Tax Cuts for Wisconsin Families
Will the new federal law affect my 2008 taxes?
Generally, no. The new law has no impact for most individuals preparing their 2008 state or federal tax returns due April 15, 2009. Instead, these changes will largely impact 2009 tax returns filed in 2010. Taxpayers should continue to prepare their 2008 tax returns as they normally would.
Are there tax cuts for individuals in the stimulus package?
Yes. The federal economic recovery plan includes several provisions that will lower taxes for many Wisconsin individuals and families. These tax cuts, deductions, and credits will save Wisconsin taxpayers an estimated $4.6 billion over the next three years (2009-2011).
Making Work Pay Credit: $2.3 billion in savings for Wisconsin taxpayers
For 2009 and 2010, this new credit is worth up to $400 to individuals and up to $800 for married couples filing jointly. The credit is refundable, which means the credit is available even to those who have no tax liability. The credit is reduced for taxpayers with adjusted gross incomes exceeding $75,000 ($150,000 for married couples filing jointly.)
The Making Work Pay tax credit will primarily be distributed through reduced withholding on wages. Taxpayers who do not receive the full benefit through reduced withholding can claim the remaining credit on their annual tax return.
In Wisconsin, we expect the average Making Work Pay tax credit to be $506. 75% of these federal credits will go to taxpayers earning $75,000 or less annually. This provision does not affect a taxpayer's Wisconsin income tax liability.
Economic Recovery Payment to Retirees: $267 million in payments to Wisconsin taxpayers in 2009
A one-time federal payment of $250 will be available for retirees, disabled individuals, and SSI recipients receiving benefits from the Social Security Administration, Railroad Retirement, or the U.S. Department of Veterans Affairs. This payment reduces any Making Work Pay credit for which the recipient would be eligible.
83% of the federal funds coming to Wisconsin will go to taxpayers earning $75,000 or less annually. This provision does not affect a taxpayer's Wisconsin income tax liability.
Earned Income Tax Credit: $104.5 million in federal savings and $37 million in state savings for Wisconsin taxpayers
For 2009 and 2010, a larger Earned Income Tax Credit (EITC) is available for families with three or more qualifying children. The law also reduces the marriage penalty by increasing the income level at which the EITC begins to phased out for married couples; the phase out rate for married couples will be $5,000 more than for single filers.
The higher federal EITC will result in a higher Wisconsin Earned Income Tax Credit. Wisconsin’s EITC is equal to 4% of the federal credit for families with one qualifying child, 14% for families with two qualifying children and 43% of the federal credit for families with three more qualifying children.
In Wisconsin, we expect this expanded credit to provide eligible families with an average of $506 more in federal credit per year and an average of $170 in state credit per year for tax year 2009 and 2010.
Child Tax Credit: $230.7 million in savings for Wisconsin taxpayers
The new law increases eligibility for the refundable federal additional child tax credit in 2009 and 2010. The child tax credit is targeted to tax filers with adjusted gross income under $75,000 for single filers and $110,000 for married joint filers and is equal to $1,000 per qualifying child. However, because the credit is nonrefundable, the credit can only be as much as a taxpayer's tax liability. Taxpayers with unused credits may be eligible for an additional child tax credit that is refundable. It is equal to the unused credit or 15% of the taxpayer's earned income that is in excess of a specified amount, whichever is less. For 2009 and 2010, the income threshold for taxpayers to receive a portion of the Child Tax Credit as a refund is lowered from $8,500 to $3,000, resulting in larger credits.
This provision does not affect a taxpayer's Wisconsin income tax liability.
American Opportunity Tax Credit: $217.4 million in savings for Wisconsin taxpayers
The law renames the current federal HOPE credit available for post-secondary education expenses. The change expands the maximum credit to $2,500 for tax years 2009 and 2010 and allows taxpayers to claim the credit for up to four years.
This provision does not affect a taxpayer's Wisconsin income tax liability.
Suspension of Taxation of Unemployment Benefits: $73.4 million in federal savings
The first $2,400 of unemployment compensation is excluded from gross income in 2009. This exclusion will reduce taxable income for Wisconsin taxpayers on both their federal and state tax returns. The exclusion will be in addition to the current exclusion for certain unemployment compensation under Wisconsin law.
In Wisconsin, we expect this change to provide unemployed residents with an average federal tax reduction of $248.
Deduction for Sales Tax on Automobile Purchases: $25.5 million in savings for Wisconsin taxpayers
Purchasers of new vehicles may deduct, from federal taxable income, the amount of sales tax paid on the purchase of a new car, SUV, light truck, or motorcycle. The deduction would apply to the sales tax paid up to $49,500 of the purchase price, and would phase out for taxpayers with incomes over $125,000 ($250,000 joint returns).
This provision does not affect a taxpayer's Wisconsin income tax liability.
Refundable First-Time Home Buyer Credit: $74.6 million in savings for Wisconsin taxpayers
The law extends the existing credit for first-time home purchases through November 30, 2009. The provision increases the maximum credit from $7,500 to $8,000 for qualifying home purchases made between January 1, 2009 and November 30, 2009. In addition, the provision eliminates the pay-back provision that required the credit claimants to repay the credit over 15 years.
This provision does not affect a taxpayer's Wisconsin income tax liability.
Increase Exemption Levels for the 2009 Federal Alternative Minimum Tax: $1.3 billion in federal tax savings
The Alternative Minimum Tax or AMT is an additional tax computation designed to ensure that taxpayers who receive significant tax deductions and exemptions pay at least some level of federal income tax. The AMT calculation allows for certain income exemption amounts. These exemption amounts are not indexed for inflation but are specified by law for each tax year. The new federal law increases the 2009 exemption levels so that fewer middle-income taxpayers will be subject to the AMT. The exemption amounts for tax year 2009 are increased to $70,950 for married couples and $46,700 for single filers.
This provision does not affect a taxpayer's Wisconsin income tax liability.
Last updated March 16, 2009