Regarding the “Making Work Pay Tax Credit,” be careful in claiming this as a benefit because you might end up having to pay. As the old adage goes: “There are no free lunches.” First of all, this is a temporary credit for working people. For individuals who have gross incomes of $75,000 or less; they can claim $400 on the 2009 and 2010 income tax. For couples with gross incomes of $150,000; they can claim $800; however, the credit is reduced by 2% for those making over these totals, and there is no credit for individuals with incomes of $90,000 or more and $190,000 for married couples.
The Making Work Pay tax credit was implemented in 2009 to assist employees receiving a paycheck who are subject to withholding , and some people received a larger paycheck as a result; however, this credit has to be reported on the 2009 tax return. Those who did not have taxes withheld in 2009 can still claim the credit on their 2009 return that will be filed in 2010.
Self-employed people who do not have deductions take out can also claim the credit on the 2009 tax return; however, be careful before automatically claiming the Making Work Pay credit because IRS has reduced the withholding to reflect this credit. You might end up having to pay rather receiving a refund. It is recommended that you evaluate the expected income tax liability to determine whether you need to make an adjustment in the estimated tax payment, for example, some people had to revise the W/4 to reduce the tax refund or the balance due.
Private pension recipients should also evaluate, because as stated, the withholding tables have been revised to reduce the taxes withheld from all taxpayers; pension recipients may not have enough tax withheld from their benefits to cover the tax liability. In fact, a small refund could be received by some taxpayers who are not eligible for the credit because they did not project. The following category of people should especially be careful before automatically claiming this credit. They are as follows:
1) Pensioners
2) Married couples with two incomes
3) Dependents (Especially those who work, college students, etc.) You could be claimed on someone else’s return; however, since you are not eligible for this credit; you might have to pay.
4) Some social security recipients who work
5) Workers who do not have valid social security numbers
6) Railroad retirees
7) Disabled veterans
8) Certain Federal and State retirees
Although this group is specified; everyone should take a look at their withholding to determine whether enough tax is being withheld to meet the tax obligation. It is recommended that you use the IRS withholding calculator to determine whether you qualify for the Making Work Pay Tax Credit and to determine if too little tax will be withheld. To do this, go to www.irs.gov.
Those who are not eligible are:
– Non-government pension income
– Unemployment compensation (The first $2,400 is now tax-free; however, any additional is taxable)
– Trusts or estates
To reiterate, this credit is worth 6.2% of an individual’s earned income or a maximum of $400 or $800 per couple. For social security recipients, disabled veterans, and government retirees who received the $250 from the one-time economic recovery payment, they are only eligible for $150. For self-employed and those receiving combat pay; any net income that is not taken into account as taxable, is also not taken into account for the Making Work Pay tax credit. Working dependents may also need to adjust manually their withholding to avoid owing tax, since the tax tables have been lowered.
In order to receive this credit; one has to be a United States citizen or resident alien with a valid social security number. It should be claimed on the 2009 and 2010 tax returns to ensure the amount of credit is properly calculated. The benefit is spread out over the paychecks for the entire year. Use Schedule M for calculating the Making Work Pay tax credit. Some people might find that the credit does not help them at all because less tax is being withheld than they prefer
REFERENCES:
Taxes.about.com/od/deductionscredits/a/making_work_pay.htm
IRS.gov/newsroom/article/O,id=205922,00.html