Boost your pay through stimulus tax planning

updated 9:43 a.m. ET Feb. 26, 2009

DES MOINES, Iowa - Whatever your situation, whether you work or are unemployed, the government has something for you in the $787 billion stimulus package. Plus there are extra benefits to help compensate for some of those major life expenses such as a house or a car, and yes, your kids.

Whether the money is intended to help you survive the recession or entice you to spend money, you'll want to be smart about maximizing your potential benefits. Through a little tax planning, you can begin to put more money in your pocket now. That planning may include adjusting the amount of taxes taken out of each paycheck so you can benefit from even a slight bump in take-home pay, rather than receiving a lump sum when you file your 2009 tax return early next year. Getting the money sooner accomplishes the goals of the stimulus — putting more money in your hands now to help boost the economy.

"The government would encourage that," said Susan Carlisle, a Woodland Hills, Calif. certified public accountant. "We're trying to encourage people to have more money and to loosen up."

A word of caution, though. Be sure you don't overdo it and reduce your tax withholding by too much or you'll risk owing the government money.

The Internal Revenue Service is still working on some of the details of how it will implement the bill signed by President Barack Obama on Tuesday. It promises to provide frequent updates on its Web site, http://www.irs.gov.

FOR WORKERS

Benefit: Obama's signature "Making Work Pay" tax credit entitles individuals who make less than $95,000 to a tax credit of up to $400 for 2009 and 2010; couples are eligible for $800.

For example, if you're single and make $40,000, you'll get about $66 a month more beginning July 1. A couple filing jointly with the same income would see $134 more.

The credit is phased out for individuals making more than $95,000 and couples making more than $180,000. Millions of low-income workers who don't make enough money to pay income taxes would get checks from the government when they file their 2009 tax returns.

What you should do: If you're eligible, your payroll administrator will make the withholding adjustment automatically and thereby increase your take-home pay. You may prefer not to adjust your withholding amount and get your stimulus in a lump sum payment as a tax refund when you file your 2009 taxes. If so, you'll have to discuss that with your employer, said Amy McAnarney, executive director of The Tax Institute, a division of H&R Block.

Here's a brief guide to some of the other benefits and what you may do to maximize your opportunities:

FOR THE UNEMPLOYED

Benefit: A $25 weekly boost in unemployment checks through 2009. In addition, the first $2,400 in benefits will be exempt from federal taxes in 2009. For workers who've exhausted their regular unemployment benefits, the stimulus bill provides up to 33 weeks of extended unemployment benefits through Dec. 31.

Also, eligible unemployed workers paying for their own health insurance through the federal COBRA program will benefit from a 65 percent federal subsidy for their monthly insurance premiums for up to nine months.

What you should do: If you're currently receiving unemployment, to ensure that you obtain the $25 a week pay boost, you'll need to contact the state agency administering your benefits for details.

For the COBRA benefit, if you lost your job between Sept. 1, 2008, and the end of this year, you can apply for this subsidy. If you didn't elect COBRA insurance coverage initially, you will be given an additional 60 day period to sign up and receive the subsidy. Tax professionals said details of how the COBRA subsidy will be administered are being worked out, but likely it will be through your former employer. They recommend calling your former employer within 60 days to get details.

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