Economy Archives - Page 2 of 4

Government Considers New Rebates For Electric Vehicles: Cash For Clunkers Part Two?

A while back the Obama administration put out a rebate program for new car buyers called Cash For Clunkers where the new car buyers could get between a $3500-4500 rebate on the purchase of a more fuel efficient new car, in exchange for trading in their old less fuel efficient vehicle. The program had the goal of trying to get old gas guzzling clunkers off the road, while at the same time getting people to buy more fuel efficient vehicles.

The program, while it was a nice idea, was limited in scope as one analysis estimated that less than 5% of vehicles still on the road at the time were even eligible to be turned in, in exchange for the rebate. Add to that the fact that the program didn't really lead to an appreciable gain in new car sales as was hoped, just taking future sales and moving people's timelines up in most cases. The program was also fraught with government paperwork problems, and a lot of car dealers reported problems in claiming the rebates.

Now, we may have another green vehicles rebate coming down the pipe if the Obama administration gets it's way.

Rebate For Electric Automobiles

If you look at President Obama's budget, a current $7500 tax credit that can be claimed on purchases of energy efficient vehicles would be changed to be a direct rebate that would be available at the point of sale.

Ready for another cash for clunkers program? It looks like General Motors is attempting to replace it's own consumer incentives with tax payer money. The car company, bailed out of bankruptcy in 2009 by the American tax payer, appears to be turning the government into an automatic rebate provider.

The Obama administration and their friends on Capitol Hill are floating around a proposal to change the $7500 tax credit for green vehicles. This change can be found not only in President Barack Obama's budget but also a bill proposed by Senator Debbie Stabenow, Michigan Democrat.

Edmunds.com, a 45 year old trade magazine company that provides automotive information, posted a Department of Energy document listing the department's funding highlights. The proposed Obama Budget, changes the existing $7,500 electric vehicle tax credit “into a rebate that will be available to all consumers immediately at the point of sale.”

In an appearance at a battery assembly plant in Indiana, vice-president Biden also talked about the change that they're hoping to make and how they believe it would be good for companies making products for green vehicles.

Last month, the White House endorsed making the $7,500 tax credit for electric vehicles available at the time of purchase. “You won't have to wait,” Vice President Joe Biden said at an a Indiana battery assembly plant, adding it would be like the cash-for-clunkers program.

Since the change has made it into the president's budget, and Senator Stabenow of Michigan has introduced a bill (“Charging America Forward Act” (S.298)) , it does seem like the administration is interested in seeing this through.

$7500 Green Vehicle Rebate

So how exactly would the rebate work? It would essentially be a $7500 coupon that consumers could use in buying an electric vehicle at the dealership.

Essentially, if one were to buy a $41,000 Chevy Volt, the buyer gets a $7,500 coupon, so the final price is $33,500. In the end, the auto dealer assumes the risk of the government giving them this tax credit.

There aren't a lot of purely electric vehicles on the market currently, but among the vehicles eligible for the rebate are the Chevrolet Volt, and the Nissan Leaf.

So how long would the rebate be available?

Representative Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, said last month he backed legislation to enable automakers to claim the tax credits on 500,000 electric vehicles. The current cap is 200,000.

So at the 500,000 electric vehicles cap, that would be around $3.75 billion dollars.

Who Does The Rebate Benefit?

To me one thing that is a bit funny about this rebate is how the company it most affects, GM, is one of the few companies that the government actually has a big interest in via the “too big to fail” bailouts of a few years back. So in essence the government owns a big interest in one car company and is now making legislation that mainly helps that company. Interesting.

GM, with about 24 percent of the electric-vehicle market, and Nissan will be the winners, because they’re already selling the cars, said Michael Omotoso, director of powertrain forecasting at J.D. Power. Honda Motor Co., which is at least a few years away from selling an electric model, will be among the losers, he said.

Other carmakers have expressed some displeasure with the idea of the rebate as it will give an unfair competitive advantage to GM and Nissan, the companies with an electric car on the market already. Others, like Ford, are rushing to get their electric vehicles on the market for end of 2011 or early 2012.

In the end the those who were considering buying electric vehicles previously will most likely be jumping on this rebate once it becomes available- if it becomes available. For many others even with the rebate electric vehicles are still pretty costly, and even a rebate of this size may not be enough to convince them to move over.

