Some Democrats feel the approximately $35 billion jobs bill is too puny, while others say the tax cut for new hires won’t generate many new jobs. However, the pressure is on to address jobs and deliver a badly needed win for President Barack Obama and a Democratic Party struggling in opinion polls and facing major losses in the upcoming midterm elections. Further jobs measures are promised.

“If that’s the only thing that I can vote on … I’ll vote for it, obviously,” said Rep. Bill Pascrell, D-N.J. “We’ve got to get something moving. We’ve got to get something done.”

“It’s really not a jobs bill,” said Rep. Barbara Lee, D-Calif. “It’s one small piece.” Lee said she instead wants money in the legislation for job training and youth summer jobs.

Thirty-five Democrats, mostly members of the Congressional Black Caucus, opposed the bill. Six Republicans voted in favor.

The House had passed a much larger measure in December that contained almost $50 billion in infrastructure funding, $50 billion in help for cash-starved state governments, and a six-month extension of jobless aid. That bill conspicuously left out the proposals to award tax credits for hiring new workers. House Speaker Nancy Pelosi was among those skeptical of that idea.

The Senate responded last week with the far smaller measure that the House is reluctantly accepting. The House amended the measure Thursday to conform with so-called pay-as-you-go budget rules that have become an article of faith among moderate Democrats. The rules require future spending increases or tax cuts to be paid for with either cuts to other programs or equivalent tax increases.

The minor tweak means that the notoriously balky Senate would have to act again before Obama could sign the bill into law.

The $35 billion bill — blending $15 billion in tax cuts and subsidies for infrastructure bonds issued by local governments with the $20 billion in transportation money — is far smaller than the massive economic stimulus bill enacted a year ago.

The jobs bill has been a source of tension between House and Senate Democrats.

“It’s ridiculous that it’s taken so long for the Senate to overcome indifference and obstruction to finally send a bill back to the House which represents just a fraction of what we need to do to help the unemployed,” said House Appropriations Committee Chairman David Obey, D-Wis. “But better late than never, and better something than nothing.”

Across the Capitol, the Senate is debating a far more costly measure to clean up a lot of unfinished business from last year. The $100 billion-plus bill would extend unemployment assistance, revive a bevy of expired tax breaks, help states with soaring Medicaid costs and prevent doctors from having to absorb big cuts in Medicare payments. The popular initiatives are traditionally extended on a bipartisan basis for brief periods of time, which hides their long-term costs.

The Senate plans to act on the jobs bill after wrapping up the unfinished-business bill, which means it probably won’t be sent to Obama until next week.

The jobs bill contains two major provisions. First, it would exempt businesses hiring the unemployed from the 6.2 percent Social Security payroll tax through December and give them an additional $1,000 credit if new workers stay on the job a full year. The Social Security trust fund would be reimbursed for the lost revenue.

Second, it would extend highway and mass transit programs through the end of the year and pump in $20 billion in time for the spring construction season. The money would make up for lower-than-expected gasoline tax revenues.

Small businesses would continue to be able to write off equipment purchases as a business expense. Much of the bill is financed by cracking down on offshore tax havens.

Several lawmakers in both parties criticized the payroll tax break, saying that it wouldn’t do much to create jobs and that the bulk of it would go to employers for new hires that would be made anyway.

“It simply encourages conduct that would occur anyway,” said Lloyd Doggett, D-Texas.

Rep. Steve LaTourette, R-Ohio, said he asked businessmen at town meetings in his Rust Belt district whether they would hire people based on the payroll tax holiday. “Nobody raised their hands,” LaTourette said. “This is not going to create one job.”

“It’s an insipid, weak piece of legislation,” said Jim McDermott, D-Wash.

“It’s not that good, but it’s better than nothing,” said Jim McGovern, D-Mass. “And we’re going to have to do more. But the bill that I would have liked to have seen pass can’t pass the United States Senate.”

Economist Mark Zandi of Moody’s Economy.com said the new hiring tax credit could spur creation of about 250,000 new jobs. The economy has shed 8.4 million jobs since the recession began in December 2007.

To put the struggling economy back on track, Congress has passed several new tax laws in recent years. The good news is some tax breaks will still be around in 2010 while new ones are in the works. Here are 10 tax moves that could help you lower your IRS bill in the New Year.

Tip 1: Buy a Home

The real estate market was a major economic drag, so lawmakers decided to jump-start it by offering first-time homebuyers a tax break. It seemed to work, so as 2009 wound down, Congress extended the first-time homebuyer credit and expanded it to folks looking to purchase move-up homes.

