Some employees may be shocked April of next year when they’re stuck
with a big tax bill – because of the stimulus package that, ironically,
was designed to add money to their paychecks. But an alert from you and
your Payroll dept. can help workers avoid the problem.

Here’s why: President Obama’s “Making Work Pay” tax credit, a part of the recent stimulus package, is the lesser of:
1. 6.2% of an employee’s earned income, or
2. $400 ($800 for married taxpayers filing jointly).

While the credit won’t significantly alter most employees’ 2009 tax
status, married employees filing joint tax returns and those working
multiple jobs may not be so lucky.

Here’s why: The credit phases out for a married couple filing a
joint return whose modified adjusted gross income (AGI) is between
$150,000 and $190,000, and for other workers whose modified AGI is
between $75,000 and $95,000. That means that by the end of the year,
these employees could be significantly underwithheld compared with what
they owe Uncle Sam.

Of course, Payroll’s not responsible for tracking employees’
personal tax circumstances – but it can’t hurt to make available to
everyone:

1. An explanation (e.g., e-mail, paycheck stuffer, etc.) of how they could end up underwithheld for 2009 and 2010.
2. Copies of IRS Publication 919, How Do I Adjust My Withholding? A worksheet on page 22 will help employees calculate the credit amount.
3. New Forms W-4. That way, if receiving this credit puts workers into a higher tax bracket, they can adjust their withholding.