New law will affect withholding, all taxpayers should be alert Published Sept. 11, 2009 By Cammy Drebes Office of the Staff Judge Advocate TINKER AIR FORCE BASE, Okla. -- On Feb. 17, the American Recovery and Reinvestment Act of 2009 was signed into law. Key provisions of that law impact individuals' and families' taxes. One of those provisions is the Making Work Pay Tax Credit which will provide a refundable tax credit of up to $400 for individuals and $800 for married couples filing joint returns. This tax credit will phase out for taxpayers with modified adjusted gross income in excess of $75,000 or $150,000 for married filing jointly couples. Taxpayers must have a valid Social Security Number to be eligible for the credit. In the case of joint filers, a valid SSN is required for one of the taxpayers. Taxpayers who can be claimed as a dependent on someone else's tax return and nonresident aliens are not eligible for the credit. Most wage earners will immediately benefit from this credit with a larger paycheck because changes were made to the federal income tax withholding tables in order to implement the Making Work Pay Credit. This method could cause many taxpayers to be under withheld, resulting in a tax liability when they file their tax return for 2009. Those taxpayers most at risk are individuals that can be claimed as dependents on someone else's tax return, those taxpayers that have more than one job or married couples whose combined income place them in a high tax bracket. Those wage earners will want to carefully evaluate their tax liability prior to the end of this calendar year and take steps to prevent an underpayment of tax that could also result in penalties being applied. Pension recipients are also at greater risk for being under withheld as they are not eligible for this credit unless they have earned income. Since the changes were made to the withholding tables, those individuals that have taxes withheld instead of paying estimated taxes could also be under withheld, and possibly face a tax liability and penalties when filing their tax returns. The IRS did release optional adjustment procedures for pension payers in May 2009, but since these procedures were optional it's possible that the pension recipients are still not having the correct amount of tax withheld. Pension recipients should carefully evaluate their tax liability for the year and take steps to either adjust their withholding via Form W-4P or by making estimated tax payments. Taxpayers can receive more information about the Making Work Pay Tax Credit at www.irs.gov.