New Making Work Pay Credit
“Making Work Pay” credit provides a refundable credit of 6.2% of a taxpayer’s earned income not to exceed $400 for individuals and $800 for joint filing couples.
Eligible individuals will receive an income tax credit for two years (tax years beginning in 2009 and 2010). This credit reduces an individual’s tax liability on a dollar-for-dollar basis. Any excess over a taxpayer’s tax liability will be funded. Nonresident aliens, estates, trusts, or individuals who can be claimed as a dependent on someone else's return do not qualify for this credit.
The credit is the lesser of:
• 6.2% of an individual's earned income or
• $400 ($800 in the case of a joint return).
Example - For individuals with earned income above about $6,451, the credit maxes out at $400 ($6,451 x .062). For married couples filing jointly with earned income above $12,902, the credit maxes out at $800 ($12,902 x .062). Thus, the credit for individuals above those income amounts will receive the maximum credit, while those below will receive a reduced credit.
Unlike the 2008 stimulus rebate, this credit will not be paid out in a lump sum. For taxpayers who receive a paycheck, the credit will automatically show up in their paychecks as reduced withholding. For others, such as self-employed individuals, the credit can be claimed on their 2009 and 2010 tax returns when they are filed.
This credit phases out at the rate of 2% of modified AGI, starting at $75,000 for individuals and $150,000 for joint filers. It is fully phased out at $95,000 for individuals and $190,000 for joint filers.
If you have multiple employers, or you are married and your spouse is also employed, the reduced withholding may well exceed the credit amount and reduce your anticipated refund.