First-timers — individuals who haven’t owned a residence in the last three years — can claim up to $8,000. Current homeowners who’ve lived in their residence for five of the eight years before buying can get up to $6,500.

You must have a contract in place by April 30, 2010, and the deal closed by June 30 to qualify for the credit.

Even if your residential purchase is in 2010, you have the option to take the credit on your 2009 tax return or wait and claim it on your 2010 Form 1040. Run the numbers both ways to see which filing year will save you the most tax money.

Tip 2: Watch Out for Making Work Pay Complications

To get more money into taxpayers’ hands, the American Recovery and Reinvestment Act included a new tax break, the Making Work Pay credit. Rather than being a separate rebate check, this credit started showing up in worker paychecks last April. By the end of 2009, eligible employees received an extra $400.

Some workers, however, got more than they should have. This happened, for example, when a worker had two jobs. The new withholding rates meant that employee got $400 at each job, or twice the allowable credit amount. Similarly, a husband and wife who each had jobs could have received excess credit.

This filing season, taxpayers will have to fill out the new Schedule M to reconcile any credit overages. You might want to fill out the form early to see just what kind of tax damage you might face.

If you did encounter a Making Work Pay problem in 2009, consider adjusting your withholding early in 2010.

Now about that 2010 payout. Even if you don’t make any W-4 changes, you’ll see more tax withheld from your paychecks than was taken out after the Making Work Pay credit went into effect last year. When the credit took effect, the full $400 amount was paid out over just the last nine months of the year. But with the credit being paid out over all 12 months of 2010, this year’s per-paycheck bump will be smaller.

Tip 3: Convert Your Traditional IRA to a Roth

With the arrival of 2010, anyone can now convert a traditional IRA to a Roth retirement account. Before, shifting tax-deferred traditional IRA money into a tax-free Roth plan was not available to folks with adjusted gross income of $100,000 or more. That income limit has been removed.

If you decide this is the right retirement move for you, note that you will have to pay taxes on the previously untaxed amounts you convert. The good news is you can opt to pay half the conversion costs on your 2011 taxes, with the remainder in 2012.

Tip 4: Improve Your Home’s Energy Efficiency

Thanks to another portion of last year’s stimulus bill, the tax savings for energy-efficient home improvements were themselves improved.

Instead of a complicated patchwork of credit amounts, homeowners can claim up to 30 percent of the first $5,000 spent on qualifying residential energy upgrades, or up to $1,500 in tax credits. If you want to go even greener, for example by installing a solar home heating system, you could get even bigger tax credits.

The new credit format took effect last year, but is running through 2010. This might be the last year, though, so if you need to make home repairs, consider energy-efficient upgrades that could pay off at tax-filing time.

Tip 5: Hit the Road in a Hybrid

Gas prices stabilized over the last year, but there’s no guarantee they won’t once again nudge the $4 mark. If you’re concerned about it, consider a hybrid. Even better, these cars could pay off at tax time.

However, you have to shop carefully. The hybrid credit, which is available through 2010, was designed to phase out once an automaker sold 60,000 eligible vehicles. That happened years ago with popular Toyota and Honda hybrids. Other auto manufacturers, however, still offer an array of fuel-efficient cars, trucks and SUVs that could save you tax dollars.

Tip 6: Hire an Estate Tax Attorney

The estate tax died as scheduled in 2010, but look for a retroactive resurrection this year. Congress effectively has until September to approve a new law since estate tax returns aren’t due until nine months after a taxpayer dies. Most lawmakers agree that a tax should be in place. The question is: How much of an estate’s assets should be exempted? The congressional re-examination of the estate tax highlights how estate planning can be complex, confusing and costly. Don’t follow Congress’ bad example and put off dealing with your estate and potential tax ramifications. See an estate tax professional and get your affairs in order sooner rather than later so that your heirs, not the IRS, are your ultimate beneficiaries.

Tip 7: Remember That RMDs Are Back

Tax-deferred savings plans such as traditional IRAs or workplace 401(k)s are great ways to build a retirement nest egg. But the IRS won’t wait for its cut of the account earnings forever. Once you turn 70-1/2, tax law demands you start taking money out of these accounts via required minimum distributions, or RMDs.

In 2009, retirees didn’t have to worry about RMDs thanks to a one-year waiver granted by Congress. In 2010, RMDs are back, so make sure you take out the requisite money or you could pay a stiff penalty.

Tip 8: Cash in on Low Capital Gains Rates

The Bush administration tax cuts included reductions in capital gains tax rates based on taxpayer adjusted gross income. Currently, the highest rate is 15 percent for individuals in the 25 percent to 35 percent tax brackets. Taxpayers in the 10 percent and 15 percent tax brackets pay no capital gains.