What do you think? Will this rebate become law, and what effect will it have on the sales of electric vehicles? Would it be enough to convince you to move to electric, or do electric cars have more hurdles to clear before you'll consider them?

Stricter Auto Lending Standards Means Deals For Some, Not For Others

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In 2008, when the government announced plans to bail out the auto industry, many Americans were surprised to learn that the industry has reached such a low point. At the time the big American auto companies were all ailing from economic woes, and faced all out bankruptcy. The reasons? Non-unionized competition from overseas, huge pension costs, and the inability to fund jobs and benefits. Thanks in no small part to the economic stimulus, the American automotive industry has come back from the grave, streamlined their business, and cut excess costs. They're now coming back with what will hopefully be stronger strategic plans.

Good Time To Buy A Car?

Now that the big 3 manufacturers are slowly coming back, many are encouraging Americans to buy back into the auto industry by buying new car. MSN reports that if you have a relatively good credit history, then you can probably receive a pretty low rate on a car loan.

Folks with untarnished credit will find good rates, eager lenders and some amazing deals as increasingly desperate car manufacturers try to revive sagging sales.

With many lenders eager to work with consumers and a car industry highly motivated to keep sales alive for American-made products, you can get some great savings towards the purchase of a new car.

On the other hand, people with low credit scores are having a hard time getting the same kinds of deals as those with stellar credit histories. While these customers can still receives loans to buys cars, the rates are much higher, which puts the customer at risks for not being able to make the monthly payments.

Folks with troubled credit will find higher rates, increased scrutiny and warier lenders, but they won't face anything like the trouble they'd experience if they were shopping for a mortgage.

Lending standards from the automakers have been made much stricter since the crash as they now know the inherent risks in lending to those with big credit risks, and they didn't want auto lending to become the next sub-prime lending crisis, as it did in housing.

Finding A Better Deal On Your Loan And Insurance

In order to stave off this concern lenders are currently more likely to work with consumers who have a positive burrowing history. If you’re concerned about your loan application, check your credit score and consider talking to a lender about finding a better rate, and options for cash rebates or savings. Also consider finding a loan through a credit union or other bank before going to the dealership, and ask the dealership to beat the best rate that you find.

Control the things that you can, like improving your credit history. Pay off all installment loans on time, dispute incorrect statements on your credit, ask companies to remove things from your credit file, and pay off debts that you may have.

When it comes time to actually purchase your car, also make sure to get and research free insurance quotes online to get the best deal on insurance as well. Don't forget to look up ways to get a reduction in your insurance rate, like multi-car discounts, and companies that give discounts for good drivers.

Conclusion

While the automotive industry is back on it's legs, things aren't completely back to where they were before. Lending standards are now stricter, and if you've got a dent in your credit, you may not find it as easy as before to find a deal. The key is to do what you can to improve your credit, shop around for the best deals on cars and insurance, and in the end you'll find what you're looking for.

Have you found recently that buying a car was a bit tougher? Tell us about it.

Social Security Changes For 2011

By Mr. Money 3 Comments

We had a tax package passed in December that extended the current tax rates, in addition to making other changes to the estate tax, extending certain tax credits, and other changes. One area that saw several changes was the Social Security program.

Social Security benefits are received by nine out of ten individuals age 65 and older, so it's an important piece of the puzzle for many people. (Whether it should be is up for debate)

The Social Security changes for 2011 will give workers a temporary 1 year tax break on the amount they pay into the entitlement program, in addition to several options for retirees being eliminated. Here's a look at how the Social Security program will change this year.

Lower Social Security Taxes: 2% Payroll Tax Holiday

As was mentioned a while back, the Making Work Pay tax credit expired at the end of 2010. The expiring credit, which you can claim on your 2010 taxes, amounted to about $400 for singles and $800 for married couples. Since that credit was expiring, the Obama administration wanted to pass something to replace it to a degree. Because of that they passed the 2% payroll tax holiday.

So how does the 2% cut work? The amount we pay into Social Security will drop this year from 6.2% of your income (up to $106,800 annually) to 4.2 % in 2011 only. The employer portion of that will remain at at 6.2%.

For those who are self-employed, the Social Security tax rate will drop from 12.4 percent to 10.4 percent next year, due to provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which was signed by President Obama on December 17th of 2010.

While this move has been criticized by many because the Social Security pr0gram already is having predictions of running out of money in the near future, others say the program's finances won't be harmed because the trust fund will be reimbursed for the tax cut funds from the general fund of the Treasury. In any event, the program's much publicized problems will still be an issue – even if this tax cut doesn't directly affect the program.

