Posted by TJ on Sunday May 17, 2009 @ 10:26 PM
[Tags: taxes, accounting, guide]

Obama issued the "Making Work Pay" tax credit for 2009 and 2010 tax payers as a form of stimulus which would increase the paychecks of workers through 2009 and 2010. You may of noticed that your paycheck has increased this year due to this credit. This credit could be headache for some filers come April 15th.

The credit changed the withholding tables that employers use to calculate your withholdings. Since your employer doesn't know your tax situation you should always keep an eye on your withholdings.

With the new credit the federal withholdings tables are adjusted so that if a single filer makes less than $75,000 his withholdings are lowered by $400 and a married filers withholdings are decreased by $600.

If you are single you will be able to claim the credit on your 2009 tax return for $400 (if you made less $75,000). If you are married you can claim a credit for $800 (if you made less than $150,000).

This could be lead to a problem in the following circumstances:

• You earn income from more than one job. Both employers will give you the withholding deduction when in reality you can only claim one credit, $400 if single, $800 if married.
  
• If you are married and both you and your spouse work you will each have received $600 more in 2009. However the credit is only $800 for a joint filer making your withholding's less than the tax anticipated.
  
• Over the limits -- The credit starts to phaseout at $75000 adjusted gross income for single filers ($150,000 for Joint filers). If you are over the limit you employer may still give you the credit if you are not over the limit for that one job leading to your withholdings being less than they usually would.

Note that this credit may also lead to additional late payment penalty if your withholdings are less than the tax due with your 2007 tax return. The IRS requires your withholdings (or estimated tax payments) to be 100% of the previous year tax liability or 90% of the current year tax due.

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Circular 230 Disclaimer: Please be advised that, unless otherwise stated by the author, any tax advice contained in this message is not intended or written to be used, and cannot be used, by the recipient to avoid any federal tax penalty that may be imposed on the recipient.