A boost in your paycheck may be coming.
Earlier this month, President Barak Obama signed the American Recovery and Reinvestment Act of 2009 making it law. One of the tax provisions in this act is the Making Work Pay credit.
"For most taxpayers, the additional credit will automatically start showing up in their paychecks this spring," Internal Revenue Service (IRS) Commissioner Doug Shulman said. "Since employers and payroll companies will handle this change, people typically won't need to take any additional action. The IRS will continue working to implement this and other provisions of the new law as quickly as possible."
Rather than receiving a separate check in the mail from the IRS, like last year's economic stimulus check under the Bush administration, the credit will be reflected in individuals' paychecks this spring.
The act created new withholding tables that will give money back to those who receive a regular paycheck. These new tables can be viewed at www.irs.gov.
This new tax law will be published in Publication 15-T and mailed in March to over nine million employers so they can implement the new tables before April 1.
President Obama spoke briefly about the Making Work Pay credit in his address to Congress Feb. 24. He said the credit will help many people during current economic troubles and help boost the economy.
According to an IRS news release, "Eligible workers will get the benefit of this change without any action on their part. This means that workers don't need to fill out a new W-4 withholding form to get the Making Work Pay credit reflected in their take-home pay. A Form W-4 will not need to be submitted for the automatic withholding change. Individuals and couples with multiple jobs may want to submit a revised W-4 form to ensure enough withholding is held to cover the tax for the combined income. Publication 919 (found at www.irs.gov/pub/irs-pdf/p919.pdf) provides additional guidance for tax withholding."
The Making Work Pay credit will be active for the next two tax years. "The Making Work Pay credit is 6.2 percent of a taxpayer's earned income with a maximum credit of $800 for a married couple filing a joint return and $400 for other taxpayers, but it is phased out for higher income taxpayers," according to the IRS.
The credit is also refundable, meaning people can receive the credit if they do not owe taxes. Taxpayers will have to claim the credit on next year's tax return.
Those who have a modified adjusted gross income (AGI) that is on a higher level than most people will likely not see a change to their income. The reason for this cut-off is that Making Work Pay credit does not apply to higher income earners. This will affect married couples filing jointly who have a modified AGI between $150,000 and $190,000 and others whose AGI is between $75,000 and $95,000.
George Thomas, a certified public accountant (CPA) who works in the Salem area, was a guest speaker at the Salem Chamber of Commerce meeting Feb. 25 to discuss many new tax laws. Among the laws, Thomas explained the new withholding tables. "The withholding tables are now lowered," Thomas said. "The average is going to be $10 to $20 a week per person more in their paycheck."
He said these tables have been adjusted to help the average employee. "This is going to give a tax break to the average working person. It would get them roughly 6.2 percent less tax than what they've been paying."