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 The Making Work Pay tax credit |
Date Posted: 1/26/2010 |
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The Making Work Pay Tax CreditInformation for Individuals
Video: Making Work Pay | Audio File for Podcast: Making Work Pay
Check Your Withholding
How will the Making Work Pay tax credit affect you?
Most wage earners will benefit from larger paychecks in 2009 and 2010 as a result of the changes made to the federal income tax withholding tables to implement the Making Work Pay tax credit. However, some people may find that the changes built into the withholding tables result in less tax being withheld than they prefer.
If you're not eligible for the Making Work Pay tax credit, withholding changes could mean a smaller refund next spring. A limited number of people, including those who usually receive very small refunds, could in some situations owe a small amount rather than receiving a refund. Those who should pay particular attention to their withholding include:
Pensioners (see more information under Pensioners, below)
Married couples with two incomes
Individuals with multiple jobs
Dependents
Some Social Security recipients who work
Workers without valid Social Security numbers
The Making Work Pay tax credit, normally a maximum of $400 for working individuals and $800 for working married couples, is reduced by the amount of any Economic Recovery Payment ($250 per eligible recipient of Social Security, Supplemental Security Income, Railroad Retirement or Veteran's benefits) or Special Credit for Certain Government Retirees ($250 per eligible federal or state retiree) that you receive. If you are affected by this reduction, you should review your withholding to ensure that sufficient funds have been withheld to meet your tax obligation.
If you believe your current withholding is not appropriate for your personal situation, you can perform a quick check using the IRS withholding calculator. If you are not familiar with the withholding calculator, watch this IRS how-to video for instructions. When you have determined your correct withholding, make any adjustments by filing a revised Form W-4, Employee's Withholding Allowance Certificate, with your employer.
Pensioners
Pensioners do not qualify for the Making Work Pay credit, unless they receive earned income. However, because the 2009 and the 2010 withholding tables also apply to pensioners, the IRS has provided pension plans with an optional adjustment procedure. If you are a pensioner with questions about your withholding, contact your pension plan administrator.
If desired, pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.
Self-Employed Self-employed individuals can also benefit now from the Making Work Pay tax credit by evaluating their expected income tax liability, allowing for this tax credit if they are eligible, and making the appropriate
adjustment in the amount of their regularly scheduled estimated tax payments.
Information for Employers
For 2010: Notice 1036 contains the 2010 withholding tables, which reflect reduced withholding resulting from the Making Work Pay credit. The notice also includes information about an optional procedure permitting administrators of pension plans to offset the withholding reduction.
For 2009: In February 2009 the IRS issued updated withholding tables to help employers implement the withholding adjustments required by the Making Work Pay credit. More details are available in Publication 15-T.
In May 2009, the IRS subsequently issued an optional adjustment procedure allowing plan administrators to offset the February 2009 withholding reduction for some pension recipients.
Questions and Answers
If you have questions about the Making Work Pay provision, these questions and answers might help.
General Information
In 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.
This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.
For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes. These changes may result in an increase in take-home pay. The amount of the credit will be computed on the employee's 2009 income tax return filed in 2010 and the employee's 2010 tax return filed in 2011. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 and 2010 tax returns.
It is not necessary to do anything to get the automatic withholding change. However, an employee with multiple jobs or a married couple whose combined income places it in a higher tax bracket should consult the IRS withholding calculator and, if necessary, submit a revised Form W-4, Employee's Withholding Allowance Certificate, to ensure enough tax is withheld. Publication 919, How Do I Adjust My Tax Withholding? provides additional guidance for tax withholding including a special Making Work Pay worksheet.[Expand Story] |
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