Reconfigured tax credit means $2.50 take-home cut

1/22/2010

Lisa Jagielski-Bernath admits she doesn't always study her paycheck as thoroughly as she does the paperwork she produces on her job at a Sylvania Township magnetic imaging office.

So she was surprised to learn yesterday that her take-home pay this month - like that of tens of millions of other workers nationwide - took a $2.50-per-week dip after Jan. 1.

It wasn't a new tax that took a nibble out of her paycheck, but a 2009 tax credit and the math involved in keeping it going through 2010, according to the Internal Revenue Service.

The Making Work Pay Credit was passed in 2009 as part of the $785 billion federal stimulus bill. It provided a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns. According to the IRS, the tax credit is calculated at a rate of 6.2 percent of earned income and phases out for taxpayers with a modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing joint returns.

Most taxpayers who collect a paycheck first noticed the tax credit in April, 2009, when the IRS issued new withholding tables to employers. In most instances, the 2009 tables resulted in many people getting about a $10-per-week increase in their take-home pay, said Eric Ericson, a spokesman for the IRS.

But while the credit remains the same for 2010 - $400 for individual and $800 for married couples filing joint returns - the withholding is being spread out over 12 months instead of nine. So instead of an extra $10 a week in taxpayer's take-home pay, it's only $7.50 a week. But that means about $2.50 less in the take-home check than last year, which some might view as a tax increase even though it is not.

"It's been kind of a hot-button issue for the last year," Mr. Ericson said. "It's just a product of the credit being spread out over more months. You're getting the same amount of money, but just over more time."

Anneta Sudlow, president of the Toledo area chapter of the American Payroll Association, said she and others who process company payrolls "have had a lot of people changing their W-4" withholding forms because of the credit. But many people collecting a paycheck just don't pay enough attention to notice.

Contact Larry P. Vellequette at:

lvellequette@theblade.com

or 419-724-6091.