Why Is My Paycheck More?
Why is your paycheck more than usual? Because the economy stinks and the Democrats are in control! That was intended to be a joke, but it’s actually true. You may have noticed that your paycheck is slightly higher than it has been in the past, mine was $31 more. This is a result of the second stimulus bill passed by Congress. There is a section titled, “Making Work Pay Credit,” which essentially does what the first stimulus did, which is giving us some of our money back! The major difference is, this time around, the money is coming to us piecemeal through our paychecks by reducing our taxable federal income taxes.
You’ll notice that your federal income tax withheld has been reduced by the same amount as your paycheck increased. This is all a good thing, because the credit is a credit, we will not have to pay taxes on the extra amount we receive each check. Most of everyone will receive the credit; our President has said that 95% of the population will receive tax help.
How Much is the Credit?
To quote the legislation,
“there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the lesser of—(1) 6.2 percent of earned income of the taxpayer, or (2) $400 ($800 in the case of a joint return).”
Simply put, this means that you will receive whichever is the lesser amount of 6.2 percent of your earned income or a max of $400 for single filers or $800 for a married couples, over the year. Although most don’t realize it, this credit is more than the first stimulus passed last year when we received checks for $600.
How Long Will The Credit Last?
We will receive the credit in 2009 and 2010.
Why Was My Credit Less/More Than My Coworkers?
We had this discussion at work when we looked at our first paycheck with the credit. I looked online and couldn’t find anything explaining it, so again, I went to the source—the stimulus bill itself. I’ll quote the bill,
“(1) IN GENERAL.—The amount allowable as a credit under subsection (a) (determined without regard to this paragraph and subsection (c)) for the taxable year shall be reduced (but not below zero) by 2 percent of so much of the taxpayer’s modified adjusted gross income as exceeds $75,000 ($150,000 in the case of a joint return).”
In English, this means if you make over $75,000/single filers or $150,000/married filers, then your credit begins to phase out by 2 percent.
What Should You Do With The Credit?
Save it. Unless you are experiencing economic trouble, which many of us unfortunately are, then you should increase your saving contributions by the same amount as the credit. Why not, you’re living fine without the added few dollars anyways? In general, the amount is small enough where paying off debts is probably laughable and saving in this financial atmosphere is a must.
For the Select Few Who are Interested, Here is the Tax Credit Language Directly from the Bill:
Subtitle A—Tax Relief for Individuals and
Families
PART I—GENERAL TAX RELIEF
SEC. 1001. MAKING WORK PAY CREDIT.
(a) IN GENERAL.—Subpart C of part IV of subchapter A of
chapter 1 is amended by inserting after section 36 the following
new section:
‘‘SEC. 36A. MAKING WORK PAY CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eligible individual,
there shall be allowed as a credit against the tax imposed
by this subtitle for the taxable year an amount equal to the lesser
of—
‘‘(1) 6.2 percent of earned income of the taxpayer, or
‘‘(2) $400 ($800 in the case of a joint return).
‘‘(b) LIMITATION BASED ON MODIFIED ADJUSTED GROSS
INCOME.—
‘‘(1) IN GENERAL.—The amount allowable as a credit under
subsection (a) (determined without regard to this paragraph
and subsection (c)) for the taxable year shall be reduced (but
not below zero) by 2 percent of so much of the taxpayer’s
modified adjusted gross income as exceeds $75,000 ($150,000
in the case of a joint return).
‘‘(2) MODIFIED ADJUSTED GROSS INCOME.—For purposes of
subparagraph (A), the term ‘modified adjusted gross income’
means the adjusted gross income of the taxpayer for the taxable
year increased by any amount excluded from gross income
under section 911, 931, or 933.
‘‘(c) REDUCTION FOR CERTAIN OTHER PAYMENTS.—The credit
allowed under subsection (a) for any taxable year shall be reduced
by the amount of any payments received by the taxpayer during
such taxable year under section 2201, and any credit allowed to
the taxpayer under section 2202, of the American Recovery and
Reinvestment Tax Act of 2009.
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
‘‘(1) ELIGIBLE INDIVIDUAL.—
‘‘(A) IN GENERAL.—The term ‘eligible individual’ means
any individual other than—
‘‘(i) any nonresident alien individual,
‘‘(ii) any individual with respect to whom a deduction
under section 151 is allowable to another taxpayer
for a taxable year beginning in the calendar year in
which the individual’s taxable year begins, and
‘‘(iii) an estate or trust.
‘‘(B) IDENTIFICATION NUMBER REQUIREMENT.—Such
term shall not include any individual who does not include
on the return of tax for the taxable year—
‘‘(i) such individual’s social security account
number, and
‘‘(ii) in the case of a joint return, the social security
account number of one of the taxpayers on such return.
For purposes of the preceding sentence, the social security
account number shall not include a TIN issued by the
Internal Revenue Service.
