Work Pay Tax Credit - Paycheck Withholding Adjustment

February 21, 2009 - As part of the American Recovery and Reinvestment Act of 2009, the new stimulus package signed by President Obama, you could see a larger paycheck this spring.

The Internal Revenue Service released new withholding tables that will increase take-home pay for millions of workers. As an employee, you don’t need to take any action to benefit from this credit. Employers will be expected to begin using the new tables no later than April 1st. Taxpayers should notice an increase in their take-home pay soon after, and it will continue until the end of the year.

The credit is 6.2% of earned income, or a maximum of $800 for a married couple filing jointly, and $400 for other taxpayers. The credit is refundable, so even taxpayers who owe no tax are eligible for the credit. The credit will automatically appear in your paycheck, but you will need to claim the credit on the 2009 tax return you file next year.

The credit is phased out for higher-income earners. Married couples with an adjusted gross income above $150,000 or other taxpayers with an adjusted gross income above $75,000 can expect to see little or no change in their take-home pay. These taxpayers, and those holding multiple jobs, may choose to submit a new Form W-4 to their employer(s) to ensure that enough taxes are being withheld.

More details on how to reduce your monthly paycheck tax withholding: Tax Reduction

More information on how to adjust paycheck withholding: Paycheck Tax Withholding Overview