A major part of the economic stimulus package signed last week is the Making Work Pay Tax Credit. In 2009 and 2010, that credit will provide a refundable tax credit of up to $400 for a working individuals and $800 for married workers. But you won’t be getting that money in a lump sum: it isn’t a stimulus check and it isn’t intended to be part of your income tax return. Instead, you’ll be receiving that money spread out over all of your paychecks.
In order to make sure you get that money, the IRS has released new tables to show taxpayers just how much of their paychecks will be withheld when that tax credit goes into affect. Your withholding should amount to only a few dollars less per week — remember that the credit is spread out over a full year — but you shouldn’t need to do anything to receive it. Employers should be receiving the new withholding tables and put them into affect by April 1, 2009. Depending on how on-the-ball your employer is, you could start getting a little extra in your paycheck immediately.
The actual amount you can expect varies. It’s the equivalent of 6.2 percent of your earned income for the year, up to a total of $400 per person. You can qualify for up $800 if you’re married — even if only you (or only your spouse) is employed. Your annual income can also affect the credit — taxpayers passing a certain income do not receive it. If you are single, the credit phases out between $75,000 and $95,000. If you are married, it phases out between $150,000 and $190,000.
The credit is also available to self-employed individuals: they can claim it by reducing their estimated quarterly tax payments or claiming it when they file their 2009 tax returns. You can also get the credit even if you don’t earn enough to owe federal income tax: you will have to wait for it, if withholding isn’t taken out of your pay check though. Instead, you’ll be able to get the credit when you file your 2009 tax return. However, you do need to have a job in order to get the credit — and you cannot be claimed as a dependent on someone else’s taxes. That means that if you’re a student working part time, you’ll probably miss out on this particular tax credit.
It’s worth making sure that you do qualify for the tax credit: employers will just automatically start using the new withholding tables. If your spouse’s salary makes it impossible for you to claim the Making Work Pay Tax Credit, for instance, it’s up to you to make sure your paperwork reflects that fact. If you don’t qualify for the tax credit, but your withholding still decreases, you’ll owe the IRS money come April 2009. It may be significantly easier just to fill out a new W-4 and increase your withholding on line 6.
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