That’s scheduled to change in 2011. The top rate will return to 20 percent; the zero rate will revert to 10 percent. There’s always a chance Congress could continue the current lower rates, but with the federal deficit, the top capital gains rate is likely to increase. If you are in a higher income bracket and could eventually face higher capital gains taxes, speak with your tax and investment advisers about whether cashing in now at the lower rates fits your portfolio plans.

Tip 9: Be Aware of Rising Income Tax Rates

Similarly, several other Bush administration tax cuts are set to expire at the end of 2010. As for income taxes, the top tax rate is scheduled to return to 39.6 percent from the current 35 percent and the 10 percent bracket would be eliminated.

Will this happen? Right now, it looks as if the 10 percent bracket is safe, but higher-income individuals might be facing increased taxes in 2011. If you could be affected, talk with your tax and financial advisers about what steps you can take to soften the tax blow.

There has been some talk that growing deficits could prompt rate hikes ahead of schedule. However, a still-sluggish economy and upcoming 2010 midterm elections make that less likely. So pay attention to Congress and to Bankrate for the latest on where personal income tax rates might go.

Tip 10: Keep an Eye on Health Care

President Barack Obama had hoped that health care reform would be resolved by now. But look for this debate to continue into the early part of 2010. If or when lawmakers reach an agreement, you’ll need to pay attention to what modifications might take effect.

Many changes, such as an increase in the amount of medical expenses necessary to deduct them, wouldn’t show up for several years. Others, however, are on a fast track. For example, the proposal to limit flexible spending account contributions to $2,500 a year would take effect in 2011. If that change comes to pass, you’ll need to account for it in 2010 as you make decisions about your company health care benefits.

The new Tax Benefits for Education section on IRS.gov includes tips for taking advantage of long-standing education deductions and credits. The “one-stop” location for higher education information includes a special section highlighting 529 plans and frequently asked questions. The Web section also features two key changes that will be in effect during 2009 and 2010 that were included in the American Recovery and Reinvestment Act (ARRA), enacted earlier this year.

One change allows families saving for college to use popular 529 plans to pay for a student’s computer-related technology needs. Under the other change, more parents and students will be able to use a federal education credit to pay part of the cost of college using the new American opportunity credit.

“With many families struggling to afford college, we want every eligible taxpayer to know about their options and take advantage of all the tax breaks they can,” said IRS Commissioner Doug Shulman. “529 plans have become a very attractive way to save for college, and our Web section is designed to help people get information about these plans. In addition, the new American opportunity credit can help many parents and students pay part of the cost of the first four years of college.”

Here are further details on the expanded 529 plans and the new American opportunity credit.

529 Plans Expanded

Tax-free college savings plans and prepaid tuition programs can be used to buy computer equipment and services for an eligible student during 2009 and 2010. These 529 plans — qualified tuition programs authorized under section 529 of the Internal Revenue Code — have, in recent years, grown as a way for parents and other family members to save for a child’s college education. Though contributions to 529 plans are not deductible, there is also no income limit for contributors.

529 plan distributions are tax-free as long as they are used to pay qualified higher education expenses for a designated beneficiary. Qualified expenses include tuition, required fees, books, supplies, equipment and special needs services. For someone who is at least a half-time student, room and board also qualify.

For 2009 and 2010, the ARRA change adds to this list expenses for computer technology and equipment or Internet access and related services to be used by the student while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature. In general, expenses for computer technology are not qualified expenses for the American opportunity credit, Hope credit, lifetime learning credit or tuition and fees deduction.

States sponsor 529 plans that allow taxpayers to either prepay or contribute to an account for paying a student’s qualified higher education expenses. Similarly, colleges and groups of colleges sponsor 529 plans that allow them to prepay a student’s qualified education expenses. More information about these plans can be found on the new Web page on IRS.gov and in Publication 970, Tax Benefits for Education.

American Opportunity Credit Helps Pay for the First Four Years of College

The American opportunity credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Income guidelines are expanded and required course materials are added to the list of qualified expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

The American opportunity credit, in many cases, offers greater tax savings than existing education tax breaks. Here are some key features of the credit:

• Tuition, related fees, books and other required course materials generally qualify. In the past, books usually were not eligible for education-related credits and deductions.
• The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
• The full credit is available for taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less (for married couples filing a joint return, the limit is $160,000 or less). The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and lifetime learning credits.
• Forty percent of the American opportunity credit is refundable. This means that even people who owe no tax can get an annual payment of the credit of up to $1,000 for each eligible student. Existing education-related credits and deductions do not provide a benefit to people who owe no tax. The refundable portion of the credit is not available to any student whose investment income is taxed at the parent’s rate, commonly referred to as the kiddie tax. See Publication 929, Tax Rules for Children and Dependents, for details.

