Since this is the tax break that will affect most American’s I wanted to share some more details on what is being called Obama’s paycheck bonus (the official name, right now anyway, is the ‘Make Work Pay Credit’.
The details are still being hammered out, but basically it looks like the tax plan will include a payroll tax break that will mean anywhere from $83 to $166 extra per paycheck for workers, during the first quarter of the year.
By reducing payroll taxes, Obama is getting money into the hands of the greatest number of people as quickly as possible. The hope is that taxpayers will spend this money to help boost the economy.
This tax credit will essentially work out to be $500 a year for individuals and $1,000 for couples, with the full credit being limited to those making $75,000 or less ($150,000 or less for married couples). People who earn between $75,000 and $85,000 will get a partial credit (the phaseout range for couples is $150,000 to $170,000).
In addition, this will be a refundable tax credit, which means you don’t have to actually owe any tax liability to receive the credit. This means that lower income families who typically qualify for the child tax credit or earned income credit (and thus may not have any tax liability after the credits are calculated) will still receive the payroll tax credit.
Breaking the numbers down, workers who get paid every two weeks can expect to receive an extra $19.23 per paycheck. However, it depends on the timing of the tax break. The tax credit could be implemented during the first quarter of the year (instead of being spread out over the entire year), which would mean larger paychecks during the first part of the year (then normal paychecks once the full credit is received). According to economists, the earlier American’s receive the credit, the greater the potential impact on the economy, so this it’s very possible we’ll see this tax credit early in 2009.
Remember, this is just a proposal right now, so expect changes before this tax package is finalized.