Interest Free Loan Option Removed

In the past retirees were able to start claiming social security payments at the age of 62, and then pay back all the benefits received at age 70, so that they could reclaim social security at the higher delayed claiming rate. In effect this gives those retirees an interest free loan.

New rules only allow beneficiaries to withdraw their application for retirement benefits within the first 12 months of receiving their first payment. They may only withdraw once per lifetime.

According to The Center for Retirement Research at Boston College if enough people were to use this claiming strategy it could cost the system between $5.5 billion and $11 billion. The benefit would go primarily to high-income households who had enough money to take the interest free loan without worries of having to pay it back later.

No Retroactive Benefit Suspensions

In the past retirees were able to temporarily suspend their benefits, and then restart them later – resulting in a bigger social security check based off of the time in which the payment wasn't received. This is still allowed under the new rules, however, social security recipients won't be able to retroactively suspend their benefits, and pay back money already received in exchange for higher payments going forward.

Much like the “no interest free loan” rule, beneficiaries can't pay back money already received. They can only suspend benefits for months when they didn't receive payments or for future payments, the month after the request is made.

No More Paper Checks For Retirees

Social Security recipients will no longer have the option of receiving a paper check if they apply for benefits after May 1st, 2011. Going forward new retirees will only have their choice of having a direct deposit or having their funds loaded onto a debit Mastercard.

Sending out paper checks to retirees every year has quite a large cost associated with it. It costs the federal government over $120 million dollars to send out checks. Making this change going forward will save Social Security $1 billion over the next 10 years, according to the Treasury.

Retirees who are already receiving paper checks can continue receiving them for now. In the end though they will need to switch to direct deposit or the prepaid debit card by March 1, 2013.

What Changes Will Happen To My Taxes On January 1st, 2011?

By Mr. Money 4 Comments

We’ve talked quite a bit on this site about the recent tax cut package that was passed, and some of the provisions that were included in the bill. One thing we haven't done, however, is to look at all the changes that we can expect to see in 2011 for individual taxpayers. What tax changes will happen for 2011?

2011 Tax Changes

President Obama and the Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 in the last half of December, and as a result tax rates didn't go up for some as would have happened otherwise. But the tax rates remaining unchanged wasn't the only thing to happen due to the bill.

Here are some of the changes that you can expect to see due to this tax cut bill.

Tax Rates Remain The Same Through 2012

The 2001 and 2003 Bush tax cuts meant a reduction marginal tax rates for all taxpayers. Those rate reductions will be extended for two years under the tax package. That means the 2011 federal income tax rates will remain essentially unchanged for everyone, including the high income earners. The tax rates for 2011 are shown below. The main changed from 2010 are some rate range adjustments due to inflation.

2011 Tax Brackets	Single	Married Filing Jointly
10% Bracket	$0 – $8,500	$0 – $17,000
15% Bracket	$8,500 – $34,500	$17,000 – $69,000
25% Bracket	$34,500 – $83,600	$69,000 – $139,500
28% Bracket	$83,600 – $174,400	$139,500 – $212,300
33% Bracket	$174,400 – $379,150	$212,300 – $379,150
35% Bracket	$379,150+	$379,150+

Payroll Taxes Reduced By 2%

A provision that has been controversial, but is liked by those who would like a tax cut is the 2% payroll tax holiday for 2011. Basically you’ll be paying 4.2% in payroll taxes for social security and medicare in 2011, versus the normal 6.2% on the first $106,800 in income.

Estate Tax Reinstated At Lower Rate

The estate tax lapsed in 2010, but would have been returning next year at a rate of 55% with an exemption of $1 million this package hadn’t happened. The tax cut bill changed that to have it be a top rate of 35% and a $5 million exemption.

Date To Apply For Unemployment Benefits Extended

The original date to apply for up to 99 weeks of unemployment for the long term unemployed expired on 11/30. This will extend that date for another 13 months. Note that the 99 weeks of unemployment benefits aren’t available to everyone, but only in some high unemployment states.

$1000 Child Tax Credit Extended

The $1000 child tax credit will remain at $1000 per child instead of dropping to $500 as it was slated to do.

