Putting more cash into paychecks can challenge employers

Married? Working two jobs? The new federal tax credit, born out of the stimulus package and coming your way any week now, might be more trouble than it's worth.
The Making Work Pay tax cut, which accounts for $116 billion of the overall $787 billion stimulus package, will not come in one bulk payment, as past tax rebates have, but over time. Employers are responsible for reducing the amount of federal tax they withhold from employees' paycheck each pay period, meaning most paychecks will grow by about $10 or $15 a week, starting on April 1 for most workers.
The Internal Revenue Service delivered its new tax withholding tables to employers and payroll companies last month, directing the companies how much to withhold, and for whom. But installation of the new guidelines wasn't easy.
"It's busier than usual," said Dave Lewis, chief operating officer of Pittsburgh-based Payroll Solutions. Usually, the IRS delivers its annual withholding guidelines in the fall, to be in place by Jan. 1. But for the stimulus rebates, the new tables had to be in place "within weeks, instead of months," Lewis said. "We had to change payroll systems and tax forms, and get it out to our clients."
Implementation of the rebates won't be seamless, either. Generally, individuals will be seeing an extra $400 this year, unless they make more than $75,000 or less than $6,451. And couples can get up to $800.
Sounds simple enough.
But if you're single and have two jobs, it's possible that both employers will reduce your withholding, meaning you'll essentially get $800 in tax refunds through the rest of 2009, instead of $400, the limit for most individuals. You don't get to keep it, though -- you'd owe it back to the federal government.
Your marital status also could complicate things. The rebate maximum is $400 for the year if you're single, but if your employer knows that you are married, it can reduce withholding by up to $600 for the year -- even though the maximum tax credit for a married couple filing jointly is $800.
So if both you and your spouse have an extra $600 put into your paychecks this year, that's a total of $1,200, or $400 more than the $800 limit. You'd owe it back on next year's tax filing, reducing your 2010 refund. And if you or your spouse works two jobs, your 2010 refund might be reduced by even more.
Married couples are not eligible for the tax credit if they make more than $190,000. But if one spouse makes $150,000, and the other $40,000, the one making less would get the weekly refund -- then have to pay it back next year.
On the other hand, if you're married, but your spouse doesn't work, you could find an extra $200 or $400 in your 2010 refund, since as a couple you'd be eligible for a larger rebate ($800) than you were given.
"They never make these things easy," said Paul Rudoy, managing partner with Horovitz, Rudoy and Roteman, a Pittsburgh accounting firm. Another potential issue -- smaller employers might simply overlook the adjustment because they've failed to consult the updated version of the Circular E, which is the tax guide employers use when calculating how much to withhold from employees.

(Bill Toland can be reached at btoland(at)post-gazette.com.)

(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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