Eligible parents and students can get the benefit of this credit during the year by having less tax taken out of their paychecks. They can do this by filling out a new Form W-4, claiming additional withholding allowances, and giving it to their employer. For details, use the withholding calculator on IRS.gov or see Publication 919, How Do I Adjust My Tax Withholding?

Though most taxpayers who pay for post-secondary education will qualify for the American opportunity credit, some will not. The limitations include a married person filing a separate return, regardless of income, joint filers whose MAGI is $180,000 or more and, finally, single taxpayers, heads of household and some widows and widowers whose MAGI is $90,000 or more.

There are some post-secondary education expenses that do not qualify for the American opportunity credit. They include expenses paid for a student who, as of the beginning of the tax year, has already completed the first four years of college. That’s because the credit is only allowed for the first four years of post-secondary education.

Graduate students still qualify for the lifetime learning credit and the tuition and fees deduction. For details on these and other education-related tax benefits, see Pub. 970.

While filing your taxes is the last thing you want to think of as the remaining free days of summer tick away, now is a good time to remind your college student to start saving book receipts and keep track of other college expenses before they start spending.

As part of the American Recovery and Reinvestment Act, more parents and students will qualify for the tax credit called the American Opportunity Credit for tax years 2009 and 2010, and their tax credits will increase from $1,800 under the Hope Credit, to $2,500 under the new plan.

“It is a very valuable benefit. It is really about putting more money in your pocket,” said Bob Meighan, vice president of tax software giant TurboTax.

While the American Opportunity Credit is an extension and expansion of the Hope Credit, some taxpayers may need tax software to determine if other deductions or credits, such as the Lifelong Learning Credit, are better for them and “give the biggest bang for the buck,” Meighan said.

Basically, anyone paying $4,000 or more a year for college qualifies for the maximum American Opportunity annual benefit of $2,500 per student.

“This presumably opens the door for kids who wouldn’t be able to afford it,” he said.

The new credit adds books and required course materials to the list of qualifying expenses, as well as tuition and fees, and allows the credit to be claimed for four post-secondary education years instead of two.

The full credit is for individuals with modified adjusted gross incomes of $80,000 or less, or $160,000 or less more married couples filing a joint return, according to the IRS. Partial credit is given to single filers making $80,000 to $90,000, and married couples making $160,000 to $180,000.

The tax break is also partially refundable, allowing lower income families with little or no tax liability to claim some of the credit.

Meighan points out that it’s important to know the different between credits and deductions. The full amount of a tax credit, such as $2,500 for the American Opportunity Credit, can be deducted from the tax you’d pay. Deductions are taken out at your tax rate, typically 25% more for many people.

For example, $5,000 in college expenses being used as a tax deduction at a 25% tax rate would equal a $1,250 deduction.

For keeping track of tuition and fees paid at college, your student’s college should send out a 1098T form listing such fees, Meighan said. Books won’t be on there, so students should keep receipts. The tax credit is for the first $2,000 of qualifying expenses and 25% of the next $3,000. Interest paid on student loans are also deductible from taxes.

“None of us likes taxes,” Meighan said. “None of us are experts on them. We tend to think there are breaks out there, but we’re not sure.”

If you’re in college or have a child in college, the American Opportunity Credit is one tax credit you don’t want to miss out on when filing taxes next year.

The recovery law provides tax incentives for first-time homebuyers, people purchasing new cars, those interested in making their homes more energy efficient and parents and students paying for college. But all of these incentives have expiration dates so taxpayers should take advantage of them while they can.

First-Time Homebuyer Credit

The Recovery Act extended and expanded the first-time homebuyer tax credit for 2009.

Taxpayers who didn’t own a principal residence during the past three years and purchase a home this year before Dec. 1 can receive a credit of up to $8,000 on either an original or amended 2008 tax return, or a 2009 return. But the purchase must close before Dec. 1, 2009, and an eligible taxpayer cannot claim the credit until after the closing date. This credit phases out at higher income levels, and different rules apply to home purchases made in 2008.

New Vehicle Purchase Incentive

ARRA also provides a tax break to taxpayers who make qualified new vehicle purchases after Feb. 16, 2009, and before Jan. 1, 2010.

