Paycheck a Bit Lower in 2010?
Posted on 30. Jan, 2010 by Stefani in Tax
You may have noticed that your paychecks are a little lower than they were in 2009. This could be due the the Making Work Pay Credit or, even worse, they’ve lowered your salary or hourly rate and no one’s bothered to inform you of this. Let’s hope it’s the former.
The American Recovery and Reinvestment Act of 2009 (ARRA), which was enacted in February 2009, made provisions for the Making Work Pay Credit that allows working individuals to claim a credit of either 6.2% of earned income or $400, whichever is lesser. Instead of receiving a check or having to wait to claim the credit on your 2009 or 2010 tax return, the withholding tables were adjusted so most of the credit could be distributed through a decrease in income tax withholding. So, yes, this meant that you saw a slight increase in your take-home pay. Now, because ARRA was enacted in February, the withholding tables weren’t adjusted until March, so the credit was spread out over 9 months.
In 2010, the $400 credit is actually spread out over 12 months instead of 9. So a little less credit in each paycheck, you’ve guessed it, means increased income tax withholding. It’ll all add up in the end.
I should note that some individuals, especially those with multiple jobs, should pay close attention to their withholding. Here’s why: If you have multiple employers, each employer will deduct withholding tax from each paycheck as if you were eligible for the credit. Now, if you have 3 employers all using the adjusted tables, they’re essentially withholding taxes from your check as if you were eligible for a $1,200 credit (400 x 3). In which case you may want to complete a new Form W-4 to increased your payroll withholdings so you don’t have any nasty surprises come time to file your 2010 income tax return.
