In light of President Obama’s “Making Work Pay” tax credit, now is a good time to check the amount of federal taxes being withheld from your paycheck. The provision will provide a refundable tax credit in 2009 and 2010 of up to $400 for working individuals and $800 for married workers filing joint returns.
If you are normally paid via a paycheck with federal taxes withheld, then most likely your employer has adjusted your federal tax withholding to reflect the credit, and there is nothing you need to do. You probably noticed that your take-home pay increased a little bit this past Spring (however if you make more than $75,000 – or $150,000 for a married couple filing jointly – you are not eligible for the credit.)
Some people should pay close attention to their withholding. The credit is reduced by the recent $250 payment given to Social Security recipients. If you received this payment you should review your withholding to ensure that it won’t be reduced by the whole $400. Married couples with two jobs, individuals with more than one job and workers who can be claimed as a dependent on someone else’s tax return may also end up having less withheld than they will owe in federal taxes. To check your personal situation you can use the IRS withholding calculator. If you find you need to change your withholding you can submit a Form W-4 to your employer.
Those individuals receiving pensions may also want to review their situation. Pensions are not considered earned income, yet if taxes are withheld from payments they may have been adjusted for the tax credit. The IRS has given pension plans an optional adjustment procedure. You may want to check with your pension plan administrator to see just how your taxes have been adjusted.
Finally, one last note: self-employed individuals should estimate their tax liability and reduce it by the tax credit if they are eligible.
For more information click here to go to the IRS website.
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