The stimulus: What's in it for you

Deena Cordero, a 43-year-old medical records supervisor in Portsmouth, figures her new windfall will go toward groceries.

Vernell Gregory, 45, is eyeing it for "bills, food, nails, salon."

One thing is for sure.

"I will be spending it," said Gregory, a human-resources coordinator for a defense contractor in Virginia Beach.

Just what Uncle Sam wants.

Many Americans will reap their first rewards from the $787 billion stimulus package next week. That's when a payroll-tax reduction of up to $400 a year will kick in. It could add about $20 to a worker's biweekly paycheck for the remainder of the year.

The stimulus package is plunking billions of dollars on government projects to create and save jobs. But it also offers a grab bag of goodies for consumers, including the payroll-tax reduction and credits for buying new cars and undertaking energy-efficient home projects.

"In my mind, this is designed to pump liquidity into the households," said Peter M. Shaw, a professor of business and economics at Tidewater Community College.

The primary goal: to generate more spending, keeping businesses afloat and revving the economy back to health.

David Cleeton, dean of the Luter College of Business and Leadership at Christopher Newport University, called the withholding reduction "one of the better stimulus pieces in the legislation." He predicted that lower-income people will spend the extra money.

But those at middle income levels and above will probably use it to buttress savings or reduce debt, Shaw said.

Macki Sissoko, an associate professor of economics at Norfolk State University, counts increases in Pell Grants and tuition tax credits as among the most appealing features of the stimulus law.

"I can see increase in the demand for college education," Sissoko said.

He's less sure about the effect of tax credits for energy-efficient remodeling projects, at least until the economy turns around.

"Given that we are dealing with a housing market that is in dire straits and a home-owner who is already struggling to pay their mortgage, they may not think about investing if they don't have the money in the first place," Sissoko said.

Don't get used to these benefits. Many will be around for only a year or two. Here is a roundup:

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Payroll-tax cut

The best-known stimulus benefit, formally called "Making Work Pay," offers a reduction in withholding of up to $400 a year for single taxpayers and $800 for couples, depending on income. Unlike last year's stimulus checks, it will come not in one lump sum but in small additions to each paycheck.

It should take effect with paychecks that cover work performed beginning April 1. For those who qualify for the maximum reduction, it will amount to about $10 more per week this year and an extra $8 a week in 2010. It will phase out for individuals with incomes more than $75,000 and couples with more than $150,000.

The "Making Work Pay" benefit will cost $116 billion - or 15 percent of the total stimulus price tag.

Don't count on it lasting long. The budget plans released by the Senate and House last week excluded the withholding reduction after 2010.

At his news conference Tuesday, President Barack Obama didn't directly answer a question about whether he would veto a budget that didn't contain the "Making Work Pay" tax break.

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Social Security

Recipients of Social Security who, because they don't work, don't qualify for the payroll-tax deductions will get a one-time check of $250 by the end of May.

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Unemployment and food stamps

Jobless benefits will increase by $25 a week, retroactive to the week of Feb. 21. Virginians will begin receiving the increase by the week ending May 2, said Joyce Fogg, a spokeswoman for the Virginia Employment Commission.

Also, the first $2,400 in unemployment benefits will be exempt from federal income tax this year.

Food-stamp benefits will increase 13.6 percent, beginning on April 1. For a family of four, the maximum monthly allotment will rise from $588 to $668.

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COBRA subsidy

Extending your health coverage through the Consolidated Omnibus Budget Reconciliation Act, or

COBRA, after you lose a job can be costly. The stimulus package, however, provides a 65 percent subsidy for the total cost over nine months. It applies to most people who lose their jobs between Sept. 1, 2008, and Dec. 31, 2009. Subsidies will apply only to premiums paid after Feb. 17.

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Homeowner benefits

First-time homebuyers who purchased their house in 2009 can claim a tax credit of up to $8,000 this year or next.

Like many of the stimulus benefits, the full amount is available to single taxpayers with incomes of up to $75,000 a year and couples earning up to $150,000. They would have to repay the credit if they sold the house within three years.

Military families who sell their homes when they are transferred also could get help: If they have to sell below market value, the government will reimburse them for up to 95 percent of the difference - if they bought their house before July 1, 2006.

The details have not yet been determined, but more information on the program will appear at http://hap.usace.army.mil.

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New and hybrid cars

Anyone who buys a new car in 2009 can deduct the sales and excise taxes on next year's federal return. The deduction will phase out for people whose income exceeds $125,000. The stimulus package also will increase the deduction for the purchase of a plug-in electric hybrid car to up to $7,500.

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Paying for college

The maximum annual Pell Grant will increase $500 to $5,350 in the summer of 2009. It will further grow to $5,550 the following summer. Pell Grants primarily go to low-income undergraduate students.

Starting with the 2009 tax year, the federal government will replace the Hope tuition tax credit, which provides up to $1,800 annually for two years, with a credit of up to $2,500 a year for four years. The new tuition tax credit also will be partly refundable, benefiting people who don't owe taxes.

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Energy-efficient projects

Home-owners can qualify for a tax credit of up to 30 percent of the cost - or a maximum of $1,500 - for energy-saving upgrades, such as the installation of windows, insulation and roofs, undertaken this year or next.

For some additions, such as geothermal heat pumps, solar panels and windmills, the 30 percent credit extends through 2016, with no caps.

Details on eligible projects are available at www.energystar.gov.

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Other credits

The child tax credit will be expanded so that more low-income workers will qualify.

The earned income tax credit also will be extended.

The stimulus plan continues the "patch" to the alternative minimum tax, shielding millions of middle- and upper-middle-income people from the tax.

News researcher Jakon Hays contributed to this story.

Philip Walzer, (757) 222-3864, phil.walzer@pilotonline.com