For 2009, there is a new stimulus credit available, the Making Work Pay Credit. Most workers are supposed to get their stimulus money a little at a time. A small part of the stimulus should be coming with every paycheck, and will do so this year (2009) and next. The stimulus payment is an advance of the Making Work Pay Credit. This credit is the lesser of 6.2% of earned income (FICA tax) or $400 for single filers ($800 for joint filers). The credit will be reconciled at the filing of the tax return. You will receive the credit, based on your income, as a reduction in withholdings, thereby leaving you a little extra in each paycheck. The credit will begin to lose its benefit when Modified Adjusted Gross Income plus excluded foreign income exceeds $75,000 ($150,000 for joint filers) and is completely phased-out with MAGI of $95,000 ($195,000 for joint returns) or more. Dependents, nonresident aliens, estates and trusts are not eligible to receive this credit.

Not to be left out, most individuals eligible for social security benefits, veteran’s benefits, railroad retirement, SSI, and certain federal government retirement benefits should have already received a special one-time Economic Recovery Payment or a Government Retiree Credit of $250. These $250 payments should have been sent by the relevant payor, not the IRS.

In order to get the stimulus money circulated, the tax withholding tables were adjusted after the signing of the tax bill on February 17, 2009. These withholding tables are used by anyone required to withhold taxes. Therein lies one of the problems created by this gradual payment method. Withholding from pensions was also initially reduced by the use of these tables. This could cause a shortage of withholding when filing the 2009 tax return since taxpayers receiving Social Security benefits are generally not eligible for the stimulus credit; their version came in the form of the advance payment of $250. Therefore, the reduced pension withholding could decrease the refund or cause a balance due. Later in 2009, the IRS released special tables for pension plans to restore the withholding to its earlier amount. However any shortfall in withholding for those receiving pensions will depend on how long the payor of the pension used the reduced table.

For wage earners eligible for the Making Work Pay Credit, a different set of problems can exist. If you are single and have more than one job, the reduced withholding will affect both incomes. This may result in a reduction in withholding which is twice the amount used to offset the credit. This same doubling effect can happen for a married couple. If both husband and wife are claiming exemptions based on the married status, the withholding of each person should be reduced to produce the credit for married couples of $800. If both husband and wife have reduced withholding of $800 for a total of $1,600 and the credit is $800, the couple could have a balance due increase of $800 or a reduction in their refund of $800.

As an example: Under the original withholding tables for 2009, a single individual with a biweekly salary of $1,200, claiming zero exemptions would have $151 withheld. The new tables for the same wage would result in withholding of $134. This would be a reduction of $17 per pay period.