“The final version scales back some tax-saving provisions but will nonetheless afford taxpayers numerous tax breaks,” says Jim Seidel, chief tax analyst from the Tax & Accounting business of Thomson Reuters. The Act includes a number of beneficial, though temporary, tax changes for individuals. In other words, these tax breaks will apply in 2009 only (or in some cases, in 2009 and 2010).

As an accounting professional, you should understand the key provisions of the Act that may benefit your clients.

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“The IRS issued new wage withholding tables on March 17, and some employees may have already noticed that the amount of federal income tax withheld from their paychecks has decreased.”

Making Work Pay Credit—Instead of mailing lump-sum stimulus checks to individuals and families like the federal government did last year, this Act will give all employed individuals a refundable credit of the lesser of 6.2 percent of their earned income or $400 ($800 MFJ). This will be issued in the form of adjusted withholding by employers so that employees receive more take-home pay in their paychecks.

The credit will be phased out for individuals with AGI between $75,000 and $95,000 ($150,000 – $190,000 MFJ). The IRS issued new wage withholding tables on March 17, and some employees may have already noticed that the amount of federal income tax withheld from their paychecks has decreased.

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Economic Recovery Payment—This is a $250 one-time credit in 2009 to retirees, disabled individuals and Social Security recipients who receive benefits from the Social Security Administration, Railroad Retirement beneficiaries and the U.S. Department of Veterans Affairs.