Passage of The American Recovery and Reinvestment Act of 2009 (“ARRA”) has left many with questions about the various tax deductions provided under that new law. A few days ago we provided some clarification about the first-time homebuyer’s credit. Today, I’ll provide some details about the Making Work Pay tax credit.
The Making Work Pay tax credit is a refundable tax credit for working taxpayers for 2009 and 2010. The credit will provide a tax credit of as much as $400 dollars for individuals and $800 dollars for married taxpayers who file joint returns. The credit will equal 6.2 percent of the taxpayer’s earned income and will be refunded throughout the rest of the year. The refund will not be paid out as a single lump-sum amount. For those who qualify for the credit, you should start to see an increase in your after-tax pay checks within the next couple of months as employers update the tax tables they use to calculate your income tax withholdings. The credit will need to be reported on taxpayer’s 2009 tax return (filed in 2010).
This credit begins to phase out if your modified adjusted gross income (MAGI) exceeds $75,000 dollars ($150,000 dollars if you are married and file a joint return). If your MAGI exceeds $95,000 dollars ($190,000 for married filing jointly) you will not qualify for this credit.
If you receive the $250 dollar payment under the provisions of the Economic Recovery Payment (for Social Security Recipients, Veterans and Railroad Retirees) your Making Work Pay tax credit may be reduced.
Taxpayers who are self-employed or who do not have taxes withheld by their employer can also claim the credit by adjusting their estimated tax payments and claiming the credit on their 2009 tax return.
The IRS is still in the process of working out the details of this tax credit and expects to publish them for employers in Publication 15 (Employer’s Tax Guide).
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