Finally, Work Made to Pay

March 16, 2009

At the Tax Foundation we wrestle with big ideas about economics, taxation, and public policy, and at times it can seem a bit abstract and academic. But this morning tax policy felt very personal.

The reason is that when I took a look at my pay stub I was pleasantly surprised to see a slightly higher-than-usual dollar amount listed under “Total Net Direct Deposit.” At first I thought it was a mistake, and then I wondered if I had received a tiny raise. But after a few moments of confusion I realized what was going on. It was the Making Work Pay credit! I excitedly flipped over my pay stub and looked at my tax withholding, and sure enough my income tax withholding had been decreased by $18.88. This amount represents a portion of the $400 Making Work Pay credit which was included in the recent economic stimulus bill. The credit is designed to be evenly split up and added to my paychecks over the rest of 2009 in the form of a modest reduction in income tax withholding.

As we have written before, the Making Work Pay credit is a refundable tax credit for which most wage earners will qualify (unless you make over $75,000 or $150,000 if married). It is worth $400 for individuals and $800 for married couples. The IRS is requiring employers to change withholding no later than April 1. Keep your eyes on your paychecks, the credit should be showing up soon.

Now I must go contemplate the most effective way to stimulate the economy with my $19.

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