Monday, March 9, 2009

Do you qualify for the new Making Work Pay tax credit?

The American Recovery and Reinvestment Act of 2009 created a new, refundable personal tax credit for 2009 and 2010. This credit is known as the "Making Work Pay" tax credit. For those who qualify, the credit equals 6.2% or earned income, up to $400 for individuals and $800 for married couples who file jointly.

Most working Americans will qualify for the credit, but nonresident aliens and taxpayers who can be claimed as dependents by someone else do not qualify. A taxpayer must include a valid social security number on your tax return. Couples filing jointly need only to have one valid social security number to qualify.

The other issue to qualify for this credit is your Modified Adjusted Gross Income. If your MAGI is less than $75,000 for individuals or $150,000 for couples filing jointly you qualify for the full amount ofthe credit. If you MAGI falls between $75,000 and $95,000 for individuals, $150,000 and $190,000 for joint filers, your credit will be reduced on a sliding scale. If your MAGI exceeds the top level, you won't qualify for the credit at all.

Also, some people will receive the $250 payments provided by the Act. These individuals, recipients of social security railroad retirement benefits, or veteran benefits, will have their credits reduced by that amount.

The IRS has issued new withholding tables to account for this credit, so you don't have to do anything. When your employer begins using these new withholding tables in the beginning of April, you should see an increase in your take home pay which will continue through the rest of the year.

If, however, you are self-employed and pay estimated taxes through the year, you can either wait until the end of the year to take the credit or reduce your estimated payments to reflect the amount of the credit to which you are entitled.

More information is available on the IRS web site,

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