Making Work Pay Credit

Frequently Asked Questions

What is the stimulus law?

The recently enacted American Recovery and Reinvestment Act of 2009 (ARRA) includes several tax incentives for individuals and families. Click on the ARRA link above and go to page 195 to read about the Making Work Pay Credit.

What is the Making Work Pay Credit?

The Making Work Pay Credit is a federal tax credit for U.S. workers. Unlike the 2008 tax refunds that were provided in the form of checks mailed by the IRS, this credit is generally provided through a reduction in wage withholding and an increase in take-home pay. The maximum available credit is 6.2% of earned income or $400 ($800 for joint returns), whichever is less. A phase-out applies if modified Adjusted Gross Income (AGI) exceeds $75,000, or $150,000 for joint returns. The credit is completely phased out for modified AGI in excess of $95,000 for single-filers, or $190,000 for joint-filers. The credit is available to eligible individuals for the 2009 and 2010 federal tax years.

Who is eligible for the credit?

Many U.S. employees and self-employed individuals may qualify for the tax credit. Under ARRA, the Making Work Pay Credit is available to "eligible individuals" who meet the following requirements:

  • You must be a U.S. resident
  • You cannot be claimed as a dependent on another person's tax returns for 2009 or 2010
  • A partial credit may be available if modified Adjusted Gross Income (AGI) exceeds $75,000, or $150,00 for joint returns
  • You must provide a valid Social Security Number
  • Trusts and estates are not eligible for the tax credit
  • Retirees are not eligible for the tax credit unless they receive any earned income

How does the credit work?

The Making Work Pay Credit is a refundable tax credit, which means that it is available to eligible individuals even if they do not owe any federal taxes.

For eligible employees, the Making Work Pay Credit is generally provided through an increase in take-home pay spread across the year's paychecks. The IRS has issued updated Wage Withholding Tables and instructed employers to being using them by April 1, 2009. Ask your employer when your paycheck will be adjusted to reflect the tax credit.

For eligible self-employed individuals, the Making Work Pay Credit can be claimed on your 2009 and 2010 federal tax returns. You may also want to consider adjusting your estimated income on IRS Form 1040-SE in order to maximize the tax credit. Consult your tax advisor for more information.

What if I'm retired?

Retirees are not eligible for the Making Work Pay Credit unless they have earned income for 2009 or 2010.

How long does the Making Work Pay Credit last?

The Making Work Pay Credit applies for the 2009 and 2010 federal tax years.

Are there any income limitations?

Yes. A phase-out of the credit begins if modified Adjusted Gross Income (AGI) exceeds $75,000 for single-filers, or $150,000 for joint-filers. The phase-out is calculated as 2% of any income that is above those limits. The phase-out is complete at $95,000 modified AGI for single-filers, or $190,000 for joint-filers.

How do I claim the Making Work Pay Credit?

If you are an eligible employee, ask your employer when your take-home pay will be adjusted on your paychecks. If you are an eligible self-employed individual, you may want to review your IRS Form 1040-SE and consider whether to adjust your estimated income. All eligible individuals should claim the maximum available Making Work Pay Credit on their 2009 and 2010 federal tax returns. Consult your tax advisor for advice specific to your circumstances.

Where can I get more information?

To read about the Making Work Pay Credit in the new stimulus law, click here and go to page 195. Click here to read more about the tax credit from the IRS. Consult your tax advisor for more information based on your specific circumstances.

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The information contained herein is drawn from sources that are believed to be reliable, but it cannot be guaranteed as to completeness or accuracy. The content is not intended to be, and should not be relied upon as, tax, legal, or financial planning advice. Consult your tax advisor for specific advice.

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