YOUR MONEY


What You Need to Know About the Stimulus

Four key provisions of the massive stimulus package will put money directly into Americans' pockets: the Making Work Pay tax credit, a supercharged first-home buyers credit, a $25-a-week increase in unemployment benefits and a valuable subsidy for workers who lost their health insurance when they lost their jobs.

But the key question is WHEN you'll start seeing the money? Although many details are still up in the air, we can fill in the blanks.

RELATED LINKS
What the Stimulus Means for You
How Will I Get My Stimulus Money?
How the Stimulus Will Help Laid-Off Workers


Making Work Pay tax credit

This is the heart of the put-money-in-peoples'-pocket plan. The credit is worth $400 for a single taxpayer or $800 for a married couple who files a joint return (whether one or both of the spouses work). Yes, that's less than last year's rebates, which were worth $600 for singles, $1,200 for married couples, plus $300 for each dependent child younger than 17.

And, unlike last year's stimulus -- which was delivered via direct deposit to bank accounts or checks in the mail -- this year's "grease" for the economy will come in dribs and drabs through slightly higher paychecks for the rest of the year. The IRS produced revised tax withholding tables in record time, and employers are now scrambling to get new numbers built into their payroll systems. Once that is accomplished, workers will automatically enjoy higher take-home pay. You don’t have to do anything to get your money.

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Some lucky workers will see extra cash in their paychecks in March; almost everyone should enjoy higher take-home pay by April. We say "almost" everyone because both the credit and the reduced withholding to reflect it phase out at higher-income levels. The credit disappears as 2009 adjusted gross income (that’s basically taxable income before subtracting exemptions for yourself and your dependents and before subtracting your standard or itemized deductions) rises between $75,000 and $95,000 on a single return or between $150,000 and $190,000 on a joint return.

When you file your tax return next spring, you'll claim a credit worth 6.2% of pay up to a maximum of $400 for singles or $800 for married workers. The idea is that reduced withholding now will jibe with reduced tax liability then, thanks to the credit.

How much you’ll get

Although married workers get a credit twice the size of singles, they won't enjoy twice the increase in take-home pay. Here's why: The government decided to cram the full $400 credit amount for singles into reduced withholding during the last nine months of the year -- about $45 a month. But it skimped on reduced withholding for married workers. Rather than deliver the full $800 credit value during the rest of this year, tax withholding will be cut by just $600 -- or about $65 a month. You'll get the the other $200 when you file your return next year.

Now, if both husband and wife work -- or if you work more than one job -- you'll enjoy that $65 boost in take-home pay from each employer. If a couples' withholding drops by more than $800 during the year, the reduction will be more than the value of the credit. That will result in a smaller refund or a bigger tax bill when the couple file their 2009 return next spring. It was concern about under-withholding that led the government to restrict the benefit for married couples to $600 for the rest of 2009. You can file a new W-4 form with your employer so that additional tax will be withheld from your checks.

Self-employed workers. The self-employed aren't subject to tax withholding, so there's no way to ratchet back withholding to pump up paychecks. But you're not out of luck. You can reduce your quarterly estimated tax payments (the first one is due April 15) by $100 each quarter if you're single or $200 each quarter if you're married. You do that when you file your 1040-ES forms during the year. Claiming the credit next spring will bring your tax bill down in line with your reduced payments.

Retirees. In the first version of the stimulus bill, retirees were left out in the cold; only folks who were still working qualified for the Making Work Pay credit. But by the time President Obama signed the legislation into law, Congress added a one-time $250 payment for pensioners. The money (electronic deposits to those who get their benefits direct deposited and checks to the rest) will go to recipients of Social Security and Railroad Retirement benefits, Supplemental Security Income and veterans pensions. Retired government employees who don't receive Social Security will also get $250. If you're married and file a joint return and both husband and wife qualify, you'll get $500.

What if one spouse is retired and the other still is working? The worker will enjoy $800 in reduced withholding, and the retiree will get the $250 payment ... but the couple's credit next year will be just $550. Effectively you'll wind up paying back $250 delivered by lower withholding via a higher tax bill or reduced refund in the spring of 2010.

These payments will likely go out starting in May. The law says they must be made by June 17.


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