Obama State of the Union 2010 – Stimulus Check No – Tax Credits Yes

Several new tax credits aimed mainly at the middle class will be announced tonight in the 2010 Obama State of the Union speech.  Unfortunately, it looks like there will be no stimulus checks issued in 2010 but the year is still young.

The health care reform issue should be addressed but no specifics have been released as yet.

Here are some proposals with the more significant ones appearing first:

Student loan payment cap

Federal student loan monthly payments will be capped to 10% of gross income minus a basic living amount which appears to be $6200.  For example, if you are earning $35,000 and have student loans of $30,000 then the annual payments will be ($35,000 – $6,200)/10 = $2,880 which means $240 per month.  This will benefit a large number of people who have big student loans – especially if they are not making a lot of money.

The Child and Dependent Care Tax Credit

The Child and Dependent Care Tax Credit will be increased to 35% from the existing 20% credit now in place.  This applies to families making less than $85,000 (AGI) per year.  If you make between $85,000 and $115,000 then this credit will be prorated back down to 20% which is the amount applied if the family makes $115,000 or more.  If you make more than $115,000 then there will be no impact.

A maximum of $3,000 of child care expenses can be claimed for each of 1 or 2 kids.  The maximum tax credit for a family with 2 kids will increase from $1200 to $2100.

Child care funding will also increase by $1.6 billion.



Saver’s Tax Credit

The Saver’s Credit will be increased to match 50% of the first $1,000 of retirement account contributions for families earning under $65,000 (up from $55k).  A partial credit will be available for families earning between $65,000 and $85,000.

Mandatory Workplace IRAs

This proposal calls for all employers to provide automatic direct deposit IRAs (Individual Retirement Accounts).  It won’t be mandatory for employees to take advantage of these accounts but they will always have the option.  Small firms will be exempt.  This proposal is interesting since IRAs are already available from other institutions (unlike 401(k) plans).

More support for caregiving families

Families caring for relatives will benefit from increased funding to the Department of Health and Human Services caregiver support programs.  This extra funding should make it easier to get more free help if a family or individual is caring for an aging relative.