Making Work Pay "Stimulus Payments" American Recovery and Reinvestment Act of 2009

I’ve been getting calls and emails from clients who want to know when their stimulus check will arrive (and if they will ever get their California Refund).

Here’s how the 2009 “Making Work Pay” provision works:

It’s only available to U.S. Citizens or Resident Aliens. Those who are claimed as a dependent on another’s tax return do not qualify.

In 2009 and 2010, there will be a credit for 6.2% of earned income for up to $400 per taxpayer. 6.2% just happens to be the amount of social security withheld from most wages. Like the 2008 stimulus payment, this credit will phase out at $75,000 in modified adjusted gross income* ($150,000 for taxpayers filing jointly). Unlike the 2008 stimulus payment, checks will not be issued to pay the credit in advance.

Instead, qualified employees should see their federal income tax withholding reduced based on the new credit, increasing their net paycheck. I believe the thinking is that taxpayers are less likely to save an extra $13 a week (or so), than a lump sum check for $400. The IRS released new withholding tables yesterday that they would like employers to start using as soon as possible, but no later than April 1st.

When you file your 2009 return next year, the credit should offset the decrease in your withholding, and barring any other changes, your refund or balance due should be about the same as this year.

The Economic Recovery Payment or “making having worked pay”:

There will also be a $250 payment for many retired (and disabled) taxpayers. This payment will be made, not by the IRS, but by the Social Security Administration (to social security, including SSI recipients), Department of Veterans Affairs (for disabled veterans), and Railroad Retirement Board (for railroad retirement beneficiaries). Social Security has a special section on their website. Unlike the 2008 stimulus payment, no action is required to receive these payments if you qualify.

Retirees from the Civil Service or state governments who worked at a time when their wages were not subject to social security will qualify for a refundable $250 credit, but you will have to file a return to qualify.

* Total income subject to tax, less certain adjustments like IRA contributions, but not decreased by foreign earned income exclusions.

Sources:
CCH “Tax Legislation Update”
DHHCS ‘How the Economic StimulusPlan Affects Individuals with Disabilities”
FedSmith.com “$250 Tax Credit of Payment for Federal Retirees”
IRS “Tax Provisions in the American Recovery and Reinvestment Act of 2009