photo credit: AMagill

The American Recovery and Reinvestment Act of 2009—the new economic stimulus law signed on Feb.17—includes a key provision that impacts tax withholding amounts in employee paychecks. This provision, the “Making Work Pay” tax credit, requires employers to implement the new tax withholding changes by April 1.  So look for a few extra dollars in your next paycheck.  However, I challenge you all NOT to spend it but to SAVE it.  If your check increases by $68/month, setup an automatic withdrawal of $65/month to your e-fund or other savings account.  If your savings account is flush, consider increasing your 401k or IRA contributions.  You won’t miss what you never had.

Here are a few key points regarding this credit -

• New withholding tables may reduce the amount of income tax withheld from your wages. Many higher-income taxpayers will see little or no change in their take-home pay. That’s because the “Making Work Pay” credit is phased out for a married couple filing a joint return whose modified adjusted gross income (AGI) is between $150,000 and $190,000 and other taxpayers whose modified AGI is between $75,000 and $95,000.
• The new tables, prescribed by the Department of the Treasury, reflect the Making Work Pay credit and other changes resulting from the American Recovery and Reinvestment Act of 2009.
• You do not have to submit a Form W-4, Employee’s Withholding Allowance Certificate, to get the automatic withholding change. However, if you do not want to have your withholding reduced (because, for example, you have more than one job or you are married and your combined income places you in a higher tax bracket), you may want to file a new Form W-4. You may claim fewer withholding allowances on line 5 or request additional amounts to be withheld on line 6.
• Taxpayers will not get a separate, special check mailed to them from the IRS like last year’s economic stimulus payment.