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August 2009


by Andrew D. Schwartz, CPA

Our elected officials in Washington are at it again.  This time, the federal government is borrowing up to $1 billion to provide individuals and businesses with an incentive rebate of either $3,500 or $4,500 for replacing an older vehicle vehicle with one that is considerably more fuel efficient.


On June 24th, President Obama signed the Consumer Assistance to Recycle and Save Act of 2009 into law.  The new rules implemented the Car Allowance Rebate System (CARS) that give you until as late as November 1, 2009 to trade in your clunker for a new more fuel efficient vehicle.


According to these new rules, your clunker only qualifies as a clunker if these four conditions are met:

  • The vehicle is less than twenty-five years old.

  • The vehicle is in working condition.

  • You have owned and insured the vehicle for at least a full year prior to the date of trade-in.

  • The combined estimated new EPA MPG is less than 18 miles per gallon according to

Determining whether a replacement vehicle qualifies you for the incentive rebate is considerably more challenging.  Different rules apply to passenger vehicles, small trucks, mid-sized trucks, and large trucks.


For passenger vehicles, only those models that get at least 22 miles per gallon count.  To qualify for the $3,500 incentive, the fuel efficiency of your new car must be at least 4 miles per gallon better than your trade-in.  See your fuel efficiency jump by 10 miles per gallon or more, and you qualify for the maximum $4,500 voucher.


Small trucks, which include SUVs, small and medium sized pickup trucks, and small and medium sized minivans, must meet a minimum qualifying fuel efficiency of 18 miles per gallon.  With these types of vehicles, you'll qualify for $3,500 with an extra 2 miles per gallon or $4,500 with an extra 5 miles per gallon.


Mid-sized trucks include vans with a wheelbase of more than 115 inches and pickup trucks with a wheelbase of more than 124 inches.  The minimum qualifying fuel efficiency for these vehicles is 15 miles per gallon. Increase the fuel efficiency by just 1 mile per gallon to qualify for the $3,500 rebate.  Two miles per gallon extra gets you the full $4,500 rebate.


Fuel Efficiency Standards to Qualify for Rebate


Type of Vehicle Minimum Fuel Efficiency of New Vehicle to Qualify Increased Fuel Efficiency to Qualify for:
$3,500 Rebate $4,500 Rebate
22 miles per gallon 4 mpg 10 mpg
18 miles per gallon 2 mpg 5 mpg
15 miles per gallon 1 mpg 2 mpg


Other Advantages:


Unlike most tax breaks issued over the past twenty years, there is no income limitation for this electronic voucher program.  Plus, individuals and businesses are equally eligible.  Leasing counts as well, as long as the lease is for a period of at least five years.


This electronic voucher can also be used with other tax breaks.  If you purchase a hybrid that still qualifies for the Hybrid Car Tax Credit, you can claim the allowable tax credit even if you get the full $4,500 incentive rebate.  And as we discussed in our March 2009 Newsletter, don't forget that you can deduct the sales taxes paid on new vehicles purchased between 2/17/09 and 12/31/09, subject to phase-outs starting at $125,000 for single individuals and $250,000 for married couples.


One other benefit is that the dealership takes care of all of the paperwork on your behalf, allowing you to immediately receive your incentive rebate at the time of purchase. You don't need to wait until you file your tax return next winter to get your rebate check for $3,500 or $4,500.


Pitfalls to CARS


There are a few pitfalls to the CARS program, however.  For starters, the maximum manufacturer's suggested retail price of the replacement car is limited to $45,000.  Plus, used vehicles don't qualify as a replacement vehicle, even though replacing a clunker with a more fuel efficient used car would probably be more environmentally friendly. 


Another pitfall is that you're not eligible to receive both the electronic voucher and the vehicle's trade-in value, since one of the conditions of this program is that your vehicle be destroyed.  The amount you get for a trade, therefore, will be limited to its scrap value.  The closer the value of your car is to $4,500, therefore, the less valuable this rebate becomes, so make sure to check out your car's Kelley Blue Book value at before opting to go with CARS.


Clock Is Ticking


Please note that this incentive program ends on the earlier of November 1, 2009 or when the $1 billion earmarked for the CARS program has been exhausted.  More information about the this incentive rebate program is available on the government sponsored website,



by Lawrence B. Keller, CLU, ChFC, CFP

Although actuarially women are better risks for life insurance compared to men, it is the opposite for disability insurance.  As a result, women may pay 50% to 75% more for their policies. 

However, many disability insurance carriers offer a “multi-life” discount when several physicians from the same hospital or department purchase individual policies at the same time and a letter of endorsement is submitted by the program director, GME department or human resource director.  While these programs can produce a savings for males, this strategy allows female physicians to save up to 60% on the cost of their disability insurance.   

It is important to note that many teaching hospitals and medical associations have existing programs that you can access – without having to take the time and effort to establish them.  You should make sure to ask the insurance agent or financial planner you are dealing with about the availability of these programs or look for one that specializes in working with physicians as they most likely have access to several of them. 

