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Money Girl
127 MG Making Work Pay Confusion Could Cost You
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Here's a question I received from Amy and Cincinnati. Hi, Laura. My company's payroll service recently, as they were supposed to, changed the withholding tables to accommodate the slow dribble of stimulus money into my paycheck. The change put about $15 into my take home pay per week in accordance with the President's stimulus bill. My husband also works and has seen the same thing happen to his paycheck. If I understand the situation correctly, we would be entitled to $800 total between us. We don't make enough money to have the stimulus money phase out and we only have one job each. My question is that at a rate of $30 per week, we would hit $800 in about 26 weeks. Since the money started to come our way the beginning of April, should I expect the stimulus money in my paycheck to stop sometime in September? Put another way, should I expect that my company's payroll service would put the old tables back in service at that time? Thanks for your email, Amy. I think you summed up the concern nicely. As most of you know, millions of Americans have seen a small increase in their paychecks due to the making work pay tax credit that went into effect earlier this year. If you're not familiar with this tax benefit, be sure to listen to Show 116, where I explain it in more detail. But what Amy said is correct, single-tax payers are eligible for a credit up to $400 and married couples filing jointly can get up to $800. However, if you make too much money, your benefit will be phased out, meaning you don't get the full benefit. And you're not eligible for the credit at all if you're an individual making more than $95,000 or a couple earning more than $190,000. The reason why spokes like Amy are scratching their heads is because they've done the math and it just doesn't add up. Most employees started getting the extra stimulus money at the beginning of April. From April 1st through December 31st, there are 39 weeks in the year. If you multiply the extra you're receiving each week by the 39 weeks that you'll receive it in 2009, it may be more than your allowable limit. At first, that may seem fantastic until the disappointing reality sinks in that dear old Uncle Sam will want his money back. So the answers to Amy's questions are no. The stimulus money will not stop sometime in September. The faucet for the slow dribble, as Amy so aptly put it, won't be turned off until the end of the year because that's how long the new withholding tables must be used by employers. You may be wondering, is this a cruel joke the government is playing on us to dish out extra money now? Only to ask for it back later? Unfortunately, in many cases, this is exactly what's going to happen and most people aren't aware of it. But that's why you listen to the Money Girl podcast, right? I'll tell you how to prevent an unexpected tax liability that could be a real downer. Here's the deal. The new IRS tax withholding tables could cause millions of taxpayers to be overpaid by hundreds of dollars. Some people are more at risk for this reversal of fortune than others. I'll explain two scenarios that might cause you to have two little taxes withheld. Be aware that these aren't the only instances where overpayment can occur. You're probably at risk if you're married, just like Amy and both of you work, and if you're single and have more than one job. A key reason people in these situations may end up having two little taxes withheld from their income is that each employer is like an island. They operate independently and must adhere to the new payroll withholding tables regardless of other employers. Each one will assume that they're responsible for giving you the full tax credit amount unless you inform them otherwise. Now let's talk about these two scenarios. If you're married filing jointly, your employer will use a withholding calculation designed to give you $800. But your spouse's employer will do the same thing. The employer won't know that both spouses are working and therefore, as a couple, you can easily be double-paid. September is a great month for planning. We start thinking about the rest of the year, whether it's back to school, big year-end work projects, holiday plans or travel. Planning ahead is crucial in life, especially when it comes to what happens when you're gone. Getting life insurance may sound daunting, but policy genius makes the process a breeze. With policy genius, you can find insurance policies that start at just $292 a year for a million dollars of coverage. Some options offer same-day approval and avoid unnecessary medical exams. Policy genius's technology lets you compare quotes from America's top insurers in just a few clicks to find your lowest price. It's the country's leading online insurance marketplace. And if you ever need help or guidance, they have an expert licensed support team to answer your questions, handle all the paperwork, and advocate for you throughout the process. It's never too late to plan ahead. Go to policygenius.com or click the link in the description to get your free life insurance quotes and see how much you can save. That's policygenius.com. H5N1 bird flu is spreading in poultry and cows. It's rare in people, but bird flu can make you sick. If you work with poultry, dairy cows, wild animals, or with raw unpasteurized milk, wear protective gear like coveralls, NIOSH-approved respirators, and eye protection. And wash your hands often. If you start feeling sick, seek medical care and tell them you work with animals. Learn how to reduce your risk at cdc.gov/birdflu. A message from CDC. At Credit Union of Colorado, banking doesn't have to be like this. Big national banker here, just saying we like to apologize to you for that thing we did. Was it selling your information, canceling your personal loan? Who can say that's for the lawyers to figure out. So just know, it's not going to happen again. Until it does, again. At Credit Union of Colorado, we have better interest rates and seamless mobile banking, all while having a heart. Credit Union of Colorado. Honestly, good. Learn more at honestlygood.org, federally insured by NCUA. The IRS caught on to this major glitch and made an update to the withholding tables to try to correct this situation for married people. But the result is that each spouse may still end up with about $600 for a combined total of $1,200. That's an overpayment of $400. Take Amy's situation, she and her husband are receiving an extra $15 a week. Multiply that times the 39 weeks from April through December, and that totals $1,170. So unless Amy changes her withholding, she and her husband will receive approximately $370 in excess of their allowable limit. Are you still with me? Let's talk about the second situation I mentioned, you're single and have more than one job. Your payroll from each employer is treated as if it's your only income. So each employer will give you an extra $400 by the end of the year. Because you have multiple jobs, you'll get multiple tax credits. Because the credit is received slowly over time, overpaid taxpayers may find themselves in a predicament. They could have already spent the excess money on lattes and dinners out each week. After all, that was the purpose of doling out the tax credit incrementally to make it easy for people to stimulate the economy. However, one light at the end of the tunnel is that if you usually receive a tax refund, too little withholding may simply result in a smaller than expected refund next year. But if you don't get a refund or get a very small one, you're more in danger of finding yourself with an unwelcome tax bill next April. Don't blame your employer for this mix-up, they're simply following the new tax laws. If you want to make sure that you won't have to come out of pocket for taxes next year, my advice is to check your federal withholding as soon as possible. If you don't have a copy of your current W4 that's on file with your employer, ask for a copy. Then use the online IRS withholding calculator to check your situation. If you need to make adjustments, complete a new W4 and turn it into your employer. You'll find links to the withholding calculator, the W4 form, and more in the show transcript at moneygirl.quickanddirtytips.com. If you choose not to make necessary withholding adjustments now, be sure not to spend all your slow dribble. You may need it in April. If you're enjoying the podcast but haven't yet subscribed in iTunes, what are you waiting for? iTunes subscriptions are free and the most convenient way to get each new show as soon as it's released. And while you're in iTunes, I'd really appreciate it if you post a quick review of the show. I'm glad you're listening. Shaqing. That's all for now. Courtesy of Money Girl, your guide to a richer life. H5N1 bird flu is spreading in poultry and cows. It's rare in people but bird flu can make you sick. If you work with poultry, dairy cows, wild animals, or with raw unpasteurized milk, wear protective gear like coveralls, NIOSH approved respirators, and eye protection. And wash your hands often. If you start feeling sick, seek medical care and tell them you work with animals. Learn how to reduce your risk at cdc.gov/birdflu. A message from CDC. Earning your degree online doesn't mean you have to go about it alone. At Capella University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals, to academic coaches who can help you form a plan to stay on track. We care about your success and are dedicated to helping you pursue your goals. Going back to school is a big step, but having support at every step of your academic journey can make a big difference. Imagine your future differently at Capella.edu. [BLANK_AUDIO]