Qualifying taxpayers can deduct the state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. There is no limit on the number of vehicles that may be purchased, and you may claim the deduction for taxes paid on multiple purchases. But the deduction per vehicle is limited to the tax on up to $49,500 of the purchase price of each qualifying vehicle and phases out for taxpayers at higher income levels. This deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A.

Energy-Efficient Home Improvements

The Recovery Act also encourages homeowners to make their homes more energy efficient. The credit for nonbusiness energy property is increased for homeowners who make qualified energy-efficient improvements to existing homes. The law increases the rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to a total of $1,500 for improvements placed in service in 2009 and 2010. Qualifying improvements include the addition of insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.

Tax Credit for First Four Years of College

The American opportunity credit is designed to help parents and students pay part of the cost of the first four years of college. The new credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. Tuition, related fees, books and other required course materials generally qualify. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

Certain Computer Technology Purchases Allowed for 529 Plans

ARRA adds computer technology to the list of college expenses (tuition, books, etc.) that can be paid for by a qualified tuition program (QTP), commonly referred to as a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services to be used by the designated beneficiary of the QTP while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature.

Making Work Pay and Withholding

The Making Work Pay Credit lowered tax withholding rates this year for 120 million American households. However, particular taxpayers who fall into any of the following groups should review their tax withholding rates to ensure enough tax is withheld, including multiple job holders, families in which both spouses work, workers who can be claimed as dependents by other taxpayers and pensioners. Failure to adjust your withholding could result in potentially smaller refunds or in limited instances may cause you to owe tax rather than receive a refund next year. So far in 2009, the average refund amount is $2,675, and 79 percent of all returns received a refund.

Related Information

For more on the Recovery provisions that may apply to individual taxpayers, see the ARRA page on this Web site.

Audio Files for Podcast

• Tax Breaks for 2009 & 2010: English | Spanish

Videos

• First-Time Home Buyer Tax Credit: English | Spanish | ASL
• Home Energy Credit: English | ASL
• Education Credits (Parents): English | ASL
• Making Work Pay Credit: English | ASL
• Unemployment Compensation: English | ASL

Chrysler is bankrupt and GM is close behind. Once a symbol of American ingenuity and determination, the auto industry is in tatters thanks to plunging sales. As part of its efforts to save American automakers, the Obama administration has introduced some new tax credits to entice new car buyers into the market. Get the low down on how they work from Ken and Daria Dolan of Dolans.com.

The economic stimulus package enacted in February makes state and local sales and excise taxes on new cars purchased this year tax deductible. The Obama administration has interpreted the new law to include certain fees charged to new car buyers in six states without sales taxes. The states are Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon.

The fees “may not be called sales taxes or excise taxes, but we determined they act the same way,” said Michael Mundaca, acting assistant treasury secretary for tax policy.

Some states with sales taxes could also have additional fees that would qualify for the tax deduction, but the IRS was unable to identify any Thursday.

Qualifying fees must be assessed on the purchase of the vehicle. They can be based on the sales price or be a flat fee per vehicle, the Internal Revenue Service said.

For example, in Delaware, car purchasers are required to pay a document fee when registering a title with the Delaware Division of Motor Vehicles. The fee is 3.75 percent of the purchase price.

“It was always Congress’ intent for the document fee to be eligible,” said Sen. Tom Carper, D-Del.

The federal government has poured billions into Chrysler and General Motors in an attempt to help save the struggling auto industry. GM is in Chapter 11 bankruptcy protection and Chrysler has just emerged after being taken over by Fiat Group SpA of Italy.

Officials hope the tax break will increase demand. To qualify for the deduction, new cars must be purchased between Feb. 16 and Jan. 1. Taxpayers can claim the deduction on their 2009 tax returns, regardless of whether they itemize deductions.

The deduction is limited to taxes and fees on the first $49,500 of the purchase price of a new car, light truck, motor home or motorcycle. The deduction is phased out for individuals with incomes between $125,000 and $135,000, and for joint filers with incomes between $250,000 and $260,000.

The Joint Committee on Taxation projects the deduction will save car buyers $1.7 billion.

“This tax deduction not only increases support for the auto industry as it seeks to rebuild, but also puts money back into the pockets of hardworking Americans,” said Neal Wolin, deputy treasury secretary.

The notoriously slow Congress passed the $787 billion economic stimulus package in a matter of weeks. President Barack Obama signed it into law less than one month into his presidency.

So, just how soon will Americans start reaping the benefits of tax cuts in it?

By April 1, according to the president.

