Obama's new witholding rate

[tripods68]

So I got my paystub today and I noticed net pay went up $66.67 for March (times 12 = $800 a year). I wonder if anyone here see the difference with Obama's new withholding rate which we all know is part of the bailout stimulus package. What do you plan to do with it? Save or spend...ummm


I decided to save it for next year. I'm looking to buy a new imac laptop next year anyway so might as well start now

[Aleta]

I'm going to set it to the side in its own account until the end of the 2009 tax season to make sure that I won't have to pay part of it back. This isn't a freebee as people think. If at the end you make more money, you will have to pay more in taxes.

Meanwhile, it's better in my savings account earning interest rather than in the hands of the government spending money like drunk sailors.

[disneysteve]

Right now, I don't intend to change anything in our savings plan. That said, when a surplus accumulates in our checking account, I typically transfer that to savings above and beyond our usual savings. If this tax change results in a surplus building up quicker, it will end up boosting savings.

[EEinNJ]

I'm going to increase my 401K contribution. Otherwise this time next year Uncle Sam will be taking it back. Though in general I agree with stimulus efforts, I find it ironic they are calling this witholding change "Making Work Pay"

[noppenbd]

I think there is some misunderstanding about this credit. The Making Work Pay credit is going to appear on the 2009 tax forms, just like any other credit. So if you are single making under $75000 you are going to owe $400 less for your 2009 taxes (married making under $150K will owe $800 less). If your employer makes the adjustment to withhold $400 less throughout the year, then the MWP credit will have no effect on your bottom line 2009 tax liability. You will not have to pay any federal tax on the extra money you are getting in your paycheck, because it is actually less federal withholding.

If you are married and your combined income is over $150K, but one spouse makes less than $75K, it is possible you may be in the phaseout range, in which case the adjustment may cause you to underwithhold for the year. But for most people the MWP credit is not going to affect your 2009 taxes in a material way, and should not have to be "repaid".

[ceejay74]

Thanks noppenbd, I was getting a little confused reading the other responses. Your take on it is what I've heard up to now.

[MonkeyMama]

I'm putting it in my ROTH. It's just enough to max out for this year. (I was just going to put in $4200 otherwise).

[Aleta]

I thank some of those who have given more information about this plan. Someone earler in a post had said that their accountant had warned them about this plan and that it could be taxed. I didn't mean to confuse anyone with my answer. I just meant until I knew for sure that I would set it to the side. I have a very good accountant that I know will advise me. I always err on the side of not spending something until I know the details.

[kork13]

Originally Posted by disneysteve

Right now, I don't intend to change anything in our savings plan. That said, when a surplus accumulates in our checking account, I typically transfer that to savings above and beyond our usual savings. If this tax change results in a surplus building up quicker, it will end up boosting savings.

I suppose I'm fairly similar to this.... I'm not changing anything, so if the extra money builds up in my checking account, i'll eventually just move the excess to some other account. I'm not worrying too much about this 'stimulus' deal, I'm just going to continue the way I'm going. It's too much trouble otherwise.

[Snodog]

If this keeps up I will soon be able to eat again.

[mommyof4]

I'm putting mine in my IRA.

[creditcardfree]

The extra is going to home equity loan payoff.

[m3racer]

I'm using mine to pay off my student loans. Oh wait, I didn't get one. Hey wait a second! I just noticed they're going to take more from my paycheck so that others can "stimulate" the economy. I need to quickly find my tube of lube courtesy of Obama & friends.

[MonkeyMama]

Originally Posted by Aleta

I thank some of those who have given more information about this plan. Someone earler in a post had said that their accountant had warned them about this plan and that it could be taxed. I didn't mean to confuse anyone with my answer. I just meant until I knew for sure that I would set it to the side. I have a very good accountant that I know will advise me. I always err on the side of not spending something until I know the details.

& you bring up a good point. Paying back a tax credit through withholding is extremely inefficient. It's *easy*, but but too many people will be underpaid or overpaid. There are many cases where dual-income families will get back more than they are entitled - and will need to pay it back next April 15th. The reason is withholding/payroll software does not take into consideration if your spouse works and is receiving $800 too. Nor does it know if a second income pushes over the limit for even qualifying.

Since most people over-withhold anyway, probably means smaller refunds for many next year. Which I think will backfire a bit. So much for stimulating the economy if people don't get their beloved tax refunds.

The single people have less to worry about.

[wnlbutterfly]

And that math is wrong. It is $400 for single and $800 for married. That means you should be seeing $400 more in your paycheck and your spouse should see $400 in their paycheck. And it isn't divided by 12 even if you only get paid once a month because they knew the credit wasn't going to start until April. That is why you will see a change next year (they won't take out as much because it is divided up over the full year). I thought the estimates were $13 this year and $8 next year, but not 100% sure on that.

But if you say "I have Married on my W-4", that shouldn't matter because if they gave $800 to each person that was married you would be seeing $1,600 more back during the year and the credit is only going to be $800 and you WILL owe that money (unless you were already getting a refund and then it would be less).

I am not trying to split hairs here, I just don't want to see people thinking they should be seeing $66.67 more in each paycheck. If that happens you need to be double checking your withholdings and try to estimate if they are taking out enough.

[glock35ipsc]

Originally Posted by MonkeyMama

& you bring up a good point. Paying back a tax credit through withholding is extremely inefficient. It's *easy*, but but too many people will be underpaid or overpaid. There are many cases where dual-income families will get back more than they are entitled - and will need to pay it back next April 15th. The reason is withholding/payroll software does not take into consideration if your spouse works and is receiving $800 too. Nor does it know if a second income pushes over the limit for even qualifying.

Since most people over-withhold anyway, probably means smaller refunds for many next year. Which I think will backfire a bit. So much for stimulating the economy if people don't get their beloved tax refunds.

The single people have less to worry about.

That's pretty much what my CPA said too. Her concern is that people that will likely make the same amount of money will have the same tax liability, but are now having LESS federal tax withheld. So many people that are just barely getting a refund will likely owe next year.

That being said, we are putting it aside until tax time rolls around next year, since we both work, we will likely owe half of what we got.

[mom-from-missouri]

OK. I just compared my DH last 3 paychecks (he gets paid weekly) with ones he received in December 08 & early January 09 and there is no change.
What am I missing?? Same amount of hours worked, same rate of pay, same deductions taken out, bottom dollar deposited to his checking and savings accounts are the same.
Is there something he needs to do on his end?
He is the only one getting a "regular" paycheck. I only get one when I sub and cash for the babysitting I do, and then I pay my own taxes...

[Snave]

Originally Posted by MonkeyMama

I'm putting it in my ROTH. It's just enough to max out for this year. (I was just going to put in $4200 otherwise).

Probably the best thing to do with it. Otherwise you will get slaughtered with taxes in years to come to pay off the debt we are accumulating.

[FrugalIII]

The problem I have is I get paid by two sources. The first, my pension, the second my current employer. Separately, they are each under the $75k. Together they are over $100k. So, it seems to me that since my tax liability on each of them separately is less, but when I add them together at the end of the year, I will have to repay most of what the government gave me. All this means more taxes to me, I believe. Because of this situation, I already have an extra $300 a month taken out in federal taxes and I still have to pay between $1500 and $2k at the end of each year. Throughout the year I claim single/0. No matter how you look at it, I get screwed. Now it will be worse.

[Aleta]

FrudalIII: Just keep this to the side until the tax year rolls around and you will have the money to pay whatever you need to back. Meanwhile, it's in your account earning interest rather than in the coffers of the government.