Making Work Pay Credit

What is it?

A new tax credit for U.S. workers to help stimulate the economy

The American Recovery and Reinvestment Act of 2009 (ARRA) includes a new Making Work Pay federal tax credit for eligible individuals. If you qualify for the tax credit, you may receive an increase in your take-home pay of up to $400 for the 2009 and 2010 federal tax years. The tax credit is designed to provide a financial boost to U.S. workers during the current period of economic uncertainty.

Federal tax credit up to $400 per taxpayer, or $800 for joint returns

The Making Work Pay Credit is a federal tax credit for the lesser of 6.2% of earned income or $400 ($800 for joint returns). The tax credit is available to eligible individuals for the 2009 and 2010 tax years. Employees and self-employed individuals may qualify as eligible individuals. Retirees do not qualify for this tax credit unless they receive any earned income.

Provided as an increase in take-home pay for 2009 and 2010

Unlike the 2008 taxpayer refunds that were provided in the form of checks from the IRS, the Making Work Pay tax credit is generally provided through an increase in take-home pay. The IRS has instructed employers to begin using the updated Wage Withholding Tables no later than April 1, 2009. Most employees do not need to take any action until they file their 2009 federal tax returns. But certain categories of individuals may be at risk of receiving an over-credit that will have to be repaid. If you have more than one job, if you and your spouse both work, or you are a retiree with earned income, you should carefully review the level of federal withholding, and adjust it as necessary, to ensure that the tax credit is applied correctly based on your circumstances. Consult your tax advisor for more information.

A phase-out applies for income over $75,000 (or $150,000 joint)

High-income individuals may not be eligible for the Making Work Pay tax credit. A phase-out of the credit applies if modified Adjusted Gross Income (AGI) for the taxable year exceeds $75,000 for single-filers, or $150,000 for joint-filers. The phase-out is calculated as 2% of the amount of income that exceeds these limits. The phase-out is complete, and no tax credit is available, for modified AGI over $95,000 for single-filers, or $190,000 for joint-filers.

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Straight from the Source

Click here to see pages 195-196 of the American Recovery and Reinvestment Act section concerning the Making Work Pay Credit.


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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