Obama's new witholding rate

[wnlbutterfly]

It wasn't suppose to take effect until April but some were pushing for March, so a JAN/Dec check isn't going to reflect it.

DH and I are in disagreement about whether the "extra" in your paycheck is going to amount to $400 or $800 per wage earner. The real funny here is that he works for the IRS, I work for a big tax prep office. I have sent in a request for clarification and will let you know. BTW, there is no "easy" answer out there on the internet....that is the one thing I have found with 90% of tax breaks/cuts/changes, they never give ALL the details until tax time and then we have to try and figure it out.

If you are working more than one job, if you and your spouse together jump into a higher tax bracket, keep a VERY close eye on how much you are extra you are getting back because the credit is only good for $800MFJ/$400single, and there is a phase out.

Not looking forward to next tax season, because I know there will be a LOT of people with big changes in their refunds and they won't be happy (and we get yelled at instead of those that caused it).

[Aleta]

So, if I understand what you are saying is that since it is from Jan - Dec , it might be that some if started in April might not even receive their $400. (single) or $800 (family). The new tax tables should reflect what your tax status is and it could be that some would even have a refund if the pay stays the same.

[wnlbutterfly]

I am saying that the change in the withholding rates just came out in April 09 (are is to be in effect). Paystubs from Jan/Feb were with the old withholding rates. Compare Feb with April.

Tax tables and withholding rates tables are different. There isn't any change in the taxes. Withholding rate tables tell employers what to withhold from your paycheck and send to IRS. The charts are broken down by how often you are paid (monthly, bi monthly and so on). And once you get to the right chart (bi-monthly for us). The employer looks at your W-4 which might say you are Married with 2 exemptions. They use that and how much your gross income is and it will give them the amount to withhold. I think many employers have computer programs that does this for them, but it is the same principal.

Let's say everything stays exactly the same for you next tax season, same filing status, ect. You now have gotten $400 more during the year in your paycheck. HOWEVER, there now is a Make Pay Work credit that is on the 1040 for $400. You get that credit, but you already got that money during the year so your refund (or amount due) stays the same as last year.

The problem that could happen, MFJ couple, both with two jobs...each job is giving back $400 during the year. That is $1,600, but the credit is only $800. So they will have gotten $800 MORE than the credit is, so they will either see a reduction in their refund OR they will owe more money to IRS.

In my own situation, I work part time, they don't withhold anything from my checks anyway, so I will not get that $400 during the year extra. Same with anyone that is self-employed. When I file MFJ, get the $800 credit and only $400 has been given to us during the year, so we will see a bigger refund.

I know this is confusing and I hope I didn't add to the confusion. I will be looking at the new withholding rates this weekend at the tax office.

BTW, there are also new changes with Earned Income Credit (give back more money to those that didn't owe taxes), more credit for education (which we will actually benefit from this year), and of course the famous first time home buyers credit/loan.

[tripods68]

Originally Posted by wnlbutterfly

The problem that could happen, MFJ couple, both with two jobs...each job is giving back $400 during the year. That is $1,600, but the credit is only $800. So they will have gotten $800 MORE than the credit is, so they will either see a reduction in their refund OR they will owe more money to IRS.

This is probably the case for us next year. In some way, its better to save it for now. But because we usually get Refund each year, it doesn't affect us too much.

[marvholly]

I just got around to comparing my March check w/ my first April check. I got a WHOPPING $4/week more. Oh. gee. Now I can go out and

do didly squat extra.

A month's worth will not even pay for a pedicure (help keep someone else employed) in my area or a decent (not super) meal out let alone what gas is going to go up to over the summer (as usual). I NEED new gutters. I should replace at least 1 TV. I have not bought ANY clothes or shoes in >2 years.

I KNOW!!! I can afford a fast food meal OR a Starbucks coffee weekly OR a movie ticket every 2.5 weeks.
Gag, Gag, Gag.
BFD

[wnlbutterfly]

I agree, the extra in the paycheck doesn't help really. I have been saying this for years. If they really want to boost the economy, change the withholding tables the other way, withhold MORE taxes, and then at tax time when they get a BIGGER refund, people will go out and spend it on bigger ticket items.

The problem is those that make the decisions don't live like the rest of us. And I know financial experts would say to get more in your paycheck, invest it, then you will have more money than you would at tax time. BUT most people don't invest it, most people don't even notice an extra $20 a paycheck. At least not the people I do taxes for around here.

I have to give credit on one aspect though. When Bush did the rebate check, we (taxpayers) spent a lot of money on processing the checks, mailing the checks, mailing the letters saying you are going to get a check, tying up IRS resources to figure out the rebate. A lot of wasted money that could have been given back to the tax payers. This was a cheaper way to "give" the credit. It just wasn't enough, you figure how much money they wasted in other areas on pork spending, and all they could squeeze out for the tax payers was $400 and $800? WOW!

