Tax Overview

Tax Researcher

Volume XXVI Issue 4 April 2009

THE ECONOMIC STIMULUS PLAN—WHAT IMPACT DOES IT HAVE ON PAYROLL?

The American Recovery and Reinvestment Act (ARRA) of 2009, also know as the economic stimulus plan, was signed into law by President Obama on February 17, 2009. It includes four provisions that have a direct impact on either payroll taxation or payroll reporting. Below is an overview of them; for more detailed information, you may visit www.irs.gov. The Making Work Pay Tax Credit For 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns. This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly. For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employer through automated withholding changes. The IRS has issued revised income tax withholding tables for wages paid through December 2009. The tables are effective as soon as possible but no later than 4/01/2009. These changes may result in an increase in take-home pay. The amount of the credit must be reported on the employee’s 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return. It is not necessary to submit a Form W-4 to get the automatic withholding change. However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his or her combined income. IRS Publication 919 provides additional guidance for tax withholding.

Tax Researcher

Temporary Increase in the Earned Income Credit The...