The Making Work Pay Credit is perhaps the best known tax provision of the American Recovery and Reinvestment Act of 2009 (the Final Stimulus Plan). This refundable federal income tax credit, available in 2009 and 2010, can be claimed by most individuals with earned income. The credit is 6.2 % of earned income up to a maximum credit of $400 ($800 on a joint return).
This credit is reduced by the amount of any economic recovery payment or government retiree credit received by the taxpayer. In general, $250 payments will be made in 2009 to most adult recipients of certain Social Security, Railroad Retirement, Veterans, and SSI benefits. Also in 2009, certain government retirees will receive a $250 tax credit.
The Making Work Pay Credit is phased out for higher income workers by reducing the amount of the credit by 2% of Modified Adjusted Gross Income (MAGI) exceeding $75,000 ($150,000 for joint filers). The credit is totally phased out when MAGI equals or exceeds $95,000 ($190,000 for joint filers). MAGI is Adjusted Gross Income plus certain foreign source income excluded from a taxpayer’s gross income.
Most individual taxpayers (estates and trusts are not considered individual taxpayers for this purpose) who have a valid social security number are eligible for this credit. A taxpayer identification number issued by IRS does not count as a valid social security number. If a joint return is filed, only 1 spouse needs to have a valid social security number. Non resident aliens and those taxpayers able to be claimed as a dependent on another taxpayer’s return cannot claim the Making Work Pay Credit.
The credit will be made available to taxpayers through reduced federal income tax withholding rather than as a single check from the government. Presumably, this method of delivery will increase consumer spending to a greater extent than the previous method of a single lump sum check.
This credit is reduced by the amount of any economic recovery payment or government retiree credit received by the taxpayer. In general, $250 payments will be made in 2009 to most adult recipients of certain Social Security, Railroad Retirement, Veterans, and SSI benefits. Also in 2009, certain government retirees will receive a $250 tax credit.
The Making Work Pay Credit is phased out for higher income workers by reducing the amount of the credit by 2% of Modified Adjusted Gross Income (MAGI) exceeding $75,000 ($150,000 for joint filers). The credit is totally phased out when MAGI equals or exceeds $95,000 ($190,000 for joint filers). MAGI is Adjusted Gross Income plus certain foreign source income excluded from a taxpayer’s gross income.
Most individual taxpayers (estates and trusts are not considered individual taxpayers for this purpose) who have a valid social security number are eligible for this credit. A taxpayer identification number issued by IRS does not count as a valid social security number. If a joint return is filed, only 1 spouse needs to have a valid social security number. Non resident aliens and those taxpayers able to be claimed as a dependent on another taxpayer’s return cannot claim the Making Work Pay Credit.
The credit will be made available to taxpayers through reduced federal income tax withholding rather than as a single check from the government. Presumably, this method of delivery will increase consumer spending to a greater extent than the previous method of a single lump sum check.
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