President Obama asked employers to start making adjustments to federal withholdings starting April 1st for the Make Work Pay Tax Credit. This was a stimulus-based tax credit that passed in the recent economic stimulus legislation passed in February. Last year’s stimulus plan sent lump-sum checks to individuals and couples with the hopes of these individuals putting the money back into the economy. This year’s plan will systematically distribute the tax credit in your paychecks.
Who Is Eligible?
Basically, anyone who has earned income. If you make less than $75,000 as a single filer or $150,000 as a married couple, you will receive the full amount. After that, there is a sliding scale of how much of the credit you will receive. The earned income amounts are based on your modified adjusted gross income, which is basically the same as your adjusted gross income. It adds back in income earned in foreign countries, Puerto Rico, or American Somoa.
If you are a very low income earner that does not qualify to pay any federal taxes, the credit is refundable, which means you would get the lump sum at the time you filed your 2009 taxes.
How Much Will I Receive?
It all depends on your marital status, how much you make, and the number of exemptions you claim on your W-4 form. Typically, individuals will get an extra $10 to $15 per week, and married couples who file jointly will see an extra $15 to $20 per paycheck. Single filers will receive up to $400 per year for the rest of 2009 and part of 2010, and married and filing jointly couples will receive up to $800.
Who Is Not Eligible?
Anyone who is claimed as a dependent on someone elses tax return is not eligible for the credit. Also, adults that received social security or veteran’s affairs benefits are not eligible for the benefits, but instead, you will receive a one-time $250 payment by sometime in late June of this year.
How Does Is It Work?
It modifies the tax withholdings tables, so employers will take less from your federal tax withholdings out of your paycheck. Again, low income earners who don’t have federal withholdings taken from their paychecks can claim the entire credit on their 2009 taxes when they file them in early 2010.
What Should I Watch Out For?
An article on Yahoo Finance courtesy of CNN Money has a good list of things to look out for:
The IRS has a calculator online that you can use to figure out how many allowances you should take if you’re eligible to receive the credit and don’t want to be overpaid — or to put it another way, don’t want to have too little tax withheld.
Those most likely to be overpaid are:
Anyone who holds more than one job. You will get paid the Making Work Pay Credit twice, up to $400 ($800 for a joint filer) from your first employer and up to $400 ($800 for a joint filer) from your second employer.
Joint filers whose spouses work. Each spouse will end up being paid the credit for married couples by each of their employers.
There’s a twist, too. Because of the way the withholding tables were set up, each working spouse may be paid up to $600 this year — instead of up to the $800, Mezistrano said.
In other words, the husband would receive $600 at his job and the wife $600 at her job, for a total of $1,200. Since they’re only entitled to $800 total as a couple, that means they would have to pay $400 back to the IRS — or see their refund reduced by that amount.
Anyone who receives income from a rental property or investment, such as interest and dividends. Your employer only knows about the income you earn at the company. If you receive other income that increases your modified adjusted gross income — or even pushes you past the income limits for the credit — you may end up owing the IRS some or all of the credit you received in your paycheck.
Anyone who started receiving their credit at the end of Febuary or anytime in March. The withholding tables are structured so that payments starting in April will add up to $400 for single filers and $800 for joint filers by year end. If payments start sooner than that a tax filer may actually receive a bit more than he’s due by Dec. 31.
Conversely, if your employer doesn’t start your payments until the end of April or in May — there’s no penalty if an employer doesn’t meet the April 1 deadline — you may end up getting a little less of a credit than you’re entitled to, in which case you can claim the rest when you file your 2009 tax return.
As many of you know, I am not a big fan of these “economic stimulus” plans. I don’t believe in spending our way out of a recession. If the government would start spending less money than they take in, the economy would be better off in the long-run. The biggest problem is that the government is spending someone else’s money, OUR money. It’s not coming out of their own pockets, so they don’t mind spending more and more money in an effort to restore the economy. Personally, if they are going to hand out money, I would rather receive it in a lump sum like we did last year. Then, I have more control over the money, and I can allocate it as I see fit. I doubt that I will notice an extra $50 spread out over two paychecks per month.
Will this extra money help you?