IRS Fine Tunes Tax Recovery

The IRS is moving quickly to issue guidance on the many tax incentives for individuals and businesses in the American Recovery and Reinvestment Act of 2009 (2009 Recovery Act). Since Congress passed the multi-billion dollar stimulus package in February, the IRS has released guidance on the extended net operating loss (NOL) carry back for small businesses, the new Making Work Pay credit, the enhanced first-time homebuyer tax credit, the new COBRA subsidy, and the new sales tax deduction for motor vehicles.

Net operating losses:

One of the most valuable tax breaks in the 2009 Recovery Act is the extended NOL carry back. Small businesses with an NOL in 2008 can offset this loss against income earned in up to five prior years. This special treatment will accelerate refunds and generate an immediate infusion of cash into a struggling business. The IRS expects record numbers of small businesses to be eligible for the carry back and has promised to expedite refunds.

Making Work Pay credit:

Many employers have already implemented the new Making Work Pay credit. The credit reaches $400 for single individuals and $800 for married couples filing jointly. Like other incentives, the Making Work Pay credit phases out for higher income taxpayers (single individuals with modified AGI above $75,000 and married couples filing jointly with modified AGI above $150,000).

Taxpayers do not have to submit a new Form W-4 to their employers; the credit is automatic. However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may want to submit a revised W-4 to ensure sufficient withholding. Our office can determine if you need to adjust your withholding.

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