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What will the $787b stimulus do for you?

By Robert Gavin and Erin Ailworth
February 17, 2009
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There's almost something for everyone in the $787 billion stimulus package that President Barack Obama signed into law. So what can you expect? Here's a breakdown:

Help for the jobless
With the number of unemployed approaching 12 million nationally and 250,000 in Massachusetts, the package will extend benefits to 46 weeks and boost weekly payments by $25, which could begin showing up in checks within weeks after the bill becomes law. The maximum benefit in Massachusetts will increase to just over $650 a week.

In addition, the first $2,400 in benefits will be exempt in 2009 from federal income taxes, putting a little more money into the pockets of the unemployed.

Extending unemployment benefits is among the most effective stimulus measures, according to an analysis by Moody's Economy.com. Each dollar of benefits generates about $1.63 of economic activity. compared to $1.22 for a one-time tax rebate, according to the analysis.

Healthcare
A key provision provides a federal subsidy for laid-off workers to continue buying health insurance from their former employers. Under the COBRA plan, named for a 1986 law, laid-off workers can continue their health insurance through the employer, but must pay the full premium, which usually exceeds $1,000 a month for families.

The stimulus will give workers a 65 percent subsidy for nine months, and help an estimated 7 million people. The subsidies went into effect as soon as the bill became law. Unemployed workers will pay 35 percent of the premium, and employers will cover the cost by deducting the amount from their federal payroll taxes.

"This is going to be a real plus for people who would like to have health insurance between jobs," said Stuart Altman, a professor of health policy at Brandeis University.

Tax cuts for workers
Individual workers will get a $400 tax credit and couples $800 in 2009 and 2010. Unlike last year's stimulus program, which sent out one-time checks, the stimulus will take less tax money from workers' paychecks. The tax cut, estimated at about $13 a week in 2009, will begin showing up in June.

The tax cut is targeted at low- and middle-income workers. Individuals who make more than $95,000 and couples making more that $190,000 won't get it.

Social Security bonus
Social Security recipients who don't qualify for tax credits because they don't work will get one-time $250 payments. The legislation calls for the Treasury to begin sending checks as soon as possible.

Thanks to a provision pushed by Senator John F. Kerry and Representative Richard Neal, a Springfield Democrat, about 1 million retired state and local workers who don't collect Social Security will also get the $250 checks. In some states, including Massachusetts, government employees pay into a state and local retirement systems instead of Social Security.

Help for low income
Needy families who qualify for food stamps will get an increase in benefits to help offset rising food costs. Patricia Baker, a policy analyst at the nonprofit Massachusetts Law Reform Institute, which advocates for the poor, said she expects benefits to start hitting pocketbooks as soon as this spring. Benefits for a Bay Stater on food stamps, she estimated, could go up by roughly $25 a month.

Low-income families in need of child care will also get help through a $2 billion grant that will provide services to an additional 300,000 children. Congress is also including $2.1 billion to allow an additional 124,000 children into Head Start and Early Head Start.

Paying for college
Affording that college degree might also get easier, with tax credits for tuition, an increase in aid funding, and $200 million for work-study programs.

The stimulus includes a tuition tax credit of up to $2,500. Congress also increased the maximum Pell Grant financial aid award by $500. That means college students qualifying for a Pell Grant could get up to $5,350 this year and $5,550 next year.

Fix for Alternative Minimum Tax
The Alternative Minimum Tax was established to prevent wealthy families from using deductions to avoid paying taxes. The tax, however, wasn't indexed for inflation, and over the years, it has threatened to draw in middle-class families.

Congress has approved an annual fix in recent years to spare middle-class families, and the stimulus keeps about 25 million taxpayers from having to pay the AMT, saving an average of $2,300 for a family of four.

Housing incentives
First-time homebuyers will get an $8,000 tax credit if they buy a house between Jan. 1 and Dec. 1, 2009. If you sell your home within three years of purchase, you will lose the credit. An individual who earns less than $75,000 annually and a couple that earns less than $150,000 annually qualify for this tax credit. Homebuyers will see the savings when they file their 2009 income tax return next year.

Car buyers
If you buy a new car in 2009, the sales tax is deductible. The National Automobile Dealers Association estimates that this could save $300 to $600 for those who qualify for the deduction. The deduction will be claimed on your 2009 tax return.

Going green
Buying a new energy-efficient furnace, energy-saving windows and doors, or adding insulation to homes could net tax credits. The stimulus will expand and extend existing tax credits for such energy-efficient investments through 2010.

The new program allows consumers to recoup 30 percent of their total investment up to $1,500. You apply the tax credit when you file your 2009 or 2010 income tax return. Congress also has set aside $5 billion to weatherize more than 1 million homes for "modest-income" families, who are expected to save, on average, $350 a year on heating and air conditioning.

Jumbo loan limits
Frustrated about paying high interest rates for your jumbo mortgage? Some Massachusetts homeowners will be able to take advantage of better interest rates because of a provision included in the federal stimulus package.

The provision again increases the limit on the size of loans that qualify for lower rates under a special category of loans known as "expanded conforming." These are loans above the $417,000 limit for conforming loans, but below the current threshold in the Boston area of $465,750 for jumbo loans. The stimulus package raises that limit to $523,750. The limit is higher on Martha's Vineyard and Nantucket, at $729,750.

Qualifying borrowers could get rates as much as 1 percentage point below prevailing jumbo mortgage rates. Last week the average rate for a 30-year fixed expanded conforming loan was 5.74 percent, while a jumbo loan was averaging about 6.83 percent, according to data-tracker HSH Associates.

The legislation also gives US housing officials discretion to set higher loan limits in smaller regions, which should help borrowers who live in communities with higher housing prices than those in neighboring towns. Dukes and Nantucket counties will have higher limits of $729,750.

Meanwhile, the stimulus also includes $2.25 billion in grants for low-income housing tax credits to help with the construction of affordable housing. Aaron Gornstein, executive director of the Citizens' Housing and Planning Association, said the funding and a new flexibility to exchange tax credits for cash should help launch 31 shovel-ready developments, adding 1,580 apartments in Massachusetts.

"This will enable them to move into construction and create much needed affordable rental housing and construction jobs," Gornstein said.

Jenifer B. McKim and Jeffrey Krasner of the Globe staff contributed to this report. Robert Gavin can be reached at rgavin@globe.com. Erin Ailworth can be reached at eailworth@globe.com.

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