Financial Frontlines®

Under a new law passed in February, more parents and students now qualify for a tax credit to help pay for college expenses. The credit provided by the American Opportunity Credit will apply to educational expenses in 2009 and 2010.

The new credit modifies the existing Hope Credit making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.

The American Opportunity Credit is not available on the 2008 returns taxpayers are filing during 2009. For more info check IRS Pub 970.

Even if the inflation rate is in negative territory this year, Social Security income will remain stable but…it is possible some of you will have less Social Security income in your pockets.

This can occur if you are new to Medicare in 2010 or if you are in the upper income groups of Medicare Part B and D premium rates. Part D probably won’t be a factor for most since military retirees don’t tend to have Part D.

New Medicare enrollees pay the rates in effect at enrollment. If you enroll after a rate increase, you pay the higher amount. The result is your Social Security income remains stable from 2009 to 2010 but you pay higher Medicare premiums than the 2009 people did.

Part B premiums are due to increase for the upper income groups. With no COLA increase expected for Social Security and a Part B premium increase for upper income groups, your Social Security take-home pay will be less than last year. The upper income group is defined as those with incomes above $85k for singles and $170k for couples.

Starting with the 1 June 2009 retirement checks, Voluntary Separation Incentive (VSI), Special Separation Benefit (SSB) and other separation payment deductions will stop for the foreseeable future. The suspension is not a permanent situation. It will stay in effect pending policy and legal reviews at DOD.

These were separation payments made to military members during force draw-down periods. The separated members were required to maintain duty in the Ready Reserves after separation. Those members who went on to retire from the Reserves had to pay back the separation pay upon receipt of retirement pay.

The suspension is part of a financial relief plan during the economic downturn. It also allows the DOD to review legal issues in regards to repayment options.

There are legislative initiatives underway that may change separation pay recoupment efforts in the future. Not that the separation pay repayment will be forgiven or permanently suspended but the repayment formula may change to something less drastic than under the current legal formulas.

A letter from DFAS will be sent to all members affected by the suspension. See this link for a copy of the letter.

“A billion here, a billion there, pretty soon it adds up to real money.”  Real money isn’t counted in the billions anymore as it was when Senator Dirksen made this statement.  Now government spending is counted in the trillions. That’s a thousand times a billion dollars.  But a trillion dollars is impossible to wrap your head around.

This slideshow off the CNBC web site provides an educational view of how much money is being tossed about by our elected representatives.  Hold on to your hats as you see what a trillion dollars looks like…

$1,000,000,000,000.00

What about who owns the debt of the United States? Who we owe…

What have been the big ticket milestones in government spending? Let’s see…

• The Housing Assistance Program (HAP) is to help minimize losses to members selling homes during the housing slump. DOD announced the guidance on the program. A priority order has been established to determine who gets assistance and how much.

Priority 1—wounded service members relocating to medical facilities and survivors whose service member died while deployed.

2—members affected by the BRAC.

Priority 1 and 2 members can be reimbursed at 95% of your loss OR government purchase of your home at 90% of prior fair market value (purchase price) for wounded and survivors while 75% for BRAC members.

3—PCS move members.

Priority 3 members can be reimbursed for their loss at 90% OR be eligible for government purchase at 75% of prior fair market value (purchase price).

More details are outlined on the Corps of Engineers site.

• Congress and the President’s budget proposals look to expand the concurrent receipt program know as Concurrent Retirement and Disability Pay (CRDP). Nothing is in concrete obviously until the bill is signed by the President and that is a ways off.

If things stay the same, the improvements affect Chapter 61 members only; medical retirements. All years of service are included; more and less than 20 years service. The CRDP would be phased in over the next several years based on your disability rating. 90-100% ratings get full CRDP starting Jan 2010. The next year 70-80%. Then 50-60%. Then 30-40%. And In 2014, 10-20%. To clarify, in 2013 and 2014, ratings of 10 to 40% will earn CRDP IF you were retired as a Chapter 61 member. Non-chapter 61 retirees with 40% or less ratings would not qualify for CRDP.

MOAA continues to fight for bills supporting CRDP for non-Chapter 61 members with less than 50% ratings. See our MOAA site for contacting your elected reps and seeking support on the CRDP bills.