But underwithholding also could mean you'll owe more than you expected when you compute your final 2009 tax bill. If your calculations are off too much, Uncle Sam might hit you with an underwithholding penalty, so run the numbers carefully before making any credit-related changes.
3. Midyear start, full-year benefit If the reduced payroll tax amounts are implemented in early June, workers should see around $13 more show up in their pay envelopes through the end of the year. That would provide for the full $400 to be paid out by the end of 2009.
This credit also is in effect for 2010. With next year's payroll credit adjustments beginning in January, workers should get around $7.50 per week more in earnings.
4. Some limits One thing is the same as with the earlier stimulus payouts: The credit phases out for higher-income workers. The full Making Work Pay credit is available to individuals earning $75,000 or less, or a married working couple making $150,000. Taxpayers won't be eligible for any credit once their adjusted gross income hits $95,000 if single filers or $190,000 for jointly filing couples.
In addition, nonresident aliens and folks who can be claimed as a dependent on another taxpayer's return are not eligible for the credit.
5. No paycheck, no problem What if you don't get a paycheck? You still might be eligible for a $250 credit.
The new law says that amount will go to individuals receiving certain Social Security, Supplemental Security Income, Railroad Retirement benefits and veterans' benefits. This money will be sent out as a separate check.
The logistics for distributing the $250 payments have not yet been announced. The assumption, however, is that the IRS will follow a plan similar to the 2008 stimulus payments.
Many retirees work part-time to supplement their government benefits. In these cases, the older workers will not get both the full $400 Making Work Pay credit and the $250. Any payments received for Social Security or similar benefits will reduce the payroll credit amounts a worker gets, tax analyst Luscombe says.
Self-employed workers are on their own. "There is not an automatic methodology for reflecting this credit," Schwartz says. "If you feel you're eligible for it, you might want to take it into account in determining what your quarterly estimated tax payments should be." Otherwise, you can claim the amount when your file your return next year.
6. AMT also covered The new law also makes a temporary adustment to the income levels at which the alternative minimum tax kicks in. This costly parallel tax has ensnared many middle-income filers primarily because those earning amounts do not automatically increase each year to reflect inflation.
Under the new law, the AMT income exemption level increases to $46,700 for single filers, $70,950 for couples who file jointly.