ShareThisIf you're feeling dazed and confused about your finances these days, join the club.
In the past few weeks: Congress passed an $800 billion economic stimulus bill that includes more than a dozen new tax cuts, mostly for low- and middle-income Americans. The Treasury Department announced a $2.5 trillion bank-rescue plan. President Obama launched a $275 billion housing program that will provide mortgage relief to some homeowners but not others.
Will these changes, taken together, leave you better or worse off?
The answer depends on whether you are working, retired or unemployed; your income; how many kids you have and if any are in college; whether you buy a house or car; who owns your mortgage; how you commute to work and other factors.
As you can see, many of us will never know the answer.
That's a problem for the economy, which desperately needs a jolt of business and consumer confidence.
The biggest enemies of confidence are fear and uncertainty. Perversely, these efforts to right the economy seem to be breeding more fear and uncertainty.
It's hard to feel confident when our president and others warn we are on the brink of "catastrophe." Even if that word is used as a political ploy to rally support for a stimulus bill or budget, some people take it literally.
And it's hard to feel certain about anything when the rules change almost daily and are virtually impossible to understand.
Let's take one example.
To stimulate new-car sales, Congress created a tax break. If you buy a new car or truck before Dec. 31, you can deduct -- on your federal tax return -- the state and local sales tax paid on up to $49,500 of the purchase price.
If you take the standard deduction, you simply add the sales tax to your standard deduction.
If you itemize deductions, you add it to your deduction for state income taxes.
However, if you itemize and have been deducting sales taxes in lieu of state income taxes, "you get the car-sales-tax as part of your normal sales-tax calculation and this legislation gives you nothing additional," says Mark Luscombe, principal tax analyst with the tax information firm CCH. People in this situation might be better off taking the standard deduction or itemizing deductions and choosing the state-income-tax option and adding the car-sales-tax to one of those.
Like most tax breaks, this one phases out -- or shrinks and eventually disappears -- if you make too much money. The phase out range is $125,000 to $135,000 in adjusted gross income for single taxpayers and $250,000 to $260,000 for married couples filing jointly.
What conclusions, if any, can we draw about these tax changes?
Federal tax breaks will go mainly to low- and middle-income taxpayers.
The broadest tax break: Most workers will get a federal tax credit equal to 6.2 percent of wages up to $400 per person in 2009 and again in 2010. Couples can get up to $800 each year, even if only one spouse works, says Roberton Williams, senior fellow with the Tax Policy Center.
The credit will start showing up in paychecks this summer in the form of lower federal tax withholding. This credit phases out for singles with $75,000 to $95,000 in adjusted gross income and for couples with $150,000 to $190,000 in adjusted gross income.
Low-income families will do especially well under the federal stimulus.
The existing $1,000 child credit will be extended to more families that don't earn enough to pay income taxes. Low-income families with three or more children will get an expanded earned income tax credit.
The federal government also has created credits for homebuyers.
If you have not owned a house in the past three years and buy a new or existing home between Jan. 1 and Nov. 30, you could get an $8,000 federal tax credit. This credit is refundable, which means you can get it even if you don't earn enough money to owe taxes. The credit phases out between $75,000 and $95,000 in income for singles and $150,000 and $170,000 for couples.
E-mail Kathleen Pender at kpender(at)sfchronicle.com. For more stories visit scrippsnews.com
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