Home > Taxes Articles > Making Work Pay Credit the Impacts Largest Number of Americans in 2009

Making Work Pay Credit the Impacts Largest Number of Americans in 2009

Todays Date: January 20, 2019

The Making Work Pay Credit will have a substantial impact on Americans and is targeted towards lower and middle income taxpayers. This credit is one of many tax changes resulting from the American Recovery and Reinvestment Act of 2009. According to a report from the Tax Inspector General for the Tax Administration dated November 27, 2009, the Making Work Pay Credit is expected to impact 116 million taxpayers.

This credit was created to provide tax relief for working people. The credit is effectively claimed by you when you file your 2009 and 2010 tax returns. Notwithstanding, most taxpayers have already received the benefit of this credit by reductions in payroll tax withholdings (resulting in larger net paychecks) that went into effect during 2009. Taxpayers received this credit almost immediately, through a reduction in the taxpayer’s 2009 payroll withholdings. This credit is also calculated and reflected in the your 2009 tax return. The credit is $400 for single taxpayers and $800 for married couples filing joint returns. It is computed as the lesser of 6.2% of your earned income or $400 for single taxpayers and $800 for married couples filing a joint return.

Limitations on the Making Work Pay Creditt Income taxpayers with higher incomes are not eligible for the credit. For married couples filing jointly, the threshold amount is $150,000. This credit is reduced by 2% of a single individual’s modified adjusted gross income that exceeds $75,000. The credit is also reduced by 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) received during the year.

Who is able to benefit from the Making Work Pay Credit? The credit only benefits those taxpayers who have earned income. The only requirement is that you were employed and received taxable compensation from wages, salaries and tips. Any net earnings that you receive from self-employment is considered earned income

In addition, earned income does not include (a)Pension and annuity payments (b)Non-taxable compensation and (c)Parsonage allowance

The following individuals are not eligible for the credit:(a)Taxpayers without a valid Social Security number (b) Nonresident aliens (c) Taxpayers who could be claimed as another person’s dependent and (d)Estates and trusts.

A potential problem may exist when filing a taxpayer’s 2009 tax returns. If you had two jobs during the year and both employers reduced the your withholdings, then you may receive a smaller tax refund or you may have to pay taxes as a result of the reduced withholding during the year. Corporate employers applied the new withholding tables based on the assumption that the income from that employer was the only source of the taxpayer’s income. As a result, insufficient withholding may result of up to $400 per employer in excess of one for taxpayers who do not file jointly, or $800 per employer in excess of one for joint filers. Another example of a potential problem, may occur for those taxpayers who had other income besides their W-2 salaries. The other income could put the you into the total or partial phase-out category of the credit, and could result in under-withholding of up to $400 ($800 for joint filers).

How to report the Making Work Pay Credit to the Internal Revenue Service ? If you receive less than the full amount of the anticipated credit through decreased withholding, then you may be entitled to the full credit on your return. For 2009, taxpayers are required to use Schedule M to report the tax credit. If you use Form 1040EZ instead of schedule M, there is a worksheet on page 2 of the Form 1040EZ that allows you to compute the credit amount.

This article is not intended to be legal or accounting advice. Tax laws are complex,change constantly and each situtation is unique. The reader is advised to do his or her own due diligence and consult competent professionals in these areas.

Learn more about how to save taxes by getting a copy of my free EBook entitled 12 Tax Income Tax Credits and Incentives that Can Help You Reduce Taxes with Your 2009 Income Tax Return. Get your copy of the free EBook until March 15, 2010 when it goes on sale for $9.99. Sandor(Sandy) E. Lenner,CPA/MBA has been providing accounting services for 35 years. He is also a Certified QuickBooks ProAdvisor.

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