Making Work Pay Tax Credit

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What is the Making Work Pay Credit?

The Making Work Pay Credit is part of the American Recovery and Reinvestment Act. It is a tax credit of up to $400 for individuals or $800 if you are married and file with your spouse. The credit is in place for 2009 and 2010. You have two basic options for receiving the credit. You can get it now through small tax withholdings in your paychecks. Or if you don't have taxes withheld, you can get it on your tax return next year. To learn more watch a video from the IRS below.

Click here to listen to a more in-depth Question and Answer with an IRS spokesman.

Pay close attention to your withholdings! Some groups of taxpayers may not have enough federal taxes withheld from their paychecks. If this happens, you may end up owing money at tax time. More Information on this problem from the IRS.

How does the credit work?

To make this credit possible, the IRS changed their tax withholding guidelines. So, for most people the credit will show up as "extra" money in their paychecks. Your employer will adjust your withholdings according to the IRS's new guidelines. It is important that you check your withholdings to make sure enough taxes are being taken out. If your withholdings decrease too much, you may end up owing money when you receive your tax return. You should pay particular attention to this issue if you have multiple jobs, are a married couple with two incomes, or are claimed as a dependent.

How do I know if I am eligible?

If, as an individual, you earn between $6,450 and $75,000, you are eligible for the full $400 credit. If you earn less than the minimum amount, you may still be eligible so please continue reading. You must also have a valid Social Security number.

Can I still get the credit even if I don't make enough money to pay income tax?

The Making Work Pay tax credit is refundable. This means that even if you don't make enough money to owe income tax, you will still be able to receive a credit. If you are in this group, you won't see any extra money in your paycheck. But when you file your 2009 tax returns (these are filed in 2010) you can claim your full credit.

Because the tax is refundable, it is considered "non-wasteable". This means that even if you only pay a small amount of income tax, you are still eligible for the entire tax credit. For example, if you are an individual that must pay $300 in income tax, the credit will cover this liability and you will also receive $100 from the IRS.

What do I have to do to get the credit?

If you receive a paycheck and usually have withholdings, you will typically not have to do anything. Your employer is responsible for changing the withholdings on your paycheck. These changes should have been made by April 1, 2009.

If you do not usually have tax withholdings in your paycheck, you must claim the Making Work Pay credit on your 2009 taxes. These will be filed in 2010.

You must still claim this tax credit on both your 2009 and 2010 tax returns. This is to make sure that the amount of the credit was calculated correctly.

Are any groups ineligible?

Yes. The following groups of people are not eligible for the Making Work Pay tax credit:

• Anyone without a valid Social Security number
• Anyone listed as a dependent
• Private pensioners (who do not receive Social Security, Veterans Affairs or Railroad Retirement Board benefits) are ineligible unless they have earned income.

Even if you are not eligible, you may still be affected by the changes the IRS made to its withholding tables. Because of these changes, you may receive a smaller tax refund. If the changes reduce your tax withholdings by too much, you may end up owing taxes the following year. To check your withholding, you can use the IRS Witholding Calculator.

What if I am aslo receiving benefits from the Economic Recovery Payment or Special Credit for Certain Government Retirees programs?

If you are receiving money from either of these programs, your Making Work Pay tax credit will be reduced by the amount of these payments. For example, if you are an eligible SSI recipient and you get $250 from the Economic Recovery Payment program, your Making Work Pay tax credit will be reduced from $400 to $150. If this reduction applies to you, you should check your withholdings to make sure enough is being withheld to meet your tax obligations.

Read more about how the Economic Recovery Payment and Special Credit for Certain Government Retirees programs affect your tax credit.

What if I have multiple jobs?"

If you have more than one job, you will get the Making Work Pay tax credit twice. You can get up to $400 from both your first and second employers.

What if I am self-employed?"

If you are self-employed, you can still benefit from this tax credit. You should carefully evaluate your expected tax liability. Then account for the tax credit and decide whether or not you want to adjust your withholdings.

More information

IRS information about other Stimulus Act tax breaks

Here is a W-4 Form you can fill out online and print to change your withholdings.

The IRS also publishes a short flier in English and Spanish with basic information about the Making Work Pay tax credit.