The credit is part of the massive American Recovery and Reinvestment Act and provides a credit of up to $400 per worker against their 2009 and 2010 taxes. To get this tax credit money into the hands of taxpayer now rather than later, legislators instructed the IRS to revise the withholding rates so workers can see a boost in their take-home pay now. The IRS has already released the new withholding rates, and asked employers to implement them no later than April 1, 2009.
In his weekly address, President Obama said that "a typical family will begin taking home at least $65 more every month," as a result of the tax credit being factored into the new withholding tables. Attempting to verify this claim, I compared the old and new version of the withholding tables by looking up the withholding amount for a single person being paid monthly on a $50,000 salary and claiming 1 withholding allowance. Under the old withholding tables, our hypothetical worker would have $609 deducted for federal income tax per month. Under the new tables, this same person would have $564 withheld, for an extra $45 per month. Kay Bell, writing at Don't Mess With Taxes, says that with the new withholding rates, "you'll receive around $10.25 more" per week in your paycheck.
I also noticed in the IRS announcement that taxpayers will still need to claim the Making Work Pay credit on their tax return next year. So less will be withheld now in anticipation that the tax credit will offset your taxes just enough so you won't owe.
However I already foresee problems with withholding adjustments being made across the board. Some individuals won't qualify for the full credit, and some won't qualify for the credit at all. People working two jobs, dependents who work, and retirees who are still working may need to have additional taxes taken out of their paychecks to offset the lower payroll withholding rates.
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i don’t qualify once again! I heard on the news about this….. the more you make the more you hand out – it sucks!
How does the new payroll tax withholding effect retirement checks???
Why is there more withholding taken out of my retirement check?
Wow!!!! i now receive $3 a week more. Can anyone say dollar menu.
Oh no! a_reader earns too much. Boo hoo. Why can’t people just live within their means? It’s ok to earn your worth. If you’re worth 6 figures, good for you. Just don’t complain about taxes.
Where is the break for employers who shell out all that payroll tax?
Employers take a deduction for payroll taxes they pay, and some employers may be eligible for an exemption from payroll taxes in 2010 on newly hired workers and/or new hire tax credit in 2011.