Making Work Pay Tax Credit - Paycheck Withholding Adjustment

In April, 2009, the Internal Revenue Service released new withholding tables that increased take-home pay for millions of workers. Taxpayers noticed an increase in their take-home pay soon after, and it will continue through the end of 2010.

The credit is 6.2% of earned income, for a maximum of $400 for a single filer or a maximum of $800 for a married couple filing jointly. The credit is refundable, so even taxpayers who owe no tax are eligible for the credit. The credit will automatically appear in your paycheck, but you will need to claim the credit on your 2009 Tax Return filed in 2010. If you have not received the full amount of the credit to which you are entitled through paycheck withholdings then you should be refunded the remaining amount. The credit is calculated on Form 1040 (Schedule M, Making Work Pay and Government Retiree Credits), which the eFile tax software will generate for you.

The credit is phased out for higher-income earners. Married couples with an adjusted gross income above $150,000 or other taxpayers with an adjusted gross income above $75,000 can expect to see little or no change in their take-home pay. These taxpayers, and those holding multiple jobs, may choose to submit a new Form W-4 to their employer(s) to ensure that enough taxes are being withheld.

Making Work Pay Credit CAUTION:

• If you are a single taxpayer with two jobs, you may be receiving the full amount of the credit in both paychecks (for a total of $800). In this case, you will have to repay the IRS $400 on your 2009 tax return.
• If you are married filing jointly and in a household where both spouses work full-time jobs, the new withholding tables may give each spouse up to $600 over time (for a total of $1,200). In this situation, you will also have to repay $400.
• If you are a single student with a part-time job you may receive $400, but if you are claimed as a dependent on a parent's tax return you will have to repay the $400.
• Social Security recipients, many veterans, and railroad retirees were granted an Economic Recovery Payment of $250 under the stimulus plan, but those employed seniors who also received the Making Work Pay Credit in their paychecks will have to repay the $250 (see below).

The Making Work Pay Credit in 2010

The Making Work Pay Credit was distributed over the course of 9 months in 2009 but it will be spread out over all 12 months of 2010. To account for the adjusted withholding, you may notice a slight decrease in your paychecks in 2010 from what they were in 2009. Some taxpayers should pay special attention to their paychecks to make sure enough tax is being withheld: please see the CAUTION above.

Government Retiree Credit

If you are a retired government employee who received pension payments (for government work not covered by Social Security) in 2009 AND you did not receive the maximum Making Work Pay Credit or the $250 Economic Recovery Payment from the Social Security Administration, the Department of Veterans Affairs, or the Railroad Retirement Board, there is still a credit for you. The Government Retiree Credit is a refundable credit worth $250 for single filers and $500 for married couples filing jointly, if both spouses are retired government employees who receive pension payments. You will not be eligible to receive the credit if you were the recipient of a $250 stimulus payment in 2009, which was sent to most people who are covered by social security. The amount of your Government Retiree Credit will be reduced by any Making Work Pay Credit you receive.

Form 1040(Schedule M), Making Work Pay and Government Retiree Credits, is used to claim the credit, but the efile.com tax software will select the correct forms for you.

How Do I Know if I Received the $250 Economic Recovery Payment?

If you are not receiving Social Security benefits, Veterans' benefits, or Railroad Retirement benefits, then you most likely did not receive the $250 stimulus payment.

If you are not sure whether you received the payment, there are three easy ways to check:

Option 1: Check the "Did I Receive a 2009 Economic Recovery Payment?" website

1. Go to "Did I Receive a 2009 Economic Recovery Payment?".
2. Enter your social security number, date of birth, and zip code (from your last tax return).

Option 2: Call the Social Security Administration

1. Call the Social Security Administration at 1-800-772-1213.
2. When asked to state the reason for your call, say: "Agent".
3. When greeted by an agent, tell them you are asking about your "Economic Recovery Payment".

Option 3: Call the Internal Revenue Service

1. Call the IRS information line for the American Recovery and Reinvestment Act at 1-866-234-2942.
2. Press 1 for English (or 2 for Spanish), then press 1 when prompted.
3. Listen carefully and follow the prompts.
4. Have your social security number, your date of birth, and the zip code from your last tax return ready.

 

Find out how to reduce your monthly paycheck tax withholding here.

A general overview of income tax withholding can be found in Publication 919, How Do I Adjust My Tax Withholding?

top