Energy Tax Credits Return At Lower Rate

In 2010 the tax credits for energy efficient home improvements were quite popular because you could receive up to 30%, or $1500 on many home improvements in the form of a tax credit. The 2011 home improvement tax credit is significantly reduced to a lifetime maximum of $500, and only applies to 10% of the cost of the home improvement. So if you took part and got your $1500 credit in 2010, you can't get this one. Details here.

Standard Deduction For Married Filers Kept

The package will maintain the standard deduction for married filers so that it will be twice that of a single filer – negating the so called “marriage penalty”.

Patch for Alternative Minimum Tax (AMT)

The amount of income exempt from AMT will rise for 2010 and 2011. In 2010, the amount exempt from AMT will be $47,450 for single filers, $72,450 for married filing jointly. In 2011, it would be $48,450 and $74,450 respectively.

Flexible Spending Account Changes

Workers with Flexible Spending Accounts (FSAs) may no longer use pretax funds to pay for many over-the-counter medicines—aside from insulin—without a prescription. This should reduce many people's participation is this great tax savings. 2011 FSA Changes.

Roth IRA Conversions

The income limit for conversions has been permanently removed, so this year all taxpayers may still convert ordinary IRAs into Roth IRAs. But taxpayers who convert to Roth IRAs in 2011 no longer have the option of deferring conversion income into later years, as was true for 2010 Roth IRA conversions. Those who converted in 2010 do have until next Oct. 17 to decide whether to use this deferral.

Investment Taxes

Rates for both long-term capital gains and dividends will continue to be low. For taxpayers in the 15% income tax bracket and below, the rate is zero. For those in the 25% bracket and above, the rate is 15%.

Tax Filing Delayed For Some, Deadlines Extended For All

As you prepare to file your taxes this year to either get a refund or pay an amount owed, remember that itemizers will have to wait to file until mid to late February. The reason? The tax cut package was passed so late in the year that now the IRS is playing catch up to implement all of the tax rates, deductions and credits.

Also of note, the 2011 tax filing deadline is April 18th this year, due to the 15th being on a government holiday – on a Friday.

So what do you think of the tax cut package? Is it a good thing, bad thing 0r a little of both? If you don’t like it, what would you have rather seen?

Tax Filing Deadline Extended To April 18th For Filing 2010 Taxes In 2011

By Mr. Money 3 Comments

Earlier this week we wrote about how because Congress took so long to act on the tax bill in December (the act was passed on December 17th), the IRS had to push back the filing start date for those that itemize. There would be a tax filing delay well into the month of February for all of us itemizers out there because the IRS needs more time to update their systems. Of course all the companies who help us to file our taxes like TurboTax will be updated long before the government is, and you can start your return there at any time. But of course that's no big suprise- that private business moves at a faster pace than government.

Tax Filing Deadline Extended

This week the IRS announced that there would be a tax filing deadline extension for everyone – and that the deadline would be pushed back from April 15th as it normally is, to April 18th.

The Internal Revenue Service today opened the 2011 tax filing season by announcing that taxpayers have until April 18 to file their tax returns. The IRS reminded taxpayers impacted by recent tax law changes that using e-file is the best way to ensure accurate tax returns and get faster refunds.

Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.

So the reason for the deadline extension isn't because of the delays in people being able to file, or because of the impact of the new tax bill, it's because there's a government holiday observed on that day – meaning it has to be pushed back. Ah, to be a government worker and get all those extra days off!

Tax Filing Delay – Who Must Wait To File?

As mentioned in the first paragraph above, there is going to be a delay in the start to tax filing season as well. As many as 50 million taxpayers itemize on their taxes, and would be affected by the delay. Of those 50 million usually only around 9 million usually file in January or February and would be affected by the delay.

For most taxpayers, the 2011 tax filing season starts on schedule. However, tax law changes enacted by Congress and signed by President Obama in December mean some people need to wait until mid- to late February to file their tax returns in order to give the IRS time to reprogram its processing systems.

Some taxpayers – including those who itemize deductions on Form 1040 Schedule A – will need to wait to file. This includes taxpayers impacted by any of three tax provisions that expired at the end of 2009 and were renewed by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act Of 2010 enacted Dec. 17. Those who need to wait to file include:

Taxpayers Claiming Itemized Deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction that was also extended and which primarily benefits people living in areas without state and local income taxes. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.

Taxpayers Claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students – covering up to $4,000 of tuition and fees paid to a post-secondary institution – is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit extended last month and the Lifetime Learning Credit.

Taxpayers Claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23 and Form 1040A, Line 16.

