The American Recovery and Reinvestment Act of 2009 provides a credit against income tax in an amount equal to the lesser of 6.2 percent of the individual's earned income or $400 ($800 for married couples filing jointly). But problems may be lurking for certain taxpayers.
Effective April 1, 2009, employers should have started withholding at reduced rates to reflect the Making Work Pay credit. Many individuals will benefit from an automatic and immediate increase in their take home pay. However, married couples whose combined incomes place them in a higher tax bracket, taxpayers with more than one job, pension recipients with federal withholding, and social security recipients who also still work may want to consider the effect of this credit on their tax returns they will be filing next year. The new witholding tables do not adequately consider the above mentioned types of taxpayers. Such taxpayers may end up receiving too much of the credit and the adjustment will be reflected on their 2009 income tax returns. A revised From W-4 may be necessary to ensure that enough withholding is being withheld.
Please call us if you have questions. We can help you determine if you should submit a revised From W-4 to your employer.