(EDITOR’S NOTE: The following is a note from UNMC Business and Finance.)
The American Recovery and Reinvestment Act of 2009 provides income tax relief of $400 for an individual and $800 for married couple filing a joint return. The tax relief will be provided through a credit on tax owed for 2009 income when you file your 2009 tax returns in 2010. An immediate reduction in federal tax withholding is being implemented to reflect this reduced tax liability.
The University of Nebraska will begin using revised federal income tax withholding tables for the April 8 biweekly pay date and the April 30 monthly pay date and will continue for all of 2009. A full-time year-round employee claiming “single” on Form W-4 will have around $350-$400 less withheld in 2009, and an employee claiming “married” will have approximately $600 less withheld, when compared to the current withholding tables. Note: The withholding tables give married employees $200 less than the $800 credit they are entitled to because the IRS wants to limit under withholding if both spouses work (See example below).
The tax credit begins to phase out for employees earning more than $75,000 for singles and $150,000 for married filing jointly. The withholding reduction also begins to phase out at those higher income levels. Consequently, such employees will not receive the full reduction in withholding.
When you complete your 2009 tax returns in 2010, you will still compute your 2009 taxes owed using the current tax tables. Then, you will subtract a credit of either $400 (filing single) or $800 (married filing jointly). Note: The actual reduced withholding may not exactly equal the amount of the credit to be claimed.
In some situations you may want to revise your Form W-4 to avoid over-or under-withholding. For example, consider these situations:
- If you are married and both of you work, and each claims “Married,” your withholding will be reduced $1,200 ($600 X 2 = $1,200) but you will only receive an $800 credit when you file, causing you to owe $400 more than what was withheld.
- If you are married and your spouse does not work, you will only have reduced withholding of $600 but will receive an $800 credit, resulting in an additional $200 refund when you file your federal tax return, unless you revise your W-4.
- If you can be claimed as a dependent on someone else’s tax return, you are not eligible to receive the credit, even though the university will be withholding at a lesser amount. So if you do not change your W-4, you will owe more taxes than were withheld.
- If you are currently receiving Social Security, you may be eligible for a $250 payment this summer, which must be subtracted from the $400/800 credit when you file next year.
Therefore, we encourage everyone to review their own specific tax situation in order to have the proper amount of federal tax withheld, and change your W-4 if necessary. You may contact UNMC payroll at 559-5875 if you have questions, however we encourage you to talk with your tax preparer for advice on this matter. The university payroll office cannot provide tax advice.