I have to admit being pleased to see an increase in pay in my paycheck today. No I don’t work for Fannie Mae or Freddie Mac and will receive a big bonus as reported. I work for a mid-sized organization and our management (I cannot bring myself to call them leaders) has already advised us non-union “management” staff not to expect any raises for 18 months.
We are not even going to get a cost of living increase. I should have our management talk to Senator Inouye (D – Hawaii) as he feels that cost of living increases are not raises:
“Most Americans have a healthy understanding of the difference between a pay raise and a pay adjustment based on inflation. Most Americans will tell you that when they do receive a pay adjustment to their wages, they do not consider that to be a pay raise. They consider it to be held harmless against impact of inflation.”
The increase in pay has been on the news over the last several weeks, but I have not seen any real discussion of what the increase means beyond my paycheck. Rather than the $20 or so that I have been hearing about, my pay increased nearly $120.00 (that is for a two-week) pay period.
While that is nice of the government to allow me to keep more of the money that I earn, this made me nervous. It seems that rather than sending each of us another stimulus check, the IRS has reworked the withholding tables that your employer uses to determine how much money to take from us and send to the Feds. If you look at the IRS web site, however, they advise:
“An employee with multiple jobs or a married couple whose combined income places it in a higher tax bracket should consult the IRS withholding calculator and, if necessary, submit a revised Form W-4 to ensure enough tax is withheld”
I read that to say that you still have to pay about the same amount in taxes at the end of the year so you had better check and make sure that enough is being taken out. They pat themselves on the back and I have to fill out more IRS forms to make sure that I do not get screwed at the end of the year. How many people are really going to actually do that? They will just think this is another “gift” from Obama.
I took the journey through the tax calculator and here are my results:
Based on the information you previously entered, your anticipated income tax for 2009 is $10,744 If you do not change your current withholding arrangement, you will have $9,577 withheld for 2009, leaving $1,167 due when you file your return. You should adjust your withholding on new Forms W-4 as follows:
- Job 1 (which has a projected salary of $XXXXXXX): 0 allowances.
Job 2 (which has a projected salary of $XXXXXXX): 0 allowances.
Check the “Married” box on your Form W-4.
My wife and I both work and neither of us will be getting raises this year. We do get a nominal income from interest and dividends and typically owe or get a refund from the IRS of around $200 each year. Getting a tax bill of $1,167 next April would be quite a shock to our finances. We would also be subject to interest and penalties for not withholding enough money (I do not work for the White House or Congress so I would really have to pay that).
What my wife and I now need to do is to submit two new W-4 Forms to our employers so that we can have more money taken out because the IRS was directed to stimulate the economy by changing the withholding tables and taking less money out.
Please pass this information along to friends so they can decide whether they need to adjust their withholding. Do not tell those you do not like, as you will be able to see them squirm next tax season. That would be mean, but justified if they voted for this bunch.
Wow, I really feel stimulated.
Update May 14, 2009 – My subsequent paycheck reflected a more modest increase of around $15.00. By the way, I took my daughter to Subway for dinner tonight and I had a few cents left over from the $15.00. I confess that we splurged and opted for the meal deals that cost an additional $2.25 each.
I never received any explanation of the larger bump that I discussed in my original post. The bottom line remains the same, however, all of this increase is not a tax cut as is being protrayed.
It only took the MSM three weeks to get around to exposing the truth behind the pay rate changes. In a recent article, Stephen Ohlemacher let the cat out of the bag:
“But new tax withholding tables issued by the IRS could cause millions of taxpayers to get hundreds of dollars more than they are entitled to under the credit, money that will have to be repaid at tax time. At-risk taxpayers include a broad swath of the public: married couples in which both spouses work; workers with more than one job; retirees who have federal income taxes withheld from their pension payments and Social Security recipients with jobs that provide taxable income. The Internal Revenue Service acknowledges problems with the withholding tables but has done little to warn average taxpayers.”
My guess, no prediction, is that this will not get much traction in the MSM. Mr. Ohlemacher’s article was written on April 30 and I have yet to hear about it on the Today Show or other outlets. Come on Matt, let the people know that their cut is not really that much of a cut and they probably will have to pay some of it back. I have the headline teaser:
“Stay tuned to find out whether you have to pay back some of your stimulus to the IRS.”
I must confess that Today may have already aired this story and since I do not watch it, I could have missed it. Maybe they had Willard Scott announce it.