Economic Stimulus Act of 2008

On Thursday, the Senate finalized H.R. 5140, the "Economic Stimulus Act of 2008" and sent it off to President Bush for his expected approval this week.  There were a few changes made from the original House proposal but it is largely the same.  In summary:

1. We will receive the greater of a) 2007 federal income taxes paid to a maximum of $600 (single) and $1200 (married) or b) $300 (single) and $600 (married).  To be eligible you must have paid at least $1 in 2007 taxes or had $3000 in employment income + veterans' disability payments + social security payments.

The major change is that rebates are now allowed for disabled veterans and seniors living mostly on Social Security who do not have earned income.

2. If you receive $1 or more in rebate and have kids, you get another $300 per kid.  This is based on your 2007 tax return, so the rebate applies to kids on hand as of 12/31/07.  Any new bundles of joy circa 2008 will not get you more rebate.

3. The rebates still start phasing out at 5% of adjusted gross income (AGI) starting at $75K (single) and $150K (married).  So effectively if your AGI is greater than $87K (single) or $174K (married), then no rebate for you!  The phase-out applies to both the basic credit and the child credit.

The only other "no rebate" scenario is if your tax liability was zero and your wages/disability/social security was less than $3000.

4. No credits will be issued for anyone without a valid Social Security Number on the 2007 tax return.

5. The rebates are not considered taxable!  Well that's good news!

6. For single family home loans made between 7/31/07 and 12/31/08, the Act raises the conventional loan limit from $417,000 to $729,750.  FHA loan limits will also be increased to as much as $729,750 or even $829,750 if warranted based on market conditions until 12/31/08.  This should provide some help to homeowners who need to refinance into something more affordable this year.

This is incentive to file your 2007 taxes on time, as rebates are expected starting in May.  And hopefully the $106 billion in rebates and $45 billion in business tax incentives this will cost in 2008 will truly help stimulate our economy!  I bought Apple stock recently in anticipation that everyone will buy another iPod with the extra cash this summer! 

For more detailed information, visit the Senate Finance Committee website by clicking here.

New California Second-Hand Smoke Law - 1/1/08

New Law Effective 1/1/08

Senate Bill 7 took effect yesterday to make it an infraction in the State of California to smoke a cigarette, cigar or pipe in a motor vehicle when a minor (under 18 years old) is in the car, whether the car is moving or stopped.  The fine for this infraction is up to $100 per occurrence.

The law prohibits a cop from stopping you for the sole purpose of determining whether you were breaking this law.  So rest assured, smokers, as long as you are not breaking any other laws, you may be off the hook while blowing fumes in your 9 year old's face. 

The law spells out "to smoke" as having a lighted pipe, cigar, cigarette containing tobacco or any other plant.  Maybe a creative type can figure out a way around this definition!

Another Second-Hand Smoke Law

Since we're talking about second-hand smoke around kids, were you aware that for over 6 years now it has been illegal to smoke or toss cigarette butts within 25 feet of any public playgrounds or "tot lot sandbox" areas? 

The California Health and Safety Code Section 104495 makes such acts illegal and punishable by a $250 fine per infraction.  The law also makes it illegal to intimidate, threaten or retaliate against anyone seeking enforcement of this law. 

There is one exception to this law...you are allowed to smoke on a public sidewalk that is within 25 feet of the playground or sandbox where your kids are happily playing.

From Smoking to Littering

But watch your butt(s).  Section 13002 of the Code makes it a misdemeanor to throw a lighted or unlighted cigarette onto any sidewalk or public location.  The fine ranges from $100 to $1000 per violation.

And California Penal Code Section 374.4 covers all types of littering on public or private property (though generally you're allowed to litter on your own property as long as it isn't out of hand), making it an infraction punishable from $250 up to $3000 per violation.

No More Handheld Cell Phone Use in Cars - 7/1/08

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Now may be the time to buy stock in companies that sell hands-free cell phone devices as we are only 6 months away from the new law banning handheld cell phone use in cars in California.  Approved by Arnold on September 15, 2006, the "California Wireless Telephone Automobile Safety Act of 2006" (Senate Bill 1613) makes it illegal to use handheld cell phones while driving beginning 7/1/08.

The law specifically disallows using handheld cell phones while driving.  But of course you can still use the cell phone if the car is stationary.  And the law does not prohibit, say, a passenger from using a handheld phone.

You MAY use a cell phone while driving in emergency situations, such as calls to police/911, health care provider, fire department or other emergency services.

You are allowed to use a cell phone while driving a car as long if you are using a hands-free listening and speaking system. 

The legislators must have felt the problem with cell phones is holding the phone, not the distraction of talking on the phone.  If this is the case, I'm wondering why they did not make the law more broad to include all types of activities in the car requiring the use of a hand...smoking, eating, drinking, reading, excessive iPod fiddling, nose picking, radio station switching, etc. 

