I got paid last week and sure enough, there was a little extra money in my paycheck due to the Making Work Pay tax credit. As the IRS web site says,
For 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns.
This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.
So what was the first thing I did when I saw the extra money? Filled out a new W-4 form at work so that the money would be withheld again. To do that, I just added it to the line that said “Additional amount, if any, you want withheld from each paycheck”.
If you qualify for the credit, You might be tempted to spend the additional money (after all, it’s always nice to have a little extra) but first be sure that doing so won’t leave you short at tax time. (For example, if you normally owe when it comes to taxes, you probably don’t want to keep the credit.) I’d been needing to increase my withholding anyway, so doing so was a no brainer for me.
If you do decide to keep it, it could be used to speed up your debt payoff or increase your savings or investments. (Or of course, just to get something frivolous.) But this might be a great opportunity to think of it as a painless way to achieve your goals a little faster.