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 Generally, higher income taxpayers are not eligible for the credit. This credit is reduced by 2% of a single individual's modified adjusted gross income that exceeds $75,000 and for married couples filing jointly, the threshold amount is $150,000. The Making Work Pay tax credit, is also 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 was received by a taxpayer.
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
Additionally, earned income does not include (a)Annuity and pension payments (b) Nontaxable compensation and (c) Parsonage allowance
The following individuals are not entitled to the credit:(a) Tax filers without valid Social Security numbers (b) Taxpayers who could be claimed as another taxpayer's dependent nonresident aliens (c) Estates and trusts and (d)Nonresident aliens.
Taxpayers should be on the look out for potential problems when filing your 2009 tax returns. For instance, if a taxpayer had two jobs during the year, and both employers reduced the taxpayer's withholdings, the taxpayer may receive a smaller tax refund or the taxpayer may have to pay unexpected taxes as a result of the reduced withholding during the year. The problem may have resulted from each employer who applied the new withholding tables assuming the income from that employer was the only source of the taxpayer's income. By doing this, 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. A second example of a potential problem, could result for those taxpayers who had other income besides their W-2 wages. The other income could put the taxpayer 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). And finally, like any change, this is a new tax credit and may be an easy one for taxpayers who prepare their own taxes to miss.
How to claim the Making Work Pay Credit ? If you did not receive the full amount of the anticipated credit through reduced withholding, then you very well may be entitled to the full amount of the credit on your 2009 tax return. For 2009, taxpayers must use Schedule M to report their tax credit. If they use Form 1040EZ instead of schedule M, then there is a worksheet on page 2 of the Form 1040EZ that provides in an easy to understand format to compute the credit.
Tax laws are complex,change constantly and each situtation is unique. This article is not intended to provide legal or accounting advice. The reader should perform his or her own due diligence and consult with competent professionals in this area. - 31821
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 Generally, higher income taxpayers are not eligible for the credit. This credit is reduced by 2% of a single individual's modified adjusted gross income that exceeds $75,000 and for married couples filing jointly, the threshold amount is $150,000. The Making Work Pay tax credit, is also 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 was received by a taxpayer.
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
Additionally, earned income does not include (a)Annuity and pension payments (b) Nontaxable compensation and (c) Parsonage allowance
The following individuals are not entitled to the credit:(a) Tax filers without valid Social Security numbers (b) Taxpayers who could be claimed as another taxpayer's dependent nonresident aliens (c) Estates and trusts and (d)Nonresident aliens.
Taxpayers should be on the look out for potential problems when filing your 2009 tax returns. For instance, if a taxpayer had two jobs during the year, and both employers reduced the taxpayer's withholdings, the taxpayer may receive a smaller tax refund or the taxpayer may have to pay unexpected taxes as a result of the reduced withholding during the year. The problem may have resulted from each employer who applied the new withholding tables assuming the income from that employer was the only source of the taxpayer's income. By doing this, 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. A second example of a potential problem, could result for those taxpayers who had other income besides their W-2 wages. The other income could put the taxpayer 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). And finally, like any change, this is a new tax credit and may be an easy one for taxpayers who prepare their own taxes to miss.
How to claim the Making Work Pay Credit ? If you did not receive the full amount of the anticipated credit through reduced withholding, then you very well may be entitled to the full amount of the credit on your 2009 tax return. For 2009, taxpayers must use Schedule M to report their tax credit. If they use Form 1040EZ instead of schedule M, then there is a worksheet on page 2 of the Form 1040EZ that provides in an easy to understand format to compute the credit.
Tax laws are complex,change constantly and each situtation is unique. This article is not intended to provide legal or accounting advice. The reader should perform his or her own due diligence and consult with competent professionals in this area. - 31821
About the Author:
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 Lenner,C.P.A./M.B.A. has provided accounting and business services for over 35 years. He is also a Certified QuickBooks ProAdvisor.
