Extra pay on your check may have to be repaid
If you're like most American workers, you're seeing a little more in your paycheck beginning this month, thanks to a new federal tax credit.
Not all of you will get to keep the extra money.
Some workers will need to give all or part of the additional take-home pay to Uncle Sam in the form of a smaller refund or a higher tax bill next year, the Internal Revenue Service warns.
Among those most likely to be affected are individual taxpayers with more than one job or couples where both spouses work.
If you fall into either category, "You really should look at your W-4 and see if you should adjust it," said Will Wright, a partner with the Eide Bailly financial services firm in Fargo.
A W-4 is the form you fill out when you're hired to make sure the right amount of federal income tax is withheld from your paycheck.
A little background:
The new federal Making Work Pay credit allows taxpayers to pocket up to $400 per person per year.
Unlike last year's economic stimulus payment, taxpayers aren't getting a check from the IRS.
Instead, the new credit changed federal withholding tables to give taxpayers a little more take-home pay each month.
Employers generally began using the updated tables earlier this month.
The employers of most people who receive a paycheck handled the credit through automated withholding changes, the IRS said.
However, some taxpayers are having more money withheld than the credit entitles them to, the IRS said.
By adjusting their W-4s now, those affected can avoid the tax consequences next year, Wright said.
According to the IRS:
* The credit, available for tax years 2009 and 2010, is 6.2 percent of a taxpayer's earned income for a maximum credit of $800 for joint filers and $400 for other taxpayers.
* Most workers will qualify for the maximum credit.
* Many higher-income taxpayers will see little or no change in their take-home pay. The credit is phased out for a married couple filing a joint return and earning $150,000 to $190,000, and other taxpayers earning $75,000 to $95,000.
Carrie Resch, an IRS spokeswoman in Minneapolis, suggested taxpayers check out the IRS Web site to see if and how they're affected by the credit.
The site includes a withholding calculator that can work through each taxpayer's specific situation.
The site also includes IRS Publication 919, which has more information on tax withholding.