“Never before in our history has a tax cut taken effect faster or gone to so many hardworking Americans,” Obama said Saturday in his weekly radio and Internet address.

He said the Treasury Department has begun directing employers to reduce the amount of taxes withheld from people’s paychecks in accordance with the new law, and that in six weeks, a typical family will start taking home at least $65 more every month.

Obama says his signature “Making Work Pay” tax break will affect 95 percent of working families.

Businesses won’t fare as well as they did in earlier versions of the legislation. But most of the tax cuts for families and individuals were preserved, though some were reduced.

There are tax breaks for low-income families with children; college students; first-time homebuyers; people who buy new automobiles; and those collecting unemployment benefits.

The Obama administration says 95 percent of taxpayers will get relief.

“There are provisions that could pay you now and some that could pay you later,” said Amy McAnarney, executive director of the Tax Institute at H&R Block. “They’re going to give you money to spend, and then they’re going to give you incentives to spend it.”

In all, the $789 billion plan includes about $280 billion in tax cuts.

Spending

AID TO POOR AND UNEMPLOYED:

_Senate _ $47 billion to provide extended unemployment benefits through Dec. 31, increased by $25 a week, and provide job training; $16.5 billion to increase food stamp benefits by 12 percent through fiscal 2011 and issue a one-time bonus payment; $3 billion in temporary welfare payments.

_House _ Comparable extension of unemployment insurance; $20 billion to increase food stamp benefits by 14 percent; $2.5 billion in temporary welfare payments; $1 billion for home heating subsidies and $1 billion for community action agencies.

DIRECT CASH PAYMENTS:

_Senate _ $17 billion to give one-time $300 payments to Social Security recipients, poor people on Supplemental Security Income, and veterans receiving disability and pensions.

_House _ $4 billion to provide a one-time additional Supplemental Security Income payment to poor elderly and disabled people of $450 for individuals and $630 for married couples.

INFRASTRUCTURE:

_Senate _ $46 billion for transportation projects, including $27 billion for highway and bridge construction and repair and $11.5 billion for mass transit and rail projects; $4.6 billion for the Army Corps of Engineers; $5 billion for public housing improvements; $6.4 billion for clean and drinking water projects.

_House _ $47 billion for transportation projects, including $27 billion for highway and bridge construction and repair and $12 billion for mass transit, including $7.5 billion to buy transit equipment such as buses; $31 billion to build and repair federal buildings and other public infrastructures; $12.4 billion in rail and mass transit projects.

HEALTH CARE:

_Senate _ $21 billion to subsidize health care insurance for the unemployed under the COBRA program; $87 billion to help states with Medicaid; $22 billion to modernize health information technology systems; $10 billion for health research and construction of National Institutes of Health facilities.

_House _ $40 billion to subsidize health care insurance for the unemployed under the COBRA program or provide health care through Medicaid; $87 billion to help states with Medicaid; $20 billion to modernize health information technology systems; $4 billion for preventative care; $1.5 billion for community health centers; $420 million to combat avian flu; $335 million for programs that combat AIDS, sexually transmitted diseases and tuberculosis.

EDUCATION:

_Senate _ $79 billion in state fiscal relief to prevent cuts in education aid and provide block grants; $25 billion to school districts to fund special education and the No Child Left Behind K-12 law; $14 billion to boost the maximum Pell Grant by $400 to $5,250; $1.1 billion for Head Start.

_House _ Similar aid to states and school districts; $21 billion for school modernization; $16 billion to boost the maximum Pell Grant by $500 to $5,350; $2 billion for Head Start.

ENERGY:

_Senate _ About $40 billion for energy programs, focused chiefly on efficiency and renewable energy, including $2.9 billion to weatherize modest-income homes; $4.6 billion for fossil fuel research and development; $6.4 billion to clean up nuclear weapons production sites; $11 billion toward a so-called ’smart electricity grid’ to reduce waste; $8.5 billion to subsidize loans for renewable energy projects; and $2 billion for advanced battery systems.

_House _ $28.4 billion for energy efficiency and renewable energy programs, including $6.2 billion to weatherize homes; $11 billion to fund a so-called ’smart electricity grid’ to reduce waste.

HOMELAND SECURITY:

_Senate _ $4.7 billion for homeland security programs, including $1 billion for airport screening equipment and $800 million for port security.

_House _ $1.1 billion, including $500 million for airport screening equipment.

LAW ENFORCEMENT:

_Senate _ $3.5 billion in grants to state and local law enforcement to hire officers and purchase equipment.

_House _ Comparable provision.

