2009 Legislation in Review

The year 2009 saw several important changes, some of which may also affect you in 2010.

Suspension of RMDs

One of the biggest changes for 2009 actually stemmed from a 2008 piece of legislation that suspended the rules requiring individuals older than 70½ to make withdrawals from certain retirement accounts. The one-year moratorium on required minimum distributions (RMDs) applies to 2009 only.

Without this suspension, individuals who reached age 70½ before 2009 would generally be required to take 2009 RMDs by December 31, 2009. Individuals who turned age 70½ during 2009 would generally have until April 1, 2010, to take 2009 RMDs—but the suspension applies to these individuals as well. The suspension of RMDs for 2009 also applies if you're the beneficiary of an inherited IRA or employer retirement account. Normal RMD rules apply for 2010.

American Recovery and Reinvestment Act of 2009 (ARRA)

In addition to extending several expiring tax provisions, this legislation made some changes, including the following:

• A new "Making Work Pay" tax credit was established for 2009 and 2010. This credit is equal to 6.2 percent of earned income, up to $400 ($800 in the case of a married couple filing jointly). The credit is phased out for higher-income individuals.
• The Hope education tax credit was expanded for 2009 and 2010, and renamed the American Opportunity Tax Credit. With an increased annual limit per student of $2,500, the expanded credit covers the first four years of post-secondary education, with up to 40 percent of the credit refundable.
• Up to $2,400 of unemployment compensation benefits received in 2009 are excluded from gross income for federal income tax purposes.

Energy-related tax changes

ARRA also created, extended and modified several tax incentives to encourage the efficient use of energy sources and the development of energy-related technology. Among other things, the legislation:

• Increased the lifetime tax credit cap for energy-efficient home improvements from $500 to $1,500 (for 2009 and 2010).
• Removed the separate $200 credit cap on window upgrades (the $1,500 lifetime cap applies however).
• Removed the credit cap on qualified geothermal heat pumps, solar hot water heaters and small wind energy property (through 2016).

Other changes

• A "first-time" homebuyer can qualify for a tax credit of up to $8,000 for the purchase of a qualified personal residence.
• A new government subsidy equal to 65 percent of COBRA premiums paid by eligible beneficiaries for up to nine months of health-care coverage was established. This subsidy was generally available to individuals whose employment was involuntarily terminated on or after September 1, 2008, and before January 1, 2010. The subsidy was phased out for individuals with higher incomes.
• The "Cash for Clunkers" program provided cash vouchers to encourage consumers to trade in older, less fuel-efficient vehicles for new vehicles that get better fuel economy. The government ended this program on August 24, 2009, as the program was such a success it ran out of funds.