Last Update: March 24, 2009

New Federal Tax Rates effective 03/27/09

Economic Stimulus – ‘Making Work Pay’ Federal Tax Credit

The American Recovery and Reinvestment Act of 2009 includes a tax credit for working taxpayers. For people who receive a paycheck and are subject to withholding, the credit will be applied through a reduction in federal income tax withholding based on new rate tables issued by the IRS, which will be placed in effect with the 3/27/09 payroll.

For those meeting the criteria, the credit will reduce the amount of federal income tax withheld from their paycheck and may result in a small increase in net pay. The tax credit will be calculated at a percentage of earned income with an annual maximum credit of $800 for a married couple filing a joint return and $400 for other filing statuses. The tax credit is phased out for single individuals whose modified adjusted gross income is in excess of $75,000 or $150,000 for married couples filing jointly.

You do not have to submit a new W-4 Form, Employee’s Withholding Allowance Certificate, to get the automatic withholding change. If you do not want to have your withholding reduced because, for example, you have more than one job or you are married and your combined income places you in a higher tax bracket, you may want to file a new Form W-4. You may claim fewer withholding allowances on line 5 or request additional amounts to be withheld on line 6.

For additional help, visit the IRS website at www.irs.gov and use the “Withholding Calculator” or IRS Publication 919, ‘How Do I Adjust My Tax Withholding?'