Unless you look closely, you might not notice, but part of the federal stimulus bill is starting to appear in most people's paychecks.
The stimulus gives individuals making less than $75,000 a tax credit of $400 and married couples who file joint tax returns and earn less than $150,000 one of $800, by reducing the amount withheld from their paychecks, according to the Internal Revenue Service.
However, unlike the Bush administration's stimulus last year, which came as a lump sum via a check, President Obama's slowly accumulates for the rest of the year - why you need to be alert to catch it.
The IRS says employers need to adjust their withholdings from employees' checks within the next couple of weeks to account for the change. Those who don't have income withheld claim the credit on their 2009 income tax return. All employees need to report the credit on their 2009 returns, the IRS says.
While the "Making Work Pay Tax Credit," as the Obama administration calls it, is only part of the $787 billion stimulus bill, Boston University School of Law Professor Alan L. Feld said it is intended to prod more spending.
"The withholding piece is the delivery mechanism," Feld, a tax specialist, said. "There's a substantive decision here to put some money into the hands of people below a certain income level, with the objective, with the rest of the stimulus bill, to have money to spend and to get the economy moving again."
He said the change in how it arrives - small increments, in contrast to one payment - is done to induce people to spend more of the extra money, rather than save it. However, he said he is skeptical the difference in how the money is delivered will have an impact.
"The question of whether this will be a stimulus or whether it's a one-time relief package, which might be perfectly appropriate as well, will be up in the air until we know it actually worked out," Feld said.
The credit targets those making less than $75,000 per year, as it phases out for those making more, before disappearing at the $95,000 level, according to an analysis by the Tax Foundation, a nonpartisan research group.
The policy isn't without its critics, such as Curtis S. Dubay, a senior tax policy analyst at the Heritage Foundation, a conservative think tank. In a recent column, Dubay wrote it is misleading to say the credit is a tax cut, and is no different than if the federal government sent people checks. Describing it as a cut is more politically convenient, he argued.