___

Taxes

NEW TAX CREDIT:

_House _ About $145 billion for $500 per-worker, $1,000 per-couple tax credits in 2009 and 2010. For the last half of 2009, workers could expect to see about $20 a week less withheld from their paychecks starting around June. Millions of Americans who don’t make enough money to pay federal income taxes could file returns next year and receive checks. Individuals making more than $75,000 and couples making more than $150,000 would receive

With the country stuck in a painful recession, the Federal Reserve is widely expected to keep its key interest rate at an all-time low this week and examine other unconventional ways to lift the economy.

Fed Chairman Ben Bernanke and his colleagues are battling a three-headed economic monster: crises in the housing, credit and financial markets that _ taken together _ haven’t been seen since the 1930s.

While Bernanke has pledged to do all he can to provide relief, President Barack Obama and Congress are racing ahead to enact an $825 billion package of increased government spending and tax cuts to revive the economy.

Read full story from The Associated Press

President-elect Barack Obama’s most pressing challenge as he mans the helm of the supertanker known as the U.S. is to steer it to safer economic shores.

Read full story from www.marketwatch.com

The ruling, issued late Friday, allows companies to bring back money for months at a time without incurring the 35% corporate income tax they normally would owe.

The move could help some U.S. companies that are finding it more expensive to borrow short-term funds, by making it easier and cheaper for them to borrow money from their foreign subsidiaries.

Many big U.S. multinationals amass billions of dollars in cash that they attribute to profits from their international operations, which may be taxed at lower rates or not at all. They are reluctant to tap those funds for domestic operations, in order to avoid triggering U.S. taxes.

However, the IRS allows a small exception to the rule that would trigger the tax: Twice a year, a foreign subsidiary is permitted to loan cash to the U.S. parent for a maximum of 30 days.

The IRS made that exception significantly more generous, permitting a company to borrow from their foreign subsidiaries for as long as 60 days, three times a year.

“Recognizing current liquidity constraints, we issued this temporary guidance,” said Andrew C. DeSouza, a Treasury Department spokesman. He declined to comment on whether any specific companies or their representatives had pushed for the move. “I think we’re recognizing there were companies out there that were having liquidity constraints,” he said.

Robert Willens, a former Wall Street tax analyst who runs a corporate-tax advisory firm in New York, said the IRS move means borrowings from overseas could take the place of tapping the market for commercial paper, a type of short-term debt that companies use to finance their continuing operations.

The U.S. commercial-paper market shrank a record $94.9 billion in the week ended Oct. 1, to $1.61 trillion in debt outstanding, following a $61 billion decline the week before, according to federal data. Most of the recent contraction was in commercial paper tied to financial companies in the U.S. and overseas. Industrial corporations were less affected, though some firms have had to pay higher interest rates to borrow in recent weeks.

David Rosenbloom, a partner at Caplin & Drysdale and director of the international tax program at New York University’s law school, called the IRS move “pretty generous,” but added: “In the context of all the other pillaging going on, it seems like small beer.”

It is unclear whether companies will be able to effectively stretch out the loan to periods longer than 60 days. Companies that have tried to stretch out the effective time of the current 30-day rule — by repaying the loan and then immediately borrowing the money again for another 30 days — have run afoul of the IRS.

The Treasury Department wouldn’t comment on how much time companies will need to wait before they can borrow again after the initial 60-day window has expired.

“It’s definitely an area where somebody needs black-and-white rules, because there’s too much at stake,” said Paul W. Oosterhuis, the coordinator of the international tax practice at Skadden, Arps, Slate, Meagher & Flom LLP.

In 2004, Congress passed a law giving companies a one-time tax break on cash they brought home, owing taxes at a rate of only 5.25%. A total of 843 companies brought nearly $362 billion to the U.S., and $265 billion qualified for the deduction, according to a recent IRS report.

WSJ

Based on inflation data released Tuesday by the Labor Department, the personal exemption amount, standard deduction, federal income-tax brackets and many other tax-related numbers will increase in 2009, thanks to annual adjustments required by law. Once again, high-income taxpayers generally will benefit the most.

For example, several so-called stealth taxes that ensnare millions of upper-income Americans each year will start at higher income levels for 2009, compared with 2008. Among these are limits on itemized deductions and personal exemption amounts. They’re known as stealth taxes because they raise your taxes without changing the tax rates and thus can be difficult to detect by voters.

In one of the biggest changes, the annual gift-tax exclusion is likely to increase by $1,000 to $13,000, says James C. Young, a professor of accountancy at Northern Illinois University. Starting in 2009, you will be able to give away as much as $13,000 to anyone you wish — and to as many people as you wish — without any tax considerations. Many wealthy people take advantage of this provision each year as part of their estate-planning strategy.

