As a part of the stimulus package, in February 2009 new withholding tax tables were released, recognizing a $400 credit for each worker over the balance of the year. A similar provision is built into the 2010 tables.

The credit was designed to offset some of the Social Security tax withheld, to get more disposable income to Americans quickly. While most workers benefited from this additional net amount in their paycheck, some may find that they won’t qualify for the offsetting credit when they prepare their 2009 or 2010 tax returns. Likely victims are individuals with more than $75,000 of modified adjusted gross income (MAGI) and joint filers with more than $150,000 MAGI. Others who may be disappointed are individuals who are claimed as a dependent by someone else, government retirees and workers who receive Social Security or disability benefits as a veteran. Those recipients received a $250 benefit, so are only eligible for an additional $150 credit as an employee.

For those who are self employed, the same $400 credit is available. In all cases, the available credit is computed on a new Schedule M included in the 2009 or 2010 tax return. If it’s expected that the credit will be limited or insufficient withholding is likely in a particular set of circumstances, the IRS recommends that the W-4 be modified to cover that shortfall.

For questions regarding this credit, give us a call at 396-5400 or email us at office@CPAsite.com.

Filed under: Tax by Mark Patrick