President Obama is announcing several tax credits for the middle class in his State of the Union speech. Here are some of the details on what the proposals are, and how those who qualify can get the most out of the credits.
The Child and Dependent Care Tax Credit will increase from 20% to 35% of qualifying expenses for families making under $85,000 a year. The credit decreases to 20% for families making up to $115,000. Families could claim up to $3,000 in expenses per child for up to two children. This means that a qualified family that claims the max amount of $6,000 in expenses will see a tax deduction of $2,100 instead of $1,200. It also means that for some families it would become more financially prudent to claim the Dependent Care Tax Credit instead of funding a dependent care flexible spending account with the maximum of $5,000. This tax credit is not refundable so those who do not pay taxes will not receive it.
The Saver's Credit will become refundable and expanded. Currently the credit ranges from 10 to 50 percent on the first $2,000 of contributions people make to a 401(k), IRA, or other qualified retirement plan. The maximum credit is $1,000 for an individual and $2,000 for a married couple. The current income limit for receiving this credit is $55,500 for a married couple. The new proposal would allow couples making up to $65,000 a year get a 50% credit on the first $1000 they each contribute for a maximum of $500 of credit per person. Couples making up to $85,000 would get a partial credit. If this credit were made refundable then those who do not make enough to pay taxes will benefit the most when they save at least $1,000 a year since they will be guaranteed a 50% match from the government.
Obama's middle class task force also proposed several other initiatives relating to student loans and automatic IRAs. The final tweaks to the tax code will still need to be approved by Congress and signed into law, but I personally think that these changes are too specific and will not affect a great amount of people significantly. Nevertheless, those who qualify for the tax credits could stand to gain a maximum of a couple of thousand dollars a year.
What do you think? Will you benefit from these tax changes? Will these tax credits save middle class America?
He's announcing tax credit proposals for next year. We're a year into the announcement of a recession and his "fix" is to put off his fix for another year.
This is a plan designed just to look like he's doing something. I'd be willing to bet this goes nowhere.
Won't help me at all--my only dependent is 23, in his senior year of college and he carries the loans in his name...we pay over $1000 a month in college expenses (housing, food, medical insurance, car insurance, car payment and cell phone bill) for him but we can't deduct a dime of it...only if we paid the college bills now...we won't pick those up until he graduates and gets a real job to cover his own expenses. His little part time college job barely covers gas money, textbooks, clothing and other school out of pocket expenses. in So Cal.
My husband is already collecting a pension and I already contribute to a retirement program- but it's not one of the ones that qualifies because I work for a Church and we contribute to a different system- but seriously, as if up to $1000 a YEAR for deductions will actually help the middle class? He's joking, right?
I am already out of college. I now owe a lot of money for school. My parents helped me through with money and academic advice. When I applied for loans there was a line called the "estimated family contribution." This number seemed to have nothing to do with the amount of expendable income my parents had. People with rich parents must have an "efc" of like a bajillion dollars. Then I thought...what if my parents set up a company that pays its employees on a sub contract basis(read: file a 1099). Then instead of "giving" money to their kids...they pay them as subcontractors! But wait! you may say... then the tax burden is simply transfered to the kid. Well, the Hope scholarship should take care of any tax liability of the student, not to mention the money that a parent gives to their college student kid will be tax sheltered as money paid for the operation of a small business. I wonder if this would work in real life?
These aren't real cuts for the whole middle class. As you mentioned, they're too narrow and will not make a significant difference for most people.
These cuts benefit Obama the most. Now he can claim he made tax cuts for the middle class. That's all he wanted really-- the ability to make that claim.
Really we can't file our taxes for 2009 with these credits? Really? I was so hoping that there would be some tax relief. We went from a double income to a single this year, had a baby, bought a house, I claimed no dependents on my income and my husband claimed one and we still might have to pay (although we are working through this and it may be a mistake). We don't earn a lot of money and I am tired of giving it all to the government. Please tell me for once this is more than just a feel good speech.
I don't have dependent care expenses, so that part is irrelevant. But my husband does have a 401(k), and if that credit becomes refundable that would mean $400-500 back to us in our return. If it doesn't it won't mean anything to me. With 4 kids, we don't make enough to end up owing tax.
Will you benefit from these tax changes?
No.
Will these tax credits save middle class America?
Hahahahahahahahahahaha (gasp) hahahahahahahahahahahaha!
No.
Just more worthless words from the Empty Suit.
2010 will be the last year that we can contribute to an IRA.
I would rather see a deduction for interest earned to encourage people to save. For example, the first $5000 of interest wouldn't be taxed.
You kidding? They are not going to help my family one bit any more than the fake "freeze" in going to help the national economy. It's all smoke and mirrors as the middle class grows poorer with each passing day. So much for "hope and change". At this rate we won't even get to keep the change in our pockets.
