Should I change my withholding?
You should try to have your withholding match your actual tax liability. If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. If too much tax is withheld, you will lose the use of that money until you get your refund. Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability.
A change in the Law has occurred. The new law, officially known as the American Recovery and Reinvestment Act (ARRA) of 2009, provides for a new tax credit for most individuals in 2009. This new tax credit is built into new withholding tables in the form of reduced withholding. Between April 1 and the end of 2009, employees (most) will receive additional take-home pay that roughly approximates the credit they are entitled to. These new withholding tables were implemented for 'Regular' payroll on check dated 3/18/09, the 'University' payroll on check dated 3/20/09 and the 'Contractual' payroll check dated 3/25/09.
These new tables represent the IRS's best shot at what employees are entitled to. If the reduction in withholding is less than the employee is entitled to, they will be able to
claim the difference at tax return time next year. Likewise, if too much credit is given, the employee will likely have to pay at tax return time. The IRS offers the following advice: "[I]ndividuals and couples with multiple jobs may want to submit revised W-4 forms to ensure enough withholding is held to cover the tax for the combined income" (IR-2009-13,2-21-09).
If employees have requested a Federal marital status of 'married' on their W-4 (MW507) then according to the tables provided from the IRS, the withholding credit will most likely exceed the tax credit limit of $400 as outlined for an individual. If their spouse is also working and has claimed a Federal marital status of 'married' they too will most likely exceed the tax credit limit. When and if combined, the total tax credit given may exceed the limit of $800 for joint tax return filers.
If you believe you may need to adjust your withholding (MW507), we recommend that you visit the IRS Website and review Publication 919, 'How Do I Adjust My Tax Withholding' to receive more guidance on this subject. Particular attention should be given to the 'Making work pay credit' paragraph on page 3, and references to worksheet 12, found on page 22. The following link as been provided for your convenience: http://www.irs.gov/pub/irs-pdf/p919.pdf