The Internal Revenue Service (IRS) says millions of American workers will take home more of their pay this spring.
Tax tables have been sent out that incorporate the new Making Work Pay Credit, one of the key tax provisions in the American Recovery and Reinvestment Act of 2009 that became law earlier this month.
Taxpayers will not get a separate, special check mailed to them from the IRS like last year’s economic stimulus payment. Instead, the additional take-home dollars are the result of smaller payroll deductions.
For most, no need for new W-4 Form
“For most taxpayers, the additional credit will automatically start showing up in their paychecks this spring… Since employers and payroll companies will handle this change, people typically won’t need to take any additional action,” said IRS Commissioner Doug Shulman. “The IRS will continue working to implement this and other provisions of the new law as quickly as possible.”
The new withholding tables along with other instructions related to the new tax law will be incorporated in new Publication 15-T, which will be posted to this Web site http://www.irs.gov/ next week and mailed to more than 9 million employers in mid-March.
The IRS asks that employers start using these new tables as soon as possible, but not later than April 1.
Eligible workers don’t need to fill out a new W-4 withholding form to get the Making Work Pay credit. However, the IRS advises that individuals and couples with multiple jobs may want to submit revised Form W-4 forms to make sure they select enough withholding to cover the tax for the combined income. (Publication 919 provides additional guidance for tax withholding.)
What is the Making Work Pay Credit?
Available for tax years 2009 and 2010, 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, says the IRS.
And the IRS says most workers will qualify for the maximum credit. And because people can get it even if they owe no tax, most low-income workers will also qualify for the full credit.
All eligible taxpayers will need to claim the credit when they file their 2009 income tax return next year.
Many higher-income taxpayers will see little or no change in their take-home pay. 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 for other taxpayers whose modified AGI is between $75,000 and $95,000.