The Making Work Pay(MWP) credit appears on your tax return in the same section as the federal taxes withheld on your W-2.  That is, the MWP appears like a payment you made – reducing taxes you might have to pay, or increasing your refund.

It is calculated at a rate of 6.2 percent of earned income up to $400 for working individuals and up to $800 for married taxpayers filing joint returns, but phases out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

It is possible that there could be an “over withholding” for some taxpayers. Chief among them are college students and others who may be claimed as a dependent on someone else’s return.

If you are claimed as a dependent on someone else’s return, you cannot qualifyfor the MWP Credit.This means that those taxpayers will have to return any credit paid out to them (either in the form of a payment to IRS or a reduced refund) unless an adjustment is made on a form W-4. 

Pensioners (retirees without earned income)do not qualify for the MWP credit, unless they receive earned income. (However, the IRS has provided pension plans with an optional adjustment procedure. If desired, pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.)

Even if you are self-employed, you can benefit now from the MWP tax credit by evaluating your expected income tax liability, then making an allowance for this tax credit if you’re eligible. If you are eligible you should make the appropriate adjustment in the amount of your regularly scheduled estimated tax payments.

Those who should pay particular attention to their withholding include:

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

Other important information:

• The Making Work Pay Credit is available only for taxpayers with earnedincome.
• To claim the credit, a Schedule M must be completed by you or your PRO-TAX preparer. Form1040-EZ includes a worksheet on the back.
• For people who receive a paycheck subject to withholding, the credit will typically be handled by their employers through automated withholding changes, which may result in an increase in take-home pay.
• Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2010 tax returns.
• It is not necessary to do anything to get the automatic withholding change. However, an employee with multiple jobs or a married couple whose combined income places them in a higher tax bracket should consult the IRS withholding calculator and, if necessary, submit a revised Form W-4, Employee's Withholding Allowance Certificate to your employer,  to ensure enough tax is withheld.. 
• How Do I Adjust My Tax Withholding?(Publication 919), provides additional guidance for tax withholding including a special Making Work Pay worksheet. The worksheet will be especially useful for employees whose situations are only approximated by the worksheets on the paper W-4 – anyone holding more than one job, or couples in which both are employed, those entitled to file as Head of Household and those with several children eligible for the Child Tax Credit.

If you believe your current withholding is not adequate, or you need more information about the MWP credit, you can call PRO-TAX at 1-800-809-2829 Let PRO-TAX deal with the IRS…so you don’t have to