The new “Making Work Pay” credit has resulted in less Federal tax withholding in your paycheck.  You are receiving more money now, which is good, but what will happen when you file your return next year? The new credit is 6.2% of your earned income, with a maximum of $400 per person. The credit phases out if your modified adjusted gross income is $95,000 ($190,000 for joint returns).  Many of my clients work two jobs.  Each employer is taking a reduced amount of withholding, but at the end of the year, each person can only claim one credit.  People with two jobs may find that they have not had enough withholding to cover their tax liability at the end of the year, resulting in a reduced refund or no refund at all.  Smart clients will review their withholding situation now, while there is time to make adjustments. 

Another new credit for 2009 is for Government retirees.  If you are a retiree who is not eligible for the $250 economic recovery payments that are being sent to Social Security recipients, you may be eligible for a $250 credit on your 2009 tax return.  You can take this credit if you receive a pension for service performed for Federal, State or local government.

Both of these credits are refundable, so you may get a refund if you qualify for them even if you had no income tax withheld.  The new credits will be calculated on Schedule M.

Most people don’t even think of taxes until they receive their W-2 in the mail.  In reality every time money changes hands, your taxes could be affected.  Try to make tax planning a part of your thinking.  Are you having enough withheld?  Are there things you might do now to reduce your tax liability?  If you are not sure, maybe it’s time to call an expert.