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The Making Work Pay Tax Credit
Information for Employers
The IRS has issued updated withholding tables to help you implement the withholding adjustments required by the American Recovery and Reinvestment Act of 2009. News release 2009-13 includes information about these tables. More details about the Making Work Pay credit are available in Publication 15-T, New Wage Withholding and Advance Earned Income Credit Payment Tables (For Wages Paid Through 2009).
Information for Pensioners
Pensioners do not qualify for the Making Work Pay credit, unless they receive earned income. However, the new withholding tables apply to all taxpayers, including pensioners. The IRS has a withholding calculator pensioners and others can use to make sure enough tax is being withheld from their pay. Adjustments to withholding can be made by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.
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 in early spring. 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. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.
It is not necessary to submit a Form W-4 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.
Newest Information
How will the Making Work Pay tax credit affect you?
Most wage earners will benefit immediately with a larger paycheck as a result of the changes made to the federal income tax withholding tables to implement the Making Work Pay tax credit. Some individuals may find that the changes built into the withholding tables result in less tax being withheld than they prefer.
If you are not eligible for the Making Work Pay tax credit, withholding changes could mean a smaller refund next spring. A limited number of individuals, including those who usually receive very small refunds, could in some situations owe a small amount rather than receiving a refund. You can see if enough tax is being withheld by using the IRS withholding calculator and making necessary adjustments by filing a revised Form W-4 with your employer.
The following groups should check their withholding to see if enough is being withheld:
• Individuals who work two or more jobs,
• Married couples who both work,
• Dependents who work but who are not eligible for the making Work Pay tax credit due to their dependent status., and
• Non-resident aliens, and some resident aliens, who do not have valid Social Security numbers and who are not eligible for the credit.
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.
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.
Page Last Reviewed or Updated: May 11, 2009
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