now, so expect changes before this tax package is finalized.

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In an earlier post, I asked ‘How Will Obama’s Tax Plan Affect Self Employed Americans?’.  Well, more details are emerging as Obama proposes $300 Billion in tax cuts.

Presidential Elect Obama is working with Congress on a tax cut proposal that would make up about 40% of a $775 billion economic stimulus package.

Cuts would be aimed at both individuals and businesses.  At the moment, these are just proposals, but here’s what’s being discussed so far:

• The largest piece of the tax relief package is a payroll tax break of $500 for individuals and $1,000 for couples aimed at low- and moderate-income workers.  I’m wondering if this will also apply to self employed people, but am unsure of the answer so far.
• Relief for businesses include a provision that would allow companies to write off huge losses incurred last year, as well as any losses from 2009, to retroactively reduce tax bills dating back five years.  While businesses would have been able to claim most of the tax write-offs on future tax returns anyway, the proposal accelerates those write-offs to make them available in the current tax season.  This will help companies who are experiencing cash flow problems due to credit being unavailable.
• The Obama plan also proposes to increase the Section 179 deduction up to $250,000 in 2009 and 2010. Currently, the limit is $175,000.  This probably won’t help most small businesses, but those that are expanding or need new equipment will benefit.
• Finally, businesses that create jobs here in the US or avoid future layoffs would receive a tax credit.  Hopefully this will reduce the amount that unemployment is expected to rise in 2009.

While I like the idea of the payroll tax credit, it really needs to apply to self employed people as well.  I’ve heard rumors that self employed people may get to reduce their 1st quarter estimated tax payment, and will confirm or deny as soon as more details become available.

Remember these are just proposals right now.  There will be lots of debate and changes before the final bill is approved.

Related Posts:

• More About Obama’s Proposed ‘Paycheck Bonus’
• Savers Credit Helps Low to Middle Income Taxpayers Save for Retirement
• Year End Tax Tips