So basically the start to filing season is delayed so that the IRS can implement the extensions of several tax cuts, tax credits and other things that were to be expiring, and that have now been renewed.

Do What I Plan On Doing – File Your Taxes Now With TurboTax

While the government is still updating all of their software, many or most of the tax filing software are already up to date for the new tax law. While you won’t be able to file and get a refund until the IRS starts actually accepting returns, you can file your return with companies like TurboTax (who will allow you to file your return starting January 6th), and then just let them file the return for you when the government is ready to accept it.

don’t wait to start your return. TurboTax products are already up-to-date with all the latest forms and schedules. You can prepare your return with TurboTax and electronically file it beginning on Jan. 6.

TurboTax will securely hold your return until the IRS begins accepting returns impacted by the processing delays. TurboTax will send you an email confirmation that your return has been e-filed and accepted by the IRS.

TurboTax is the tax software I used last year to file my taxes, after having used several others in past years, including a good one from TaxSlayer.com. While TaxSlayer and other packages aren't bad, I found the TurboTax interface to be much easier to use, and less complicated to complete. I double checked my return with TaxSlayer and CompleteTax last year, and both of them gave me about the same number for my amount due as TurboTax. So based on TurboTax's better interface, I would recommend it first.

Check out all of your filing options at the TurboTax site!

Do you usually not file your taxes til the last minute? Will this extension be just what you needed in order to file on time? Are you expecting to be delayed in filing your taxes because you itemize? Tell us in the comments!

Child Tax Credit Of $1000 Extended Temporarily For 2011-2012

By Mr. Money 7 Comments

Yesterday we talked about one of the negative effects of the recent tax cut package that was passed, the fact that taxpayers who itemize must delay filing. If you're expecting a big refund and anticipate claiming quite a few deductions, you'll most likely need to wait to file taxes until mid to late February.

Today I want to touch on another tax credit that was extended that a lot of parents will be happy about, the $1000 child tax credit.

An Extension Of The $1000 Child Tax Credit

Congress and President Obama took action on the expiring Bush era tax cuts on December 17th last month. The passage of the bill lead to a lot of relieved sighs for many folks as a lot of popular tax breaks were set to expire, and the bill extended many of them, even if just temporarily. There was a smaller version of the home improvement tax credit, an extension of the current tax rates (instead of a huge tax hike), and a payroll tax holiday, meaning a cut of 2% in Social Security tax withholdings in 2011.

In addition to the measures mentioned above, under H.R.4853 the Child Tax Credit (CTC) of $1000 per child will be extended for 2011-2012 as well.

I've got a co-worker and friend who just had his 5th child this past year. In most instances having that many children leads to a ton of expenses, but this is one case where he comes out ahead. I think he was pretty happy that the $1000 child tax credit was passed as it will mean $5000 in tax credits for him – $2500 more than if it had expired and returned to the previous $500 per child level.

We'll be claiming the child tax credit for the first time this year as well as we just had our first child. Daddy thanks you, my little one!

Since this is a tax credit, it means that once you figure out how much you owe in taxes for the year, the amount of credit will reduce the amount of tax owed (as opposed to a deduction which reduces taxable income). For example, if we owed $3000, and claimed the child tax credit for our one child, we would then owe $2000.

Who Is Eligible For The Child Tax Credit?

The Child Tax Credit has eligibility requirements, and is subject to income limits and phaseouts.

Income limit of $75,000 for single parents.
Income limit of $110,000 for married couples.
Income limit of $55,000 for married filing separately.

After these income levels the credit is reduced by 5% of adjusted gross income.

Quick Facts From The IRS: The Child Tax Credit

The IRS recently put some guidance on their website about who is able to claim the Child Tax Credit. If you've already claimed the credit you probably already know these things, but I thought I’d share them here as a reminder.

1. Amount – With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17.

2. Qualification – A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.

3. Age Test – To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2010.

4. Relationship Test – To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

5. Support Test – In order to claim a child for this credit, the child must not have provided more than half of their own support.

6. Dependent Test – You must claim the child as a dependent on your federal tax return.

7. Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.

8. Residence Test – The child must have lived with you for more than half of 2009. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.

9. Limitations – The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.

10. Additional Child tax Credit – If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.

Child Tax Credit Resources

IRS Publication 972: Child Tax Credit (PDF)

Are you claiming the child tax credit this year? How much will you save because the credit is extended at the current $1000 level?

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