Facts about the Making Work Pay Tax Credit

Working taxpayers may be eligible for the Making Work Pay tax credit, a significant tax provision of the American Recovery and Reinvestment Act of 2009.  This tax credit means more take-home pay for millions of American workers.  Here are five things every taxpayer should know about the Making Work Pay tax credit:

1. The credit, which is available for tax years 2009 and 2010, equals 6.2 percent of a taxpayer’s earned income.  The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.  Most wage earners have been enjoying a boost in their paychecks from this credit since April.  Because the government tinkered with the withholding tables as a means of getting the credit into taxpayer’s hands as early as possible, there is the possibility that the withholding amount of certain taxpayers may have been inappropriately adjusted, which may cause problems at tax time…see #3 below.

2. Eligible self-employed taxpayers can also benefit from the credit by evaluating their expected income tax liability.  If eligible, self-employed taxpayers can make the appropriate adjustments to the amounts of their upcoming estimated tax payments in September and January.

3. Taxpayers who fall into any of the following groups should review their tax withholding to ensure enough tax is being withheld.  Those who should pay particular attention to their withholding include:

•  Married couples with two incomes;

•  Individuals with multiple jobs;

•  Self-employed individuals who are also employed by someone else;

•  Dependents;

•  Pensioners;

•  Social Security recipients who also work; and 

•  Workers without valid Social Security numbers.

Having too little tax withheld could result in potentially smaller refunds or a small balance due rather than an expected refund.  There is also a remote chance that you could be subject to underpayment penalties if you were paying a safe harbor estimate and the reduction in withholding drops you below the safe harbor withholding amount.

4. The Making Work Pay tax credit is either phased out or unavailable for higher-income taxpayers.  The phase out begins at $75,000 for single taxpayers and $150,000 for couples filing a joint return.

For those who believe their current withholding is not right for their specific situation, it may be appropriate for you to have this office project your tax and withholding for the year and any refund or tax due amount.  At the same time, we can review your situation for any possible tax-saving moves between now and the end of the year.  Please call for an appointment.

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