The American Recovery and Reinvestment Act Provides A Tax Relief by “Making Work Pay”
As the details become available I will keep you up to date on tax, employee, IC compliance and other labor law developments affected and created by the American Recovery and Reinvestment Act of 2009.
Tax Credit for the working class.
For 2009 and 2010, the “Making Work Pay” provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns.
This tax credit is 6.2% of earned income; however, it phases out for taxpayers with adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.
Take the credit now, with each pay check, or at the end of the year on your Form 1040.
For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes yet to be programmed. These changes may result in an increase in net take-home pay. The amount of the credit must be reported on your 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return. Also, you can increase the withholding with an updated W-4 and take the credit on April 15th.
Individuals may need to update their W-4 to insure accurate withholding.
It is not necessary to submit a Form W-4 to get the automatic withholding change, because the tax tables have changed to reflect the new (temporary) tax rates. However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for the combined income.
You may wish to refer to IRS Publication 919 for more information on withholding.
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