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Thursday, April 2, 2009

Why your paycheck is a little bigger right now

If you’ve noticed an extra $10 or so in your take-home pay recently, that’s not an act of benevolence by your boss.

It’s this year’s version of economic stimulus. Last year, the Bush administration mailed out rebates. This year, the Obama administration has adjusted payroll withholding tables.

So instead of getting one lump sum from the IRS, you’ll be seeing larger amounts in your paycheck all year long.

Why do it this way? Those who study economic-stimulus efforts say we’re more likely to spend an extra 10 bucks rather than a $300 check.

A paper by economists at the National Bureau of Economic Research and the University of Michigan estimates we spent only one-third of the $107 billion of the 2008 rebates. The rest we either saved or used to pay down debt.

So now the federal government is trying to stoke consumer spending through the payroll-tax system.

As of yesterday, all employers had to lower their workers’ tax withholding as part of the “Making Work Pay” tax credit. That means each individual worker will see $400 extra in his or her net pay this year and next. Married taxpayers get $800.

There are exceptions. If you work but also receive Social Security or veterans’ benefits, your tax credit will be cut by $250. That’s because you will get a one-time $250 “Economic Recovery” payment in May.

The tax credit begins to phase out for those with $75,000 or more in adjusted gross income. Make more than $95,000 and you’ll get nothing. (Income thresholds for married couples are $150,000 and $190,000.)

The White House estimates that 4.8 million families in Pennsylvania will get $2.5 billion from the credit. In New Jersey, 3.2 million families will get $1.7 billion.

One thing to watch out for: If you have more than one job, or if you’re married and both of you work, you may want to file a new Form W-4 with your employer.

Why? With multiple employers upping your take-home pay, you could receive more than $400 and wind up writing a check to the IRS next year.

The IRS Web site has a “withholding calculator.” Also read Publication 919 for more about filling out a Form W-4.
Posted by Mike Armstrong @ 2:30 AM  Permalink | File Under: Politics, Taxes | 11 comments
Comments   
  • 0 like this / 0 don't   •   Posted 4:35 AM, 04/02/2009
    Its good to hear that I would be getting extra $400 this year . But I was expecting more than this Brian Waterman
    — brian_waterman
  • 0 like this / 0 don't   •   Posted 5:01 AM, 04/02/2009
    I don't see why the government doesn't want us to pay off some debt with a bulk amount given as a rebate, after all it was the debt that we couldn't pay off that started this whole thing, wasn't it? rocket japanese
    — Rammin
  • 0 like this / 0 don't   •   Posted 7:35 AM, 04/02/2009
    I get an extra $8.70 every pay. Woo-hoo
    — cityslickerktm
  • 0 like this / 0 don't   •   Posted 7:43 AM, 04/02/2009
    We're getting a little more in our paycheck so we can pay a lot more in taxes. Wake up people.
    — FrankRizzo
  • 0 like this / 0 don't   •   Posted 8:33 AM, 04/02/2009
    So let me get this straight. Liberals are admitting that tax cuts in rates work? Thats right, this is the Messiah's tax cut and thus pure in purpose. not like those evil republican tax cuts that were the devbil's own.
    — dutchman
  • 0 like this / 0 don't   •   Posted 9:05 AM, 04/02/2009
    So basically middle class families wont get anything because they make just enough to not be considered rich, but they are not poor, so they deserve nothing. I thought $250,000 was the beginning of rich, not $150,000.
    — whiplash240
  • Comment removed.
  • 0 like this / 0 don't   •   Posted 10:46 AM, 04/02/2009
    dutchman - Liberals have never argued that tax cuts don't have any benefit. What they have argued is that a tax cut for the top 1% of income earners is not beneficial. Democrats fully supported the middle-class portion of the Bush tax cut, and President Obama wishes to make it permanent.
    — Politburo
  • Comment removed.
  • 0 like this / 0 don't   •   Posted 11:02 AM, 04/02/2009
    ...Paying down debt is "spending." That puts more money in your lender's pocket which enables him to lend more money to another consumer who is taking the loan to spend on something.
    — republicrat
  • 0 like this / 0 don't   •   Posted 12:23 PM, 04/04/2009
    Mazza313: Regardless of how the "extra money" is designed to roll out, it does absolutely no good if more than the amount given is being taken away in additional taxes elsewhere. Giving us 10 and charging an extra 20 somewhere else only spirals us into a deeper hole. Look up the list of new taxes being imposed on the state levels and you will see that the "extra money" in your paycheck (+ a few more percent points) is already earmarked for other things. You will see nothing but more money leaving your pocket... Not to Ma & Pa's local deli, but to state funded programs that you may never utilize and ones that will not tweak the economy in any lasting way... if at all.
    — FrankRizzo


11 comments
About Mike Armstrong
Mike Armstrong, a business editor and writer for nearly two decades, is the Inquirer's business columnist and PhillyInc blog editor. Contact Mike via e-mail or at 215-854-2980
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