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ATTENTION - PAYROLL CHANGES
The Making Work Pay Credit
April 2, 2009
The Making Work Pay Credit
April 2, 2009
The IRS has issued updated withholding tables to help you implement the withholding adjustments required by the new economic stimulus law. All paychecks issued on or after April 1, 2009 must reflect the updated tax tables; some March paychecks may have already used the updated tables. Employees should be advised that it is their responsibility to have the correct withholding and that a new W-4 might be in order, especially if they are part of a two income family or if they have income other than wages. There are certain cases that may cause an underpayment of withholding by year-end.
More details about the Making Work Pay credit are available in Publication 15-T, New Wage Withholding and Advance Earned Income Credit Payment Tables (For Wages Paid Through 2009.)
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 employers through automated withholding changes. 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 income 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 on the combined income. Publication 919 provides additional guidance for tax withholding.
Be certain that you are using the updated tax tables for your payroll software in order to comply with the provisions of the Making Work Pay Tax Credit.
If you have questions, please contact your tax advisor.
COBRA CHANGES
COBRA is now available for employees who were involuntarily terminated, and who were covered under a group health insurance plan subject to COBRA, between September 1, 2008 and December 31, 2009. Eligible employees will have to pay only 35% of the premiums. Employers will pay the remaining balance, but will receive credit on Form 941. For more information, please contact your tax advisor or visit www.irs.gov.
COBRA is now available for employees who were involuntarily terminated, and who were covered under a group health insurance plan subject to COBRA, between September 1, 2008 and December 31, 2009. Eligible employees will have to pay only 35% of the premiums. Employers will pay the remaining balance, but will receive credit on Form 941. For more information, please contact your tax advisor or visit www.irs.gov.
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