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Money Girl
116 MG "Making Work Pay" Tax Credit
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Hello, and welcome back to Money Girl's Quick and Dirty Tips for a richer life. I'm your host, Laura Adams. I'm excited that the podcast had its 2 millionth download in February, and even got some recent buzz on local radio stations and the evening news in the central Florida area where I live. Find the interview video at moneygirl.quickanddirtytips.com. You may be surprised to see where I actually record the show. This episode is about tax relief that's coming soon for the majority of working Americans and their families. If you haven't heard, the government is about to give you a raise. Yes, there's a new tax credit on the horizon that's going to mean more take-home pay for many Americans. Instead of issuing one single stimulus payment check, Uncle Sam is going to, quote, "make work pay." No, this isn't retribution for the promotion you deserve but never got. It's how your paycheck is going to give you some extra money. Tax credit is typically going to be shelled out through payroll checks, starting no later than April 1. The benefit will be spread out over the remaining months of 2009. If you don't have taxes withheld by an employer, you can also claim the credit on your 2009 tax return. The credit is refundable, which means you get to take it even if you don't own income tax. This tax relief is part of the massive American Recovery and Reinvestment Act that became law earlier this year. It provides up to $400 for individual working taxpayers and 800 for married couples who file jointly. Be aware that the credit is phased out or reduced for individuals who have an adjusted gross income between $75,000 and $95,000. The phase out for joint filers occurs when adjusted income is between $150,000 and $190,000. So if you earn more than $95,000 as an individual or $190,000 as a couple who files jointly, you won't qualify for the credit. You don't need to complete any paperwork to trigger this payroll withholding change. The IRS has issued new withholding tables for employers to use right away to figure the reduced amount of taxes that should be deducted from gross pay. However, you will need to claim the credit amount that you receive on your 2009 tax return. That's due in April of 2010. And as I mentioned, if you don't have taxes withheld by an employer this year, you can claim the full credit on your 2009 tax return. Most of the people that I've talked to about this tax credit seem disappointed that it won't come in one fat check. Doling out $400 in small increments from April 1st through the end of the year means a little over $10 a week in additional income, not a lifestyle changing amount for sure. But the idea is that giving it out in small increments through reduced withholding will encourage taxpayers to spend it and therefore stimulate the economy. Behavioral economists know that when many of us receive a lump sum check, we don't spend it. We tend to see larger amounts as found money that provides us an opportunity to boost our savings or to pay down credit cards or other debt. But here's a tip if you're determined to save those extra dollars. Put them in your retirement account. If you're eligible to contribute to a workplace 401(k), simply increase your contribution by $10 a week. 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. 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That's real life ready. Terms apply. Learn more at Wells Fargo dot com slash active cash. My dad works in B2B marketing. He came by my school for career day and said he was a big row as man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laugh at me to this day. Not everyone gets B2B. But with LinkedIn, you'll be able to reach people who do. Get a $100 credit on your next ad campaign. Go to LinkedIn dot com slash results to claim your credit. That's LinkedIn dot com slash results. Terms and conditions apply. LinkedIn, the place to be, to be. If you're eligible for a 401k but aren't participating, get started, especially if there's employer matching. And if you don't have a 401k but do have earned income, it's a great time to open an individual retirement arrangement or IRA. Online brokerages such as etrade.com offer plans with no account minimums or annual fees when you sign up for e statements. They give you access to stocks, bonds, exchange traded funds, and thousands of mutual funds. Just $10 a week deposited in a retirement account instead of in your regular spending account can make a big difference in your savings over the years. For much more information on planning and saving for retirement, check out Money Girl's Guide to Retirement Planning, my newly released audiobook that's on sale at audible.com and in the iTunes store. Another tip I have about this tax credit is don't get too much of it. If you have two jobs, for example, make sure they aren't both calculating $400 and reduced withholding for you. If you have too little withheld, guess what? You'll have to turn around and pay the excess back to the government at tax time. High earners could also find themselves having to give the money back if they take the credit, but their annual adjusted income is too high to qualify for it. You can always submit a revised W4 if you're concerned about having too little taxes withheld from your pay. I'll include a link to IRS Publication 919, which gives complete information about tax withholding. You'll find even more resource links in the show transcript at moneygirl.quickanddirtytips.com. If you recently left me a voicemail, I'm sorry to say that it got cut off at the very beginning and I didn't get to hear your entire message. I don't want to miss your question or comment, so please send it to money@quickanddirtytips.com. Cha-ching? That's all for now. Courtesy of Money Girl, your guide to a richer life. Get Money Girl and other great shows from quick and dirty tips streamed to your iPhone. Download Stitcher free today at Stitcher.com. With the Wells Fargo Active Cash Credit Card, you can earn unlimited 2% cash rewards on purchases you want and purchases you need. That means you earn 2% cash rewards on what you want, like season tickets to watch your favorite team and 2% cash rewards on what you need, like paying for parking. That's the beauty of the Active Cash Credit Card. It's ready when you are with unlimited 2% cash rewards. The Wells Fargo Active Cash Credit Card, that's real life ready. Terms apply. Learn more at Wells Fargo.com/activecash. Imagine earning a degree that prepares you with real skills for the real world. Capella University's programs teach skills relevant to your career, so you can apply what you learn right away. Learn how Capella can make a difference in your life at Capella.edu. [BLANK_AUDIO]