[noppenbd]

Originally Posted by wnlbutterfly

I agree, the extra in the paycheck doesn't help really. I have been saying this for years. If they really want to boost the economy, change the withholding tables the other way, withhold MORE taxes, and then at tax time when they get a BIGGER refund, people will go out and spend it on bigger ticket items... BUT most people don't invest it, most people don't even notice an extra $20 a paycheck. At least not the people I do taxes for around here.

I think that's kind of the point. The government wants you to fritter away this extra $20. With such a small increase in your paycheck, most people will not bother to save the additional amount. Most people spend until they run out of money, so they will just spend this money rather than sticking it under the mattress as they might do with a large chunk. That extra spending will be a direct boost to the economy.

[kork13]

Originally Posted by noppenbd

I think that's kind of the point. The government wants you to fritter away this extra $20. With such a small increase in your paycheck, most people will not bother to save the additional amount. Most people spend until they run out of money, so they will just spend this money rather than sticking it under the mattress as they might do with a large chunk. That extra spending will be a direct boost to the economy.

It kills me that this is the way the government thinks.... Our leaders based this billion-some dollar 'stimulus' off of the assumption that we (the citizenry) generally live irresponsibly. Way to go. Do a comprehensive survey, and sure, you'll find many who do just that. However, I think the (silent) majority would be people who are mostly responsible, and do not simply spend because there is money to spend. Sure, there aren't tons of the dedicated savers like you'll find here, but most people still only spend what they need to, and save the remainder. It's a way of thinking, a matter of trust in those you represent, and as a leader, making broad policies to cover for the lowest common denominator is never a good way to go. It breeds contempt and complacency. Is that really what our leaders should aim towards for our country? I should hope not.....

(sorry for the minor rant on politics)

[noppenbd]

Originally Posted by kork13

It kills me that this is the way the government thinks.... Our leaders based this billion-some dollar 'stimulus' off of the assumption that we (the citizenry) generally live irresponsibly. Way to go. Do a comprehensive survey, and sure, you'll find many who do just that. However, I think the (silent) majority would be people who are mostly responsible, and do not simply spend because there is money to spend. Sure, there aren't tons of the dedicated savers like you'll find here, but most people still only spend what they need to, and save the remainder. It's a way of thinking, a matter of trust in those you represent, and as a leader, making broad policies to cover for the lowest common denominator is never a good way to go. It breeds contempt and complacency. Is that really what our leaders should aim towards for our country? I should hope not.....

(sorry for the minor rant on politics)

I hear you, but as a practical matter, if they are going to spend the money to stimulate the economy, I would prefer they do it in a way that works. The fact is, when they sent out the big checks in 2008 the majority of people used it to pay down debt or plunk it into savings (I think the figure is around 30% saved it and 40% paid down existing debt with it). So really only 30% of that stimulus stimulated anything. I would bet that the $20 a week is much more likely to be spent than $400 in one big check.

[kork13]

Originally Posted by noppenbd

I would bet that the $20 a week is much more likely to be spent than $400 in one big check.

I do mostly agree with you, but I expect that the impact will be less than hoped/planned for, and far less immediate. I see more people saving that extra money for a number of months to buy something more significant (new shoes, electronics, whatever, or if at all) rather than suddenly going out to buy one extra latte each week.

What I'm trying to say is that most people do know what they can and can't afford, and especially in the current environment, most people aren't just going to rush out to blow extra cash as soon as they get it in their hot little hands.

[disneysteve]

Originally Posted by kork13

I think the (silent) majority would be people who are mostly responsible, and do not simply spend because there is money to spend.

most people still only spend what they need to, and save the remainder

most people do know what they can and can't afford

Sadly, I must disagree with you. Study after study and loads of stats speak against this - the anemic national savings rate, the very low average 401k balance (regardless of age), the high average credit card rate, the tremendous popularity of leasing cars, etc. We live in a society where many people feel that if they can afford the monthly payment, that means they can afford the purchase. For example, I know plenty of people who can't tell you how much they paid for their car. All they can tell you is what their montly payment is.

Unfortunately, we here at Saving Advice represent the minority of Americans IMO.

[wnlbutterfly]

I think the way everyone is feeling right now and the overall pinch the economy is in, that most people still do not feel they can go out and spend, that they do need to be paying on debt and being a little more careful with their spending. I don't think this is going to have an impact at all.

99% of those that I did taxes for couldn't even tell you how much that lump sum stimulus check was for they got last year. Some where even like "what check?". People that their gross income is around $16k a year.

Time will tell.