Back in early February, I noticed that many people had questions about the Making Work Pay tax credit. So I decided to write an article explaining the basics. That turned out to be one of my more popular tax-related articles.
Since the tax credit is in effect for tax year 2010 as well, the IRS has issued additional guidance to help out taxpayers.
Here are some of the major points:
What is the amount of the credit?
This credit – still available for 2010 – equals 6.2 percent of a taxpayer’s earned income. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.
If I am self-employed, does this still pertain to me?
Eligible self-employed taxpayers can benefit from the credit by evaluating their expected income tax liability and, if they are eligible, by making the appropriate adjustments to the amounts of their estimated tax payments.
Is there a chance that I won’t have enough taxes withheld because of these adjustments?
Taxpayers who fall into any of the following groups during 2010 should review their tax withholding to ensure enough tax is being withheld. Those who should pay particular attention to their withholding include:
- Married couples with two incomes
- Individuals with multiple jobs
- Workers without valid Social Security numbers
Having too little tax withheld could result in potentially smaller refunds or – in limited instances –small balance due rather than an expected refund.
Am I eligible for this credit regardless of my income?
The Making Work Pay tax credit is reduced or unavailable for higher-income taxpayers. The reduction in the credit begins at $75,000 of income for single taxpayers and $150,000 for couples filing a joint return.
How can I check to make sure that I have the correct amount of taxes withheld from my paychecks?
- A quick withholding check using the IRS Withholding Calculator on IRS.gov may be helpful for anyone who believes their current withholding may not be right.
- Taxpayers can also check their withholding by using the worksheets in IRS Publication 919, How Do I Adjust My Tax Withholding?.
- Adjustments can be made by filing a revised Form W-4, Employee’s Withholding Allowance Certificate.
- Pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.
To find out more about tax credits, deductions, and tax planning, visit our tax center: http://knsfinancial.com/taxes/
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