Understanding the Making Work Pay Tax Credit

The Making Work Pay tax credit is worth up to $400 for individuals and $800 for married couples filing jointly. It is a temporary credit that will only be in effect for tax years 2009 and 2010.

For 2009, the IRS implemented this credit by making an adjustment to the federal income tax withholding tables used by employers to calculate the amount of taxes withheld from your paycheck. Employers were required to implement the changes by April 1, 2009.

According to the IRS:

If you’re not eligible for the Making Work Pay tax credit, withholding changes could mean a smaller tax refund next spring. A limited number of people, including those who usually receive very small refunds, could in some situations owe a small amount rather than receiving a refund. Those who should pay particular attention to their withholding include:

• Pensioners
• Married couples with two incomes
• Individuals with multiple jobs
• Dependents
• Some Social Security recipients who work
• Workers without valid Social Security numbers

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.

Those taxpayers listed above should consult the withholding calculator on the IRS website to ensure that the proper amount of taxes are being deducted from your paycheck.

Any taxpayer with earned income must claim the credit by completing Schedule M and attaching it to their 2009 return. This will ensure that the credit is calculated correctly according to your complete tax situation.

The IRS has created a “Questions & Answers” section on their website to assist taxpayers with the Making Work Pay tax credit.

If you are unsure if you received an Economic Recovery Payment, you should contact the appropriate agencies before completing your federal income tax return. The contact information is listed below:

Social Security Administration – Toll Free number 800.772.1213

Department of Veterans Affairs – Toll Free number 800.827.1000

Railroad Retirement Board – Toll Free number 877.772.5772

For more information on taxes click here.

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Tagged as: education credit, IRS, Taxes, withholding