The motor vehicle sales tax deduction provides an extra standard deduction for state and local sales taxes paid on the purchase of a new vehicle. In states without sales taxes, taxpayers can deduct other fees. The deduction is limited to the portion of the sales or excise tax imposed on the first $49,500 of the vehicle’s purchase price and applies to vehicles purchased between February 17 and December 31 this year.
Other changes are as follows:
COBRA premium assistance. Individuals laid off from jobs between Sept. 1, 2008 and Dec. 31, 2009 and who meet income limits may qualify for nine months of COBRA premium assistance. Individuals pay 35 percent of COBRA premiums and employers, who must treat that as full payment, can claim a credit for the other 65 percent on payroll tax returns.
Economic recovery payments. This one-time payment of $250 is for individuals receiving Social Security benefits, disabled veterans and others on fixed incomes. The Social Security Administration began sending payments by mail and direct deposit.
Exclusion of unemployment benefits. Individuals receiving unemployment benefits in 2009 can exclude the first $2,400 from their income. The exclusion is only available for the 2009 tax year.
Tax evasion forgiveness. The IRS is encouraging taxpayers to disclose unreported foreign bank accounts and assets. In exchange for full disclosure and paying all back taxes plus interest and penalties, the IRS agrees not to criminally prosecute tax evaders and to waive the 75-percent fraud penalty. This offer is good only up to September 23.
While the Making Work Pay credit is in effect for both 2009 and 2010, taxpayers and pension recipients need to take a look at their withholdings now to make sure they don’t end up owing more taxes than expected. This is a credit against a worker’s income tax equal to the lesser of 6.2 percent of earned income or $400 ($800 for married couples filing jointly). This amount can be reduced by any economic recovery payment an individual received and phases out beginning at an adjusted gross income of $75,000 for single filers and $150,000 for joint filers. Individuals with multiple jobs may need to adjust withholdings if the credit results in too little income tax being withheld from wages. In May, the IRS also issued a withholding option for pension plans to offset the credit which could result in some pension