An Overview on the Making Work Pay Tax Credit

The Making Work Pay tax credit is a tax credit that is available for the 2009 and 2010 tax years and is a credit that is available to all taxpayers aside from nonresident aliens, dependents, an estate or trust or for taxpayers who fail to furnish their social security number on their return.  The credit is an economic stimulus credit and some taxpayers have already received the benefits of this credit through gradual provisions throughout the year.

The amount of the credit is equal to the lesser of 6.2 percent of earned income or $400 ($800 for joint filers).  The credit is phased out for taxpayers who have a modified adjusted gross income over $75,000 ($150,000 for joint filers) at a rate of 2 percent of the excess over the threshold amount.  So even if you exceed those income amounts, you may still be able to claim some credit, but it will be reduced to the extent your income is over $75,000 ($150,000 for joint filers).

The IRS recalculated the withholding tables in 2009 to allow for some taxpayers to incrementally claim the Making Work Pay tax credit throughout the year with their payroll deductions.  Any taxpayer who took advantage of this will have to reconcile these amounts with the amount allowed when completing their tax return.  Additionally, there was a one time economic recovery payment of $250 made in 2009 as well to many taxpayers, and the Making Work Pay credit would also be reduced by this amount.

The Making Work Pay tax credit is a really beneficial credit for many taxpayers out there who are pinching every penny and for whom every dollar counts.  Even this amount can make a big difference, especially for those who have gradually already been enjoying the benefit of this credit.  It is important to be aware that any benefits under the credit already received will have to be taken into account when completing your tax returns and your allowable credit at the end of the year will almost always be reduced by the amount of the credit you have already taken.  Being aware of this can make a big difference in making sure that you do not misstate the amount of the credit or claim more than you are entitled to, raising flags with the IRS.  Also make sure you are aware of whether you received the $250 economic recovery payment as well in preparation of your tax returns.  Once you know all of these factors, you are set to go ahead and claim this beneficial credit on your return.