Making Work Pay Credit

What you need to know for your 2009 tax return

The Making Work Pay Credit is an economic stimulus provision of the American Recovery and Reinvestment Act that took effect in April 2009.  The purpose of the credit, which is in force for both 2009 and 2010 tax years, is to provide up to an additional $400 per year to working individuals and $800 per year to working married couples through a reduction in withholding taxes.  For most workers, this has resulted in a small increase in their take-home pay which is intended to increase spending and stimulate the economy.

The amount of the credit will be calculated on each taxpayer’s 2009 income tax return.  However, certain working individuals are not eligible for this credit but may have seen a reduction in their withholding anyway.  This may result in an overpayment of the Making Work Pay Credit and cause either a reduced income tax refund or taxes due to the IRS.

Who Doesn’t Qualify for the Making Work Pay Credit?

Some taxpayers who are not eligible for the Making Work Pay Credit include:

• Individual taxpayers with an Adjusted Gross Income (AGI) of $95,000 or more and married couples filing jointly with an AGI of $190,000 or more.
• Anyone who can be claimed as a dependent on someone else’s taxes.

Even if you’re not on this list, you may have inadvertently received more than your share of the credit in your pay, since employers are required to use the same withholding tables for all workers.  This may mean you owe that money back to the IRS on your personal income taxes.

Who May Have Received Excess Making Work Pay Credit Amounts?

Taxpayers that fall into any of the following categories may end up owing money back to the IRS or seeing a reduced refund amount because of excessive credits in their paycheck:

• Single workers with more than one job.
• Joint filers with multiple jobs.
• Individuals who file with an Individual Taxpayer Identification Number.

According to the Treasury Inspector General for Tax Administration, more than 15.4 million taxpayers  may need to pay back some or all of their advance credits or even be assessed an estimated tax penalty as a direct result of the Making Work Pay Credit.

What Can Taxpayers Do About Making Work Pay Credit Overpayments?

If you’ve received excessive Making Work Pay Credit advances, there isn’t much that can be done to alleviate your tax burden for 2009.  Using an e-file site, like www.efiletaxreturns.com, to prepare and file your taxes online will help you spot any overpayments and assist you in getting the maximum deductions available in order to reduce your taxes.  This will also give you a good idea of what amount you should be withholding from your pay in order to avoid a similar situation next year.

For the 2010 tax year, workers can make adjustments to their withholding now to account for the Making Work Pay Credit.  When you have determined your correct withholding amount, any adjustments can be made by filing a revised Form W-4, Employee's Withholding Allowance Certificate, with your employer.