Many City of Hope employees may have noticed a boost in their take-home pay, thanks to the economic stimulus package. The increase began with eligible taxpayers’ March 20 paychecks.
The increase in take-home pay stemmed from the Making Work Pay tax credit, a key provision in the American Recovery and Reinvestment Act of 2009. The credit changed Internal Revenue Service (IRS) withholding tables, lessening the amount of money withheld for federal income taxes.
|A new tax credit puts more take-home pay in many employees’ paychecks.|
“Employees will not need to take any action to take advantage of the tax credit,” said Larry Berube, corporate payroll manager. City of Hope’s payroll department already has applied the new federal income tax withholding tables, which include the new tax credit. Eligible employees will have an increase in take home pay for the reminder of the year.
While most workers qualify for the maximum credit, it is phased out for higher-income taxpayers. Married couples filing a joint return whose modified adjusted gross income (AGI) is between $150,000 and $190,000 and individual taxpayers whose modified AGI is between $75,000 and $95,000 will see less of an increase in their take-home pay, depending on where their incomes fall within those ranges. Taxpayers with AGI above those ranges will see no tax credit.
AGI is total income including wages, interest, dividends and other income sources offset or reduced by any allowable adjustments to income. Allowable adjustments include student loan interest, alimony, non-taxable moving expenses and penalties on early withdrawal of savings.
For individuals and couples with multiple jobs, the IRS recommends reviewing and, if necessary, submitting a revised W-4 form to ensure enough money is withheld to cover the tax for the higher combined income.
“Each employer will calculate federal income taxes using the new withholding tables, which include the full credit, and withhold at the lower rate,” said Berube. “That could result in credits from multiple employers adding up to more than the full allowable credit for the year and the taxpayer being under-withheld.”
“If they’ve gotten too much, they’ll have to pay the difference back, possibly with interest or penalties — or both,” he added.
The Making Work Pay credit amounts to 6.2 percent of a taxpayer’s earned income with a maximum credit of $800 for a married couple filing a joint return and $400 for individuals and other taxpayers.
Employees may find more information about the new tax credit on the IRS Web site at www.irs.gov.