The good news about the Making Work Pay credit, a key provision of the just-enacted stimulus bill, is that it will be showing up in paychecks sooner that most of us expected.
As I noted earlier, the IRS knew delivery of the credit money was going to be via paychecks well before it passed. That gave the agency a head start in getting the distribution method ready so that the money would be in taxpayer hands quickly.
In an announcement posted at the agency's Web site today (yes, on a Saturday), the IRS notes that the new withholding tables that will result in more take-home pay for workers are ready. Today. Now.
"For most taxpayers, the additional credit will automatically start showing up in their paychecks this spring," said IRS Commissioner Doug Shulman. "Since employers and payroll companies will handle this change, people typically won’t need to take any additional action. The IRS will continue working to implement this and other provisions of the new law as quickly as possible."
Earlier, smaller payout: The withholding tables adjustment comes months before the previously projected June implementation of the credit payouts in paychecks.
But that also leads us to a bit of bad news.
Since the credit will start appearing earlier, the amount per pay period will be less than the $13 a week talked about immediately after the American Recovery and Reinvestment Act of 2009 became law.
That $13 per 2009 paycheck was based on 31 weeks left in the year if the new withholding took effect, as originally expected, on June 1. $400 divided by 31 comes to $12.90 -- a payout that would make sure that eligible workers got the maximum $400 credit this year.
Now, however, the $400 credit will be spread out over more months, meaning you'll see just a little bit more in your pay envelope sooner. And the operative phrase is "a little bit."
Now $10 vs. $13: If your boss gets the new tables in place for your paycheck issued on Friday, April 3, then you'll receive around $10.25 more.
Some people aren't too thrilled with this tax credit delivery method. They've been spoiled by previous tax breaks that were distributed as separate checks.
Well, sorry Big Spender, but that's exactly what Washington, D.C., wants you to do with that money.
When the last round of rebates went out in 2008, many folks paid off bills and otherwise used the lump sum to cover necessities, such as utilities and groceries.
A few were able to save at least some of the extra cash.
Stimulus, smimulus: Good for them, but as you can see from the current dismal fiscal data, those rebates didn't do squat to stimulate our economy.
So lawmakers are hoping that seeing more in paychecks, even just a few dollars more, will make people feel like things aren't so terrible and that they might can spend at least some of their hard-earned money.
To be honest, I'm not sure it will work. But neither did the rebates, and they cost us millions to distribute. At least we won't have that needless expense to pile onto our ever-growing federal deficit.
Employer, employee tips: If you're an employer, the IRS says the new withholding tables, along with other instructions related to the new tax law, will be incorporated in new Publication 15-T. The IRS will post the updated publication on its Web site next week. It also will mail the document to more than 9 million employers in mid-March.
The IRS asks that employers start using these new tables as soon as possible, but not later than April 1. Most workers will see a boost in their take-home pay soon thereafter.
If you're an employee, you don't have to do anything but wait for the change to show up in your paycheck. Don't worry about filing out a new W-4 withholding form.
And if you're making a good salary, you might not see any change or only a very minimal one.
The Making Work Pay credit is phased out for a married couple filing a joint return who have modified adjusted gross income between $150,000 and $190,000. Single (including head of household and married fling separately) taxpayers will see the credit reduced if their modified AGI is between $75,000 and $95,000.