Tax breaks started this month

McALLEN - If that paycheck seems just a little bigger, it's not - you just get to keep a little more of it.

Employers were expected to start reducing the amount withheld for federal income taxes this month as part of the massive $787 billion federal economic stimulus plan.

It amounts to an extra $10 to $15 a week in take-home pay for individuals and $15 to $20 a week for married couples during the remainder of the current year. The cut will also help swell the federal budget deficit.

The "Making Work Pay" provision of the American Recovery and Reinvestment Act allows for a tax credit of up to $400 for individual filers and $800 for couples who file taxes jointly, according to the Internal Revenue Service. Those who are unemployed can claim the credit when they file tax returns next year.

The government hopes the tax breaks will persuade reluctant consumers to spend more money, said Damian Damianov, an economics professor at the University of Texas-Pan American.

He compared the tax break to having only a cup of water to drink in the middle of a desert.

"I wouldn't say this is going to be a fix, but it may definitely help," Damianov said. "Eventually, the government will need to collect the money."

Nathan Cantu, a 21-year-old studying to be a commercial pilot, thinks the tax break will do little to stimulate the economy while swelling the deficit.

"They're going to have to borrow more money while creating a big (budgetary) hole," he said of the federal government.

His friend Young Jo seemed more optimistic. The 21-year-old works for American Airlines as a baggage handler.

"Fifteen dollars is better than nothing," he said. "It will probably help the economy."

If your annual income is more than $75,000 as an individual or $150,000 as a married couple, there is a sliding scale for how much you will receive, according to the IRS.

The credit is calculated based on adjusted gross income, which includes all income streams, even those an employer does not know about.

Consequently, if your annual wages are less than $75,000 and you receive the credit, but income from real estate and other investments exceeds that threshold, you might end up owing the IRS in April 2010.

Low-income workers who do not pay federal taxes can claim the credit when they file their taxes next year. Ditto for people who are self-employed and for workers with employers that do not withhold federal taxes.