‘‘(2) EARNED INCOME.—The term ‘earned income’ has the
meaning given such term by section 32(c)(2), except that such
term shall not include net earnings from self-employment which
are not taken into account in computing taxable income. For
purposes of the preceding sentence, any amount excluded from
gross income by reason of section 112 shall be treated as
earned income which is taken into account in computing taxable
income for the taxable year.
‘‘(e) TERMINATION.—This section shall not apply to taxable years
beginning after December 31, 2010.’’.
(b) TREATMENT OF POSSESSIONS.—
(1) PAYMENTS TO POSSESSIONS.—
(A) MIRROR CODE POSSESSION.—The Secretary of the
Treasury shall pay to each possession of the United States
with a mirror code tax system amounts equal to the loss
to that possession by reason of the amendments made
by this section with respect to taxable years beginning
in 2009 and 2010. Such amounts shall be determined by
the Secretary of the Treasury based on information provided
by the government of the respective possession.
(B) OTHER POSSESSIONS.—The Secretary of the
Treasury shall pay to each possession of the United States
which does not have a mirror code tax system amounts
estimated by the Secretary of the Treasury as being equal
to the aggregate benefits that would have been provided
to residents of such possession by reason of the amendments
made by this section for taxable years beginning
in 2009 and 2010 if a mirror code tax system had been
in effect in such possession. The preceding sentence shall
not apply with respect to any possession of the United
States unless such possession has a plan, which has been
approved by the Secretary of the Treasury, under which
such possession will promptly distribute such payments
to the residents of such possession.
(2) COORDINATION WITH CREDIT ALLOWED AGAINST UNITED
STATES INCOME TAXES.—No credit shall be allowed against
United States income taxes for any taxable year under section
36A of the Internal Revenue Code of 1986 (as added by this
section) to any person—
(A) to whom a credit is allowed against taxes imposed
by the possession by reason of the amendments made by
this section for such taxable year, or
(B) who is eligible for a payment under a plan described
in paragraph (1)(B) with respect to such taxable year.
(3) DEFINITIONS AND SPECIAL RULES.—
(A) POSSESSION OF THE UNITED STATES.—For purposes
of this subsection, the term ‘‘possession of the United
States’’ includes the Commonwealth of Puerto Rico and
the Commonwealth of the Northern Mariana Islands.
(B) MIRROR CODE TAX SYSTEM.—For purposes of this
subsection, the term ‘‘mirror code tax system’’ means, with
respect to any possession of the United States, the income
tax system of such possession if the income tax liability
of the residents of such possession under such system is
determined by reference to the income tax laws of the
United States as if such possession were the United States.
(C) TREATMENT OF PAYMENTS.—For purposes of section
1324(b)(2) of title 31, United States Code, the payments
under this subsection shall be treated in the same manner
as a refund due from the credit allowed under section
36A of the Internal Revenue Code of 1986 (as added by
this section).
(c) REFUNDS DISREGARDED IN THE ADMINISTRATION OF FEDERAL
PROGRAMS AND FEDERALLY ASSISTED PROGRAMS.—Any credit or
refund allowed or made to any individual by reason of section
36A of the Internal Revenue Code of 1986 (as added by this section)
or by reason of subsection (b) of this section shall not be taken
into account as income and shall not be taken into account as
resources for the month of receipt and the following 2 months
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Comments
Excellent explanation! This is the kind of tax cut people can use. Finally, a gov’t that cares. Remember: while inflation is bad, deflation is worse because it attacks some unfairly and leaves others alone while inflation hurts all equally and is therefore not that destructive in the long run (if not too severe).
Yes it does mean you take home more. Whatever extra you get in your paycheck is taken from your refund – it’s the same money, the only change is when you get it. If you take too many allowances, then you have to pay when you file instead of getting a refund.
If you are getting 31 more dollars a check even with bi-weekly pay periods that equals about $806.00. If single people only get $400 does that mean you will owe at the end of the year? Any insights would be appreicated becuase my check and my wifes check put together are about $2000 more on our checks per year. Any insights would be greatly appreciated. Thanks
So I am still a little sketchy…if we do not change any allowances, and given the tax break which is putting about $30 in our paycheck, will we be paying in come income tax filing time…or will we still get back the same amount we usually do…given the added income?
You won’t have to pay income taxes on the extra amount put in your check each pay period because it’s a credit.
Thanks for the help I thought i had gotten a raise when my direct dep. showed up… yeah thats a laugh!! Thanks for clearing things up for me!
WHAT IF YOU CHOOSE NOT TO HAVE THE EXTRA MONEY PUT INTO YOUR CHECK, WOULD THAT GIVE YOU MORE AT INCOME TAX TIME?
I don’t think there really is a way for you to not have the credit inserted into your check. But if you would rather have it at tax time next year, save it.
I have tried a slew of online calculators to determine if and how I should adjust my withholding in response to this credit. I can’t seem to get the same answer from one to the other – they all seem to ask for different input or it is not clear exactly what I need to be providing. Help! Know of a good withholding calculator? Thanks! 
I think this is among the most important info for me. And I’m glad to reading your article.
Nice post. There is clearly some different prospective here.