Category: Money

COBRA insurance is temporary health care insurance for people who have just lost their job and their health insurance coverage.  It is also used by recent retirees and commonly covers spouses and children as well.  Typically it is used by workers who are between jobs that provide health care and is provided by the previous employer’s medical plan.

Previously, the unemployed person had to pay 100% of the COBRA insurance premium in order to be covered which can be quite expensive.

65% subsidy to COBRA insurance costs

In the new 2009 economic stimulus package – the government will cover 65% of the COBRA premiums for 9 months – given that these costs can be $1,000 per month for a family – this is a significant saving for someone who has just lost their job.

Who is eligible for this?

Anyone who:

• Was laid off between Sept 1, 2008 and before Dec 31, 2009.
• Income is less than $125,000 for single personal and $250,000 for couples.

Longer window to apply for COBRA

Another change is that workers who were laid off after September 1, 2008 have another 60 days added to the window where they can apply for COBRA.  This is on top of the traditional 62 day window.

Did you know?

COBRA is short for Consolidated Omnibus Budget Reconciliation Act.   This act was passed in 1986.

As part of the recent economic stimulus bill of 2009 – an $8,000 home buyer tax credit was created.  This credit will apply to home buyers who buy a home this year.  Clearly this is an effort to try to keep up house values and given how much they have fallen, perhaps it is a good time to buy.  The important thing to note is that this credit is not a loan – it does not have to be paid back.

[edit July 8, 2010 – closing deadline extended for first time home buyers tax credit to Sept 30, 2010]

[edit Sept 20  $8,000 first time home buyer credit extended.]

Who is eligible for the $8,000 home buyer tax credit?

Any one who buys a home between January 1, 2009 and November 30, 2009 and meets the following conditions:

• You must not have owned a house in the past 3 years.  This is the “first time” homeowner condition.
• Your income must be less than $75,000 for singles or $150,000 for married couples.  Keep in mind that singles who make up to $95k and couples who make up to $170k can get a partial credit.

Is this credit a loan?

No, this credit does not have to be paid back.

Are there any strings attached?

Yup – you have to stay in the house for 3 years otherwise the credit has to be paid back.

What is a “first time home buyer”?

A first time home buyer is someone who hasn’t owned a house in the past 3 years or has never owned a house.  For couples – this applies to both spouses.  It is important that if you sold your last house in 2006 that you don’t close on the new house within 3 years of the previous selling date or you won’t get the credit.  For example if you sold your last house on June 1, 2006 then don’t close on a new house before June 1, 2009.

Is the tax credit $8,000 for everyone?

No, the actual credit is $8,000 or 10% of the house value – whichever is less.  For example if your house is worth $200,000 then you would get $8,000.  If the house is only worth $70,000 then you would only get 10% of $70k which is $7,000.

This is a refundable tax credit

The $8,000 credit means that anyone who is eligible for this credit can subtract $8,000 from the amount of tax owed to the IRS.  If you don’t owe $8,000 in taxes then you will get a refund for the difference.

For example if Bob owes $30,000 in taxes and is eligible for the $8,000 credit then he will deduct $8,000 from $30,000 and will owe only $22,000 in taxes.  Steven only owes $5,000 in taxes so if he qualifies for the credit then he will not pay any taxes and will get a refund of $3,000.

One of the more interesting aspects of the recent economic stimulus bill was the introduction of a federal income tax deduction on any taxes and excise taxes paid on a new vehicle.  This was introduced because of the poor condition of the big 3 car companies since this deduction will help encourage some people to buy cars.

What kind of vehicles are eligible?

To be eligible for this deduction – it must meet the following criteria:

• Vehicle has to be purchased between February 17, 2009 and December 31, 2009.
• Vehicle has to be a new.  Used or leased vehicles don’t qualify.
• Foreign or domestic makes are eligible.
• Purchase cost has to be less than $49,500.
• Weigh has to be less than 8500 pounds.  This would include SUVs and light pickup trucks.
• The buyer has to have an income of  less than $125,000 if single and $250,000 for families.
• Must be a car, light truck, recreational vehicle or motorcycle.

Please note that a partial deduction is available to single buyers with incomes up to $135,000 and families with incomes up to $260,000.

What about hybrid cars?

Plug-in hybrid cars are eligible for a larger tax credit of  up to $7,500.  The credits will range from $2,500 to $7,500 based on the size of the battery.

How does it work?

Basically you can use the sales tax and excise taxes paid on the new vehicle to reduce your taxable income.  This isn’t going to be a large benefit but it’s worth thinking about if you need to buy a new vehicle in 2009.

Find out about more available tax incentives in the 2009 stimulus package.

The recent 2009 economic stimulus bill was recently passed and it features a number of changes to unemployment benefits.  Unemployment benefits are being extended which should come in handy given the large number of layoffs in recent months.

Unemployment benefits extended in the 2009 economic stimulus plan

Previously, unemployed workers were eligible for 26 weeks of unemployment benefits.  As as result of this bill, unemployment benefits will be extended by 20 weeks regardless of which state they live in.  In some higher-unemployment states such as California, there will be another 13 weeks of unemployment benefits available as well.

Total weeks of unemployment available:

• Low-unemployment state – eligible for 46 weeks of benefits.
• High-unemployment state – eligible for 59 weeks of benefits.

Increased unemployment benefits by $25 per week.

Although it varies from from state to state, the average unemployment benefit payout will be increased by $25 to about $325 per week.

Increased coverage to part-time workers

This stimulus package will also provide money to encourage the states to give employment benefits to part-time workers and more low-wage workers.

Tax change for unemployment benefits

Another change was that the first $2,400 of unemployment benefits will be tax-free which was not the case before.