What stimulus giveth, IRS may taketh
You should be getting a fatter paycheck if you're among the 110 million families to benefit from the government's economic stimulus plan.
The Associated Press
DES MOINES, Iowa — You should be getting a fatter paycheck if you're among the 110 million families to benefit from the government's economic stimulus plan.
The government says the average family will get about $800 more in take-home pay this year. A single person, $400.
But, to make sure you don't end up paying some of the money back next year at tax time, you may want to take a few minutes to check your withholding.
"Not knowing or taking the time to understand how the withholding change affects them, could lead to a costly tax bill," said Amy McAnarney, executive director of the Tax Institute at H&R Block. "A little knowledge now could save you a lot of disappointment later."
The way the benefit works is that the Internal Revenue Service has issued new tax tables to employers, effective April 1. The tax tables reduce the amount of taxes withdrawn from your check, giving you a little more money to spend.
For example, a single worker making $50,000 and who gets a biweekly check should see about $20 more each paycheck.
However some people may get caught up in having too much money given back and find themselves owing the government when they do their taxes next April.
They include workers with more than one job and households in which both spouses work.
If you have more than one job, it's possible both employers could change your withholding, causing you to keep too much money.
It's also possible that your combined income from those jobs could exceed the $75,000 limit at which the benefit is reduced. And if you make more than $95,000 in gross income, you are not eligible for any of the credit.
It's also common these days for couples to both work, which causes many families to get the tax credit though their combined income exceeds the guidelines, said Chas Roy-Chowdhury, head of taxation of the Association of Chartered Certified Accountants.
If you and your spouse file jointly and have a combined gross income of $150,000, the benefit is reduced. It's eliminated at $190,000. Your employers might not know your household income surpasses the limits and give you the money in your paycheck, which you'd have to pay back next April.
Probably the best approach is to use a withholding calculator that will figure out how much money you should be taking out of each check.
The IRS offers one that includes the new tax break at: www.irs.gov/individuals/article/0,,id=96196,00.html
To get an accurate picture, you'll need a recent pay stub and know how much money you expect to contribute this year to your 401(k) or other retirement accounts.
If needed, you can adjust your withholding by filing a W-4 form with the IRS. The form allows you to adjust the amount of money withheld from your paychecks to match closely what you owe in taxes.
You can get a W-4 form from your employer or on the IRS Web site.
H&R Block offices also offer a free W-4 checkup regardless of whether you're a customer, McAnarney said
If you withhold the proper amount you won't have to pay the government next April and you won't get a big refund.
Keep in mind, if you're getting big refunds at tax time, it basically means you're giving the government an interest-free loan throughout the year. Even if you like the idea of a refund, keep in mind it's best to get the money early and have it work for you during the year.
Copyright © 2009 The Seattle Times Company
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