Look at the Savings Using a Multi-Life or Association Discount

Multi-Life Discount

Dr. Jones, a 30-year old female Orthopaedic Surgery Resident in New York, purchased her policy from a well-known insurance company.  Assuming a monthly benefit of $3,500, a 90-day waiting period, benefits payable to age 65, a Residual Disability Rider and a 3% Cost Of Living Adjustment Rider, her fixed annual premium would be $3,055.  However, that same policy with a unisex rate and “multi-life” discount would cost $2,056… an annual savings of $999 or approximately 33% off of the normal female rates.  If she kept her policy at the same level to age 65, she would save approximately $35,000.   If she invested her annual savings at 6% for the 35-year period, her savings would grow to be in excess of $118,000!

Medical Association Discount

Dr. Smith, a 30-year old female Anesthesiology Resident in Massachusetts, purchased her policy from another well-known insurance company.  Assuming a monthly benefit of $3,500, a 90-day waiting period, benefits payable to age 67, a Non-Cancelable Rider, an “Own-Occupation” Rider, a Residual Disability Rider and a 3% Cost Of Living Adjustment Rider, her fixed annual premium would be $3,300.  However, that same policy with an association discount would cost $1,426… an annual savings of $1,874 or approximately 57% off of the normal female rates.  If she kept her policy at the same level to age 67, she would save approximately $69,000.   If she invested her annual savings at 6% for the 37-year period, her savings would grow to be in excess of $252,000!

Watch Out for Florida and California

It is not unreasonable to think that most physicians would rather be on the beach than in their offices.  Therefore, claims experience has been extremely poor in these states.  As a result, policies are typically 10%-20% more expensive with less liberal contract provisions.  As a result, if you are not in Florida or California now, but plan on moving or returning to either one of these states after you complete your training, you should purchase you policy before you get there to lock into lower premium rates for your initial coverage as well as any future additions that you make to your policy.

Lawrence B. Keller, CLU, ChFC, CFP is the founder of Physician Financial Services, a New York- based firm specializing in income protection and wealth accumulation strategies for physicians.  He can be reached for questions or comments at (516) 677-6211 or by email to



To have Larry Keller prepare a complimentary analysis of your current disability insurance needs, please complete this form, and he will contact you shortly.

Your name
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e-mail address
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Member of Armed Forces or Government Employee? No Yes
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While Social Security and Medicare taxes are generally withheld from the salaries paid to non-government employees, those trainees classified as "student employees" are exempt from this 7.65% tax. The FICA rebate, therefore, would put approximately $3,800 per each year of training into the pocket of young physicians.

The debate as to whether medical residents are subject to Social Security and Medicare Taxes - also known as the FICA tax - rages on, and the IRS keeps losing. Even so, the IRS appears to be in no hurry to return any FICA taxes to medical residents and their residency programs.

We've written the following articles about the Medical Resident FICA Rebate:

  • February 2001 - You Might Be Entitled to Get Back $3,000 From the Government for Every Year that You Were a Medical Resident

To help young physicians keep abreast of any developments with this potentially lucrative tax rebate, we have now just added the Medical Resident FICA Forum Please remember to post whatever you hear or read regarding this FICA issue on our new forum.



Income Taxes

Saving and Investing





  • Returns on extension are no longer due 8/15th.  For 2009, you have until 10/15 to file returns put on extension
  • If you participated in the NIH LRP during 2008, you only have until 9/30/09 to submit the paperwork to get back any additional taxes owed to you by the NIH. One of the MDTAXES CPAs can help you with this paperwork
  • Consider rolling your old retirement accounts held at a previous employer into your current employer's 401(k) or 403(b) plan to consolidate your finances
  • If your income will be too high for 2009 to contribute to a Roth IRA this year, consider making a non-deductible contribution to an IRA to convert to a Roth in 2010 as addressed in our March 2007 newsletter


2008 & 2009 TAX FACTS

  • For 2008, the standard deduction for a single individual is $5,450 and for a married couple is $10,900 and increasing to $5,700 and $11,400 respectively in 2009. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2008, the personal exemption is $3,500 increasing to $3,650 in 2009. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $106,800 for 2009, up from $102,000 for 2008.
  • The standard mileage rate is $.55 per business mile as of January 1, 2009, down from $.585 per mile as of December 31, 2008.
  • The maximum annual contribution into a 401(k) plan or a 403(b) plan is $16,500 in 2009.  And if you'll be 50 or older by December 31st, you can contribute an extra $5,500 into your 401(k) or 403(b) account this year.
  • The maximum annual contribution to your IRA is $5,000 for 2009.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2010 to make your 2009 IRA contributions. 


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This Month's Topics

Clock Is Ticking To Get $4,500 From Government For Trading In Your Clunker

Disability Insurance: The Cost of Being Female

MDTAXES Launches Medical Resident FICA Forum

The FICA Refund for Medical Residents 

2008 & 2009 Tax Facts

Tax and Financial Planning Calendar for August 2009


Browse our index of previous months' newsletter topics

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For more information, go to our January 2009 Newsletter or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

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