On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009
*** has made changes to comply with the new Wage Withholding and Advanced Earned Income Credit (AEIC) payment tables to accommodate the new Making Work Pay credit. Modifications have been made to ***’s Payroll Systems to use these new tables beginning with payrolls processed on March 1, 2009. As a result, employees may see a decrease in their federal withholding and/or an increase in their AEIC (if applicable), beginning with the first payroll on or after March 1, 2009.
HOLD THAT CREDIT
But for some, the new credit could result in an unexpected bill come filing time, because employers will be adjusting paycheck withholding amounts without knowing each worker's complete tax situation.
Here's how it works: The IRS on Saturday released new tax-withholding tables for employers to use when figuring workers' paychecks. The IRS asked companies to use the new withholding amounts by April 1.
"For most taxpayers, the additional credit will automatically start showing up in their paychecks this spring," said Doug Shulman, the IRS commissioner, in a press release.
"Since employers and payroll companies will handle this change, people typically won't need to take any additional action," he said. See the release on IRS site.
But if you file a joint return with your spouse, and you both work, you should carefully review your withholding, because it's highly likely both employers, without knowledge of what the other is doing, will adjust withholding such that both spouses receive up to $800, for a total credit of $1,600.
"It's conceivable that if both are married-filing-joint and their income is not otherwise going to cause a phase-out [of the credit], they could get the double Benefit," said Frank Keith, chief of communications for the IRS. "When they file their return, the actual credit they're entitled to is $800."
That means paying back up to $800 with your return, though Keith said the money paid out this year, and thus any tax bill later, likely would be slightly lower -- since the withholding adjustment starts close to midyear, the full credit won't be paid out in paychecks.
For some, what's effectively a loan from the government might be welcome. But others will find the big bill next year unwelcome. One way to prevent it: Adjust your withholding this year.
This is being implemented at my work and I'm just so wonderfully excited. Admittedly, I do not understand it as much as I need to... I even went out to find different withholding tables to try to help me understand. Yeah... that didn't help much. Arc explained it to me and it's still confusing even though he makes good sense.
Seems my only option is to change my deductions... aka adjust my withholding as mentioned above. Gee... that's so nice. I have to change my withholding deductions which will give me less money each month and all because Obama is giving me $13 a week that I didn't ask for nor want. This extra money will be counted as income, so I've been told, and thus... it will be taxed.
Does that sound helpful?
I'm still researching this and don't know when I will be able to really understand the legal documents found on irs.gov. Sigh...
And if I can't grasp the SIMPLE concept of taxes (ha-ha) then how on Earth did our wonderful Congress get through over 1000 pages in just a few short days; pages much more difficult than a SIMPLE tax form.