In response to some comments above -- changes to the tax code are made by Congress. All the President can do is propose, encourage & support changes to the law. Congress has the real power here, as usual. As we've seen with health care, the current Congress is not interested in rubber-stamping anything. The President's job is to try to get people talking by publicizing an agenda and circulating reports, drafts, etc. -- we'll have to wait and see if the effort was successful or not, and what form it takes by the time it's passed through multiple layers of Congress.
Also, to the person who mentioned contributing to something different because of working for a church -- typically when the media talks about 401k, they almost always mean 401k or 403b accounts (403b being the "501c3 employer" version of a 401k) -- so it may well apply to you after all.
In any event, changes he's pushing for in a January 2010 speech are highly unlikely to make any difference to what's filed by April 15th 2010 based on 2009 incomes. Some people have already filed by now, and no laws have yet been written, debated, or passed. Trying to change the rules for 2009 when it's already 2010 would be an incredibly expensive endeavor as we've seen with some of the "stimulus check" stuff that was done in past years -- which required the IRS to hire scads of expensive contractors to work overtime to reprogram everything in a hurry...and it still took 6 months to get the checks cut.
It's actually pretty late to try to make changes to even the 2010 code in my opinion, because people need time to make plans to take the best advantage of them. Otherwise you end up having to maximize a contribution all at once instead of spreading it out over multiple months, or you end up giving the government a year-long no-cost loan by overpaying tax all year and getting it back in a refund.
Now is a dandy time to reform the 2011 code, though, because that would give people enough time to make all their changes to their deductions, budgets, accounts, and so on by the time annual enrollment comes around and allows you to tweak your payroll deductions.
That said, with the cost of living varying so widely across the country, I'm not sure anything targeted at income alone will ever address middle-class needs in a broad way -- but it's the only lever we seem to know how to pull. Expanding the income ranges and contribution limits on FSAs, IRAs, etc. might work out nicely for quite a few people on paper, but I'm not sure if that'll work out for as many in practice -- I'm surprised that more people don't make use of tax-advantaged accounts of various kinds, but I think they're not as broadly understood as they should be.
bah, I'll rant as I usually do on these things - all during campaigning both candidates talk about reducing taxes for the middle class, a class they broadly refer to as people making under 200K, the actual tax cuts - 1/4 of that level...
We won't benefit from this, but you won't catch me scoffing at it. Will the people who do qualify have their lives changed by it? No. But I'd be willing to guess that they will be grateful for it. An extra 2k wouldn't change our lives, but I know we would be grateful for it and put it to good use. It's not a save the middle class solution, but it is a step in the right direction. I think people have to learn to appreciate that nothing is instant where the government is concerned. These are small steps in the right direction and I'm choosing to be grateful for it.
I feel that Susanne made a good point. Appreciate what is given. I have always been taxed excessively and I have adjusted to beleive that I will continue to be taxed that way. I just need to look at my life style and see what I can do to prevent it from being so much or be prepared to pay in the end. Our lifestyles have become fast paced, always running, eating out, living for the moment. Well it does not save, does not teach, does not guarantee that we will leave a stamp for a better tomorrow. Most americans do not even attempt to save. It is always what can you give to me.... Not what can I do to make it better, or how can I teach my children (tomorrow's leaders) what it does when you take and never give back. Refer to the giving tree.. by silverstein. As long as american's feel this way.. there will be no hope for change. kdr
Unfunded tax breaks and spending non-existent money: These are the two things the government is good at.
Reducing spending and fixing difficult problems: These are two things the government is very bad at.
More hot air in the 24/7/365 re-election cycle that has choked our elected government officials.
Seriously though, how many more years of ineptness in Washington can the backs of the taxpayers support (or tolerate)? Why can't these people do what they were elected to do?
Hope for Change in 2010/2012.
We're over the threshold to benefit from any of it (family of five, single income) by a hair. What bothers me about "middle class tax cuts" is that the middle class is never defined, only alluded to. The federal government has no problem defining poverty thresholds as they should, but they like to keep the term "middle class" vague so most families don't know where they stand. That, and a solid definition would require the vast majority of elected federal officials to admit they are wealthy/upper class. Terrible PR for them.
Does all of what is suggested going to help everyone the answer would be NO, do parts help some the answer is YES.
Saver credits do help the ones of us that live within our means and do save rainy day fund.
I was told by a co worker how bad the economy is how he lives from check to check and how he is blamming the tragic economy on George Bush.
I asked him if he been saving now under the current administration his reply was NO. How much did he save under George Bush he said NONE.
I then asked him how much did you save under Bill Clinton he said none.
I told him could I ask you one more question do you own or rent he said he owns his home he bought it and got the home credit 8000.00. I told him I noticed you have a newer vehicle he said he bought when cash for clunker program. You also said your new plasma TV was bought last Christmas on you Credit Card.
Im sorry George Bush had you buy all this stuff and make payments too Im glad you didnt buy this during the current administration you would be blamming him.