In any case, your first violation will cost you a fine of $20 plus penalties for a first offense and $50 plus penalties for subsequent offenses.

Another law (SB 33) that takes effect on 7/1/08 is that teens under age 18 cannot use ANY cell phones (handheld or hands-free) or any other "mobile service device" (e.g. PDAs, Blackberries, walkie talkies, etc.).  Like the other law however, cell phones can be used for true emergencies while driving.

So consider yourself informed and start preparing now!

Have You Considered a Health Savings Account?

Health Savings Accounts (HSAs) have been around since 2004 and present a viable alternative to traditional medical insurance coverage.  Especially given the ever-escalating cost of health insurance.

HSAs work as follows:

1. Enroll in what is called a "High Deductible Health Plan" (HDHP).  A HDHP is a health insurance plan with, what else...a "high" deductible.  What is considered high?  The Government says at least $1100 for single coverage and $2200 for family coverage.  The annual maximum "out-of-pocket" for a HDHP cannot exceed $5600 (single) or $11,000 (family) in 2008. 

2. Establish a separate HSA, usually through a bank, brokerage or other approved HSA provider.  Health insurance providers usually are linked to an HSA provider; for example, Blue Cross currently offers HDHPs that offer easy access to Chase or Mellon Bank.

3. Fund the HSA by depositing money into the account.  In 2008, you can contribute up to $2900 (single) or $5800 (family) into an HSA.  You have all year to contribute but you must have money in the account prior to use if for healthcare expenses.

4. Use the HSA to pay for your out-of-pocket healthcare expenses, including medical, dental, prescriptions, etc.  You can usually pay using a debit card or checkwriting option.

5. At the end of the year, take a Federal TAX DEDUCTION for your HSA contributions!  Yes, HSA contributions reduce your Adjusted Gross Income on your tax return.  The bad news:  California law does not conform to Federal law on this and thus you will not get a California tax deduction for HSA contributions.  (Come on, Arnold, let's work on this discrepancy!)

Summary of HSA benefits:

1. HSA contributions are tax deductible on your Federal tax return (but not California). 

2. Your insurance premiums on a HDHPs will usually be lower than on most traditional health insurance plans.  Thus, the savings can be directed towards your HSA account.

3. Any money remaining in an HSA account that has not been used for healthcare can be carried forward indefinitely.  (This is quite different than Flexible Spending Accounts, which you must use each year or lose.)  In fact, you can keep the money in the account until you retire and use it for Medicare premiums and deductibles. 

4. HSA accounts can grow and accumulate over time and earn income.  Many HSAs allow investments in mutual funds when your balance reaches a certain threshold.

More and more employers are offering HSAs and HSAs are also available through individual insurance policies.  For more information, visit www.hsainsider.com.

Start Thinking About Social Security

Most of us over 25 years old receive annual Social Security Statements about 3 months prior to our birthday.  These statements show us how much we have paid in towards Social Security and Medicare taxes over our lifetimes and how much our estimated benefits will be once we retire.

It is interesting to see how much you and your employers have paid out in Social Security over the years.  Yet at the same time it is frustrating because we don't have access to that money and the Comissioner tells us that by 2040 the number of Americans over 65 will double and there will not be enough money coming in to pay them without changes in the system.  More reason to invest in a 401(k) or IRA.

One way the Government is making up the gap is by increasing the "Maximum Taxable Earnings" subject to the 6.2% Social Security tax each year.  In 2008 they are increasing this wage base from $97,500 to $102,000, a 4.6% increase.  This increase is double the 2.3% Cost of Living adjustment being given to retirees on Social Security in 2008.

So assuming Social Security is still there for you when you retire, you can opt to take "early" retirement at age 62.  However, your monthly payment will be much less then if you waited until your "normal" retirement age (defined as 66 years old if you were born between 1943 and 1959 and 67 if you were born since 1960).  In my case, it would be 30% less, but I would have 5 extra years of payments. 

You can increase your monthly payments by as much as 24% more by waiting another 3 years past your normal retirement age to start your payments.

In my case we're talking $1600 per month if I retire at age 62 vs $2300 per month at age 67 vs $2850 per month at age 70.

So if I retire at age 62 I'll be paid $96,000 by age 67.  If I wait until age 67 it will take me 11.5 years to break-even and I'd be ahead after reaching age 78.5.  In other words, if I think I'll be living well into my 80s it makes sense to hold off and take normal retirement. 

You can calculate your estimated benefits and your break-even age on the Social Security Administration website at www.socialsecurity.gov.

What to do?  Heck if I know.  But generally speaking it seems best to wait to earn your full benefit, especially if you are healthy.  But then again, it might be better to start taking the money and investing it, especially if the future of Social Security payments is in question.  It also makes sense to take early retirement if you are in doubt of living into your 70s or if you simple really need the money!