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.
Similar Posts:
- Ask the taxgirl: Do I Have To Take The Making Work Pay Credit?
- Ask the taxgirl: Social Security Overpayments
- No April Fool’s: Stimulus Withholding to Begin April 1
- Ask the taxgirl: Making Work Pay Credit and Outstanding Liabilities
- Ask the taxgirl: How Much Money Will I Get Under Obama’s Stimulus Plan?
{ 1 trackback }
{ 22 comments… read them below or add one }
Kelly,
You’ve done a great job of explaining this. Hopefully this will help more folks understand that the payroll tax withholding tables are NOT (and to the best of my knowledge never have been) set up to ensure that the FIT withheld from their checks will approximate their liability for any particular tax year.
I’ve been trying to explain this to clients for decades! Thanks for the assist.
Sheryl
Hi Taxgirl,
Just so i understand, there’s no way for me to get my hands on the $800 (in my case) in one payment this year? It sounds like my employer will be maing the appropriate adjustment? But i don’t really get that. I read somewhere that “This tax credit will be calculated at a rate of 6.2% of earned income”. Not sure what that means. If I have set my W4 so that a certain amount is withheld, my emplyer is going to manually go in there and make sure a little less is withheld? How many months of adjustments to my paycheck will it take for me to get the full $800? thanks so much
If your employer uses a paper table, he or she will just check the updated tables.
If your employer uses a payroll system or software, he or she won’t have to do anything – those adjustments will be automatic.
You can’t really “opt out” of the increased withholding but if you wanted to make an adjustment, you can tweak your form W-4.
My husband and I both currently file as married zero. Iv’e been told one of us should change to single zero. Should I do this? Or, can I remain as married zero and have extra taken out of my federal tax withholding?
Concerning the Making Work Pay Credit, will it function like the stimulus payments of yore where if I acknowledged receipt a stimulus payment on my TurboTax software this year, my tax liability went up by that exact amount and if I unchecked the box, it went down?
Second question: How can I calculate my withholding so I come as close to paying zero taxes next year and receiving little to no refund either? My goal is to pay exactly what I owe, no more no less – to realize as much income per check as possible.
Thank you.
Without knowing more, I’d suggest remaining as married and having additional money taken out – you can do that by just writing it on the form W-4.
Without knowing more, I’d say keep your status as married and have additional $ taken out. You can write the amount that you want withheld on your W-4.
Huh. My gross is less than $75k, and my AGI is certainly much less (student loan deduction and all). I’m single and claim 5 exemptions… but my biweekly check today has $25 more withheld for fed taxes. An extra $50 a month I get to pay now.
I’m so happy that I’m rich. I never knew. I also never knew that more than $250,000 a year equaled less than $75,000 a year. I’m an extremely liberal Democrat, but I hate Barack right now. This Making Work Pay credit is a damnable lie.
So this “credit” will alter the amount I get back during tax time 2010, correct? There isn’t any new tax law where I won’t be held accountable for this money (unlike last years stimulus that didn’t affect my tax return)? I mean, if I’m paying less, I suppose I’ll get less in return. I just want to make sure I’ve got this straight before I alter my W-4.
The credit is fixed according to your filing status and income (up to $400 per individual worker and $800 per working married couple). If your adjusted withholding equals the credit, you’re good. If you get more than you should, you will have to give back the overpayment. If you get less than you should, the credit is refundable, so you can collect the difference come tax time next year.
Hate to sound so thick headed but is this for 2009 only or is it applicable yearly for a specified amount of years? (Honestly I would prefer a lump sum check from Uncle Sam, and I bet my employer would too.)
Thanks in advance,
Ruthie
It’s just for 2009 so far.
If I understand correctly, both of my wife’s job and my job (my second job is “student”) will all take out about $22/week thus causing an overpayment of $1600 and taking our refund level tax return dangerously close to owing more than $1000? (If I remember correctly, the government charges a penalty if your liability exceeds $1000).
*sigh* My wife and I already had to increase withholdings by $10/check state and $20/check federal – and now it looks like we’ll have to up the federal to more like $50/check to balance out our overpayment.
To be honest, the fact that our government approved of having the employer take out the tax credit shows how clueless our government is about the working class. Almost everyone I know who is married has both spouses working, and I am sure they are not going to realize that they each will have $22/week taken out and end up owing an additional $800 for overpayment! (Again, on the assumption that I understood this correctly.)
No, it’s not quite that black and white. The real issue is your withholding. The tables assume that you’re both claiming appropriate exemptions. And the MWP credit should work out so that each of you receives an amount that together would equal the married taxpayers credit ($800, which is 2x the amount for individuals). So, for most folks, it should work out okay. The problem for married taxpayers will happen when either your combined incomes will result in a phaseout (starting at $150,000) or if one of you has income (esp if one of you works two jobs) and/or exemption amounts that result in an overpayment when combined with your spouse. For most middle class taxpayers, this should not be a problem. Check your pay stubs before you panic. You might be okay.
Thanks for the explanation.
I couldn’t quite wrap my head around this issue until I ready your description.
Great job, thanks!
Kimberley
Gig Harbor, Washington
Hi,
I am having SSN and my wife has only ITIN no and we file jointly;Our income doesnt cross $150K.do u think we qualify for the Making work pay credit?
Alien Worker
NY
Excellent explanation of the tax implications of this credit. I also read that President Obama is extending this credit till 2013, using his budget to fund the credit. Any update on this?
Haven’t heard anything but will keep my ears open. Thanks for reading!
Hello,
I’m paid on a monthly basis and currently file 3 for state (Iowa) and 3 for federal. I have not seen any decrease in taxes being taken out of my paycheck. Is this due to the fact that I have three deductions for state and federal already? Any advice that can be offered would be greatly appreciated!
Thanks,
Matt
I forgot to add that my income per year is $46,000 and I am filing single. Hopefully that will better help you answer my question.
Thanks!
Hello I am collecting a state government pension after 27 years in law enforcement. I am 49 years old. Recently on 01 April 09 I saw my federal withholding decrease by 60 something dollars or so per month. I assume that means I am getting the 800 bucks. I am married however neither of us have anymore wages, income, taxes, etc. The only income we have comes in a 10-99R.
I am correct in that I am going to owe all of this back come tax time next year because it is a pension. My pension sent out a letter at that time saying basically the government forced us to do this but you better do a new w-4 or you are going to owe a lot of taxes at the end of the year. Is this correct?
Thanks
I just changed my W4 to be on the safe side. My filing status is MFJ. My understanding after reading the other posts regarding the MWPC, if I changed my W4 to withhold more taxes and I’ve always received refunds, this tax credit should not affect when filing my 2009 return. Am I right?
Thank you!