(You can give away even more than the exclusion amount by paying someone else’s tuition or medical bills. However, you need to make those payments directly to the medical or educational provider.)

All the new inflation-adjusted numbers, which affect returns for 2009 to be filed in 2010, are unofficial. They were crunched by three private-sector tax experts: George Jones, senior federal tax analyst at CCH, a Wolters Kluwer business; William Massey, senior tax analyst for the tax & accounting business of Thomson Reuters; and Prof. Young. This column publishes highlights of their calculations each year since those estimates have been highly reliable over many years.

How much of a saving will taxpayers enjoy because of the inflation adjustments? The answer can vary widely, depending upon the details of each person’s tax situation. A married couple filing jointly with total taxable income of $100,000 will pay $312.50 less in federal income taxes for 2009 than they will on the same income for 2008, says Mr. Jones of CCH. Official numbers from the Internal Revenue Service typically aren’t released until late each year. If the government subsequently revises the inflation data, some projections could change. For more details on the inflation adjustments, visit CCH’s Web site (www.cch.com).

Getty Images

These estimates may help early birds refine their tax-planning and budget strategies. But tax planning can be unusually difficult these days, since nobody knows what tax-law changes may lie ahead next year after a new president moves into the Oval Office. It isn’t even clear yet what Congress will do about several key issues affecting taxes for 2008.

The most likely outcome is that Congress will approve a stopgap measure, known as an “AMT patch,” designed to keep the number of people affected by the alternative minimum tax at about the same level as in 2007. Prospects improved Tuesday when Senate leaders said they had agreed on legislation that would include higher AMT income exemption amounts.

The AMT has many rules that differ from the regular system. For example, state and local taxes aren’t deductible under the AMT. That’s why among those most likely to be affected by the AMT are taxpayers who live in high-tax areas, such as New York City, New Jersey and California, and who make between about $100,000 and $500,000. For more details on the inner workings of the AMT, visit the Web site of the Tax Policy Center (http://www.taxpolicycenter.org), a joint venture of the Urban Institute and Brookings Institution.

The AMT was created decades ago in an effort to make sure high-income Americans paid at least some federal income tax. Over the years, the AMT’s reach has expanded rapidly. If Congress does nothing to change current law, about 26 million Americans will owe more in tax for 2008 because of the AMT, up from around four million for 2007.

Congress also hasn’t taken action yet to revive several popular tax breaks that expired at the end of last year. However, the Senate agreement announced Tuesday includes extensions of expired provisions such as the option to deduct state and local sales taxes, instead of state and local income taxes, when itemizing deductions.

Among the major changes next year:

In most cases, ordinary taxable income of more than $372,950 for 2009 will be taxed at the top federal income-tax rate of 35%. That’s up from $357,700 for 2008. (For more details, see the accompanying table.)

The basic standard deduction is expected to rise to $11,400 for married couples filing jointly. That’s a $500 increase from $10,900 in 2008 — and well above the $200 increase for 2008, compared with 2007. For singles and those who file separately, the basic standard deduction amount will rise to $5,700 from $5,450 in 2008. These are known as “basic” standard deductions since there are additional amounts for the elderly and blind.

The personal exemption amount is expected to increase to $3,650 from $3,500 in 2008.

Two stealth taxes will start at higher income levels. For example, consider the itemized-deduction limit. In essence, you lose part of certain itemized deductions once your income exceeds a certain level, which is adjusted each year for inflation. For 2009, most taxpayers will begin to lose some of the value of certain itemized deductions once their adjusted gross income exceeds $166,800. That’s up from $159,950 for 2008. Calculating the reduction in both itemized deductions and personal exemptions can be complex. See the IRS instructions for more details or use tax-preparation software.

Mr. Jones of CCH notes that other tax-law provisions aren’t adjusted for inflation and stay the same. Among them is the annual limit on net capital losses, which many investors this week may wish were much larger. Here’s how it works: Investors typically can offset capital gains with capital losses on a dollar-for-dollar basis. If your losses exceed your gains, you typically can deduct as much as $3,000 of those net capital losses each year ($1,500 if married and filing separately). Additional amounts are carried over into future years. Those limits haven’t budged for many years.

* * *

More tipsters, lured by big rewards, contact the IRS.

A law enacted in 2006 offers sharply higher rewards to informants in cases involving large amounts of tax cheating and other violations. That law has helped generate a torrent of tips, according to a report issued Tuesday by the IRS Oversight Board.

WSJ