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American Recovery and
Limited-time subsidy for COBRA continuation coverage of unemployed workers.
The Recovery Act of 2009 provides a 65% subsidy for COBRA continuation premiums for up to 9 months for workers who have been involuntarily terminated, and for their families. This subsidy also applies to health care continuation coverage if required by states for small employers. To qualify for premium assistance, a worker must be involuntarily terminated between Sept. 1, 2008 and Dec. 31, 2009. The subsidy terminates upon offer of any new employer-sponsored health care coverage or Medicare eligibility. Workers who were involuntarily terminated between Sept. 1, 2008 and Feb. 17, 2009, but failed to initially elect COBRA because it was unaffordable, must be given an additional 60 days to elect COBRA and receive the subsidy. Participants must attest that their same-year income will not exceed $125,000 for individuals and $250,000 for families. The subsidy is not taxable.
Health Coverage Tax Credit (HCTC) changes.
Under pre-Act law, the HCTC is equal to 65% of qualifying health insurance paid by an eligible individual for coverage of the individual, his spouse, and dependents under qualified health insurance, for eligible coverage months beginning in the tax year. Eligible individuals were: eligible TAA (Trade Adjustment Act) recipients, eligible alternative TAA (ATAA) recipients, and eligible Pension Benefit Guaranty Corporation (PBGC) pension recipients. The Treasury makes payments of the HCTC on behalf of eligible individuals to providers of qualified health insurance.
New law. The Recovery Act makes numerous changes to the HCTC. The most important change is that for coverage months beginning on or after the first day of the first month beginning 60 days after Feb. 17, 2009, and ending Dec. 31, 2010, the Recovery Act increases the amount of the HCTC to 80% of the taxpayer's premiums for qualified health insurance of the taxpayer and qualifying family members. Correspondingly, the Recovery Act requires IRS to make advance payments of the credit only to the extent the total amount of the payments made on behalf of any individual during the tax year doesn't exceed 80% of the amount paid by the taxpayer for coverage of the taxpayer and qualifying family members.
Boosted AMT exemption amounts for 2009.
Under pre-Act law, the AMT exemption amounts for tax years beginning in 2009 were: $33,750 for unmarried individuals; $45,000 for married couples filing jointly and surviving spouses; and $22,500 for married individuals filing separately.
New law. For tax years beginning in 2009, the Recovery Act increases the AMT exemption amounts to:
... $46,700 (up from $46,200 in 2008) for unmarried individuals;
... $70,950 (up from $69,950 in 2008) for married couples filing a joint return and surviving spouses;
... $35,475 (up from $34,975 in 2008) for married individuals filing separate returns.
Observation: The AMT exemption amount for married individuals filing separately is 50% of the AMT exemption amount for joint filers and surviving spouses. Thus, the AMT exemption amount for married individuals filing separately is increased to $35,475 (50% X $70,950) for 2009.
Observation: The Recovery Act doesn't tinker with the AMT phaseout rules.
Personal nonrefundable credits may offset AMT and regular tax for 2009.
Under pre-Act law, for tax years beginning after 2008, the nonrefundable personal tax credits (other than the adoption credit, the child tax credit, the low-income saver's credit, the residential energy efficient property, and the nondepreciable property portion of the plug-in electric car credit) were allowed only to the extent that their aggregate amount didn't exceed the excess of: (a) the taxpayer's regular tax liability, over (b) his tentative minimum tax, determined without regard to the alternative minimum tax foreign tax credit.
New law. For tax years beginning in 2009, the Recovery Act provides that the aggregate amount of nonrefundable personal credits can't exceed the sum of: (1) the taxpayer's regular tax liability for the tax year, reduced by the foreign tax credit, and (2) the AMT.
Observation: Thus, for tax years beginning in 2009, the otherwise allowable nonrefundable personal credits may offset AMT as well as regular tax. The Act accomplished this by extending the AMT offset rule in Code Sec. 26(a)(2) to tax years beginning during 2009.
For tax years beginning after Dec. 31, 2008, the Recovery Act also provides that the Code Sec. 30B alternative motor vehicle credit is a personal credit allowed against the AMT. For a tax year to which Code Sec. 26(a)(2) (under which specified nonrefundable personal tax credits may offset both regular and AMT liability) doesn't apply-that is, any tax year beginning after 2009, as provided by the 2009 Recovery Act, see above the credit allowed under Code Sec. 30B(a) for any tax year (determined after the application of Code Sec. 30S(g)(1)) can't exceed the excess of: (1) the sum of the regular tax liability, plus the tax imposed by Code Sec. 55, over (2) the sum of the personal credits allowable under subpart A (other than the alternative motor vehicle credit, the adoption credit, the residential energy efficient credit, the electric vehicle credit, and the new qualified plug-in electric drive motor vehicle credit), and the foreign tax credit for the tax year.
Repeal of AMT limits on tax exempt bonds issued in 2009 and 2010.
Under pre-Act law, tax-exempt interest on certain tax-exempt bonds issued for private activities was a preference item. Also, for corporations, an adjustment based on current earnings is determined, in part, by taking into account 75% of items that are excluded from taxable income but included in the corporation's earnings and profits. Under pre-Act law, tax exempt interest was one of these items.
New law. For interest on bonds issued after Dec. 31, 2008 and before Jan. 1, 2011, the Recovery Act provides that tax-exempt interest on private activity bonds issued isn't an item of tax preference for purposes of the alternative minimum tax (AMT). In addition, interest on tax exempt bonds issued after Dec. 31, 2008 and before Jan. 1, 2011 is not included in the corporate ACE adjustment.