Making Work Pay Credit Could Surprise Some Taxpayers in 2010

Note from taxgirl: I’ve written a few pieces about the credit since this piece originally posted. Many of the questions and comments related to this post can be answered by checking out this updated post about sorting out the credit. You can find out more about calculating the credit here.

As of April 1, many taxpayers will see an extra few dollars in their paychecks as a result of the Making Work Pay Credit. The MWPR was part of the American Recovery and Reinvestment Act of 2009, signed into law by President Obama in February 2009. The credit will provide up to $400 per individual worker and $800 per working married couple.

The credit will be administered through cuts in withholding at the employer level. The credit will phase out for individual taxpayers with AGI in excess of $75,000 (up to $95,000) or $150,000 for married couples filing jointly (up to $195,000). If you are a higher income taxpayer, you will see little or no change in your pay.

The amount of the credit that you receive will be reported on your 2009 income tax return, which is filed in 2010, but it is not taxable and you do not have to pay it back if you received the proper amount. If you do not have taxes withheld by an employer during the year because you are self-employed or because your withholding level is too low for the credit to apply, you can claim the credit on your 2009 tax return (filed in 2010). This is a refundable credit, so if you qualify and you do not receive the entire amount, you can have any additional credit refunded to you at tax time (again, in 2010).

The changes will be made automatically through your withholding so you will not need to make an adjustment to your form W-4 come tax time for most taxpayers.

There are, however, potential problems for some taxpayers. It is possible that there could be an “over withholding” for some taxpayers. Chief among them: college students and others who may be claimed as a dependent on someone else’s return. If you are claimed as a dependent on someone else’s return, you do not qualify for the Making Work Pay Credit. This means that those taxpayers will have to return any credit paid out to them (either in the form of a payment to IRS or a reduced refund, if you normally qualify for a refund) unless an adjustment is made on a form W-4.

Additionally, married taxpayers who both work should carefully review withholding. If each spouse’s employer makes the adjustment, an “over withholding” could apply, especially in cases where combined income hits a phase out amount or if withholding from one spouse runs all of the way up the bracket (the same situation applies to taxpayers who work more than one jobs). Remember, your employer is merely reading from a tax table: he or she is not aware of your spouse’s income (or lack of) or your other employment. If you know that your combined incomes are over the phase out limits, or that your income may run up the bracket as a married taxpayer or due to holding more than one job, you should make accommodations now (either in the form of adjustments or setting money aside) so that you don’t get caught by surprise next April.

It’s also important to remember that if you do not work, you are not eligible for the credit. Retirees and the disabled are set to receive a $250 check sometime in late spring/early summer but there will be no checks for taxpayers who do not work and do not qualify as a retiree or disabled person. Keep in mind, too, that the number of children that you have will not affect your credit this year: I’ve been fielding questions from taxpayers who believed that the provisions from the last stimulus bill (in 2008) would apply for this year. They do not. Claiming additional dependents on your 2009 tax return (filed in 2010) will not increase your Making Work Pay credit.

The bottom line is that if any special circumstances apply to you, be aware of how much is being withheld from your check. Do the math if you’re worried. Assuming that you’re not phased out, to receive $400 over (roughly) the next nine months, an individual taxpayer should receive about $11 extra per week. Similarly, assuming that you’re married and not phased out, you and your spouse should receive twice that amount combined ($22/week). If you find that your withholding is more than it should be – and you’re concerned – make an adjustment on your form W-4 or talk to your tax professional.

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94 thoughts on “Making Work Pay Credit Could Surprise Some Taxpayers in 2010

  1. Carl, so long as you had earned income (and it sounds as you do) and otherwise qualify, you should be able to claim the credit. Try completing a Schedule M.

  2. Carl, so long as you had earned income (and it sounds as you do) and otherwise qualify, you should be able to claim the credit. Try completing a Schedule M.

  3. Does the Federal “Making Work Pay” tax credit have any effect on state income tax returns? Are you aware of any states that are providing same or similar tax credits at the state level?


  4. Kelly,

    Received my federal return which was considerably more than expected. Their explanation was this ‘making work pay’ credit. I have not sat down to look at my return yet but i wonder what affect this will have on my state returns and will I have to file amended returns based on my AGI?


  5. John, dunno what state you’re in but the Making Work Pay Credit does not affect your AGI (and should not affect your state taxes). It’s just a credit to offset tax due – the difference is a refund to you.

  6. We just recieved a $4000.00 from the i.r.s, we were expecting $900.00. We didnt fill anything in for the making work pay program, so we refigured out the tax money owed to us is 900.00, Our over all income is 17,000.00. How can this be possible 4o00.00. How could the i.r.s came up with this amount? We made 9000.00 in our business. The other income was paid by the county and they took taxs out.

    Any ideas?


  7. My daughter received a refund from the Making work Pay credit and being her father and claiming her as a dependent I told her she was not eligible for the credit. I tried t talk to the IRS and ask them where to send the check back. They wouldn’t even tell me because I was not my daughter. They wanted a third party conversation with her to tell her where to send it to. All I wanted was an address and they wouldn’t even do that. My daughter does not like to talk to anyone on the phone so I thought I would help her out….What a mistake I made…my blood pressure is s high now I think I am going to faint. All I wanted was an address and they wouldnt even tell me. ..I’m her father…claimed her as a dependent on my tax return..could have proven that without a doubt and they still wouldn’t tell me…I have never been so frustrated in my life.. How did the IRS miss the fact that I claimed her as a dependent and still sent her the check I don’t know. Would you have any idea what the address is.? I barely see my daughter and I am trying to help her out…. Scott Shattuck

  8. Like Scott’s daughter, I just received an IRS check for a bit over $400 (interest was included) even though my ONLY income in 2009 was a taxable fellowship grant (i.e., not “earned income”); thus, I am *not* eligible for the Making Work Pay credit, correct?

    I can’t believe that I am now supposed to spend my time and energy figuring out where or how to return the check because the government has been overzealous in correcting for people who forgot to file Schedule M. (I admit that I didn’t file it, but I did that because I thought I didn’t need to since I wasn’t eligible…in the future I suppose I will always file for things like this even if I don’t qualify, just to avoid these kinds of stupid IRS mistakes.)

  9. I received the work pay credit in 2009 which to amounted $12. In Jan 2010 my paycheck was reduced by about the same amount. I called my payroll department and they advised that it was the Obama simulus that expired in 2009. I’m reading that the work pay credit is going to expired in 2010? Is the gov’t going to deduct an additioanl $12? I’m not taking about the Bush tax cuts.

  10. Question – my husband and I filed married – joint last year and received the $800 credit – this year on Form M – it asks how much we received. Am I to write $800? I’m confused because in paranthesis it states not to write more than $500… but we received $800….?… confused!

  11. I use “taxact” to calculate for me, it automatically entered 800.00 since my husband and I are filing jointly. My husband had a job in 2010 but I did Not work the entire year, if we file jointly should it be entered as 800.00 since my husband worked and I didn’t, but we are filing jointly. The taxact program usually corrects entries so I am assuming this is a correct entry. thanks

  12. Is “Work Pay Credit” taxable?
    I mean: should I report the “Work Pay Credit” of 2009 as taxable credit on Line 10 of 2010?
    Thanks a lot.

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