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Are you Getting More Pay (Or A Smaller Refund) With The "Making Work Pay" Tax Credit?

 

December 15, 2009

If you’re like most wage earners last Spring you probably started receiving a larger paycheck (but may not have noticed it) as a result of changes made to the federal income tax withholding tables for the “Making Work Pay” tax credit. 

As with any change to the American income tax system, there are some problems with the “Making Work Pay” that could affect you now or when you file your 2009 taxes.  

One problem is that some people may find the changes built into the withholding tables result in less tax being withheld than they prefer, resulting in a lower refund.   

If you're NOT eligible for the “Making Work Pay” tax credit, withholding changes could mean a smaller refund when you file. Some tax payers, 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/Retirees with no earned income
  • Married couples with two incomes
  • Individuals with multiple jobs
  • Dependents
  • Some Social Security recipients who work
  • Workers without valid Social Security numbers

How Much Should You Receive?

The “Making Work Pay” tax credit provides a maximum of $400 for working individuals and $800 for working married couples, and 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. 

This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes which occurred in early spring. These changes should have resulted in an increase in take-home pay (even if you barely noticed it). The amount of the credit will be computed on the employee's 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.

If you believe your current withholding is not adequate, you can check with your employer or by calling PRO-TAX at 1-800-809-2829. Adjustments can be made by filing a revised Form W-4 or Employee's Withholding Allowance Certificate, with your employer. 

Special Situations:

Pensioners (Retirees without earned income)

Pensioners do not qualify for the “Making Work Pay” credit, unless they receive earned income. However, because the February withholding tables also apply to pensioners, 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.

Self-Employed

Even if you are self-employed, you can benefit now from the “Making Work Pay” 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.

If you have any questions regarding the “Make Work Pay” tax credit or any other tax questions, please call PRO-TAX at 1-800-809-2829. Let PRO-TAX deal with the IRS…so you don’t have to!