George S. May Business Blog

Making Work Pay Tax Credit means more money in your paycheck

Starting April 1^st, less taxes may be pulled from your paychecks. No, don’t thank me. Thank Obama’s “Making Work Pay Tax Credit”.

The Making Work Pay Tax Credit will put back 6.2% of a worker’s “earned” income (which includes salary, commissions and other compensation) into their paychecks, with a maximum credit of $800 for a married couple filing jointly and $400 for other taxpayers. It’s called a refundable credit because workers can get it even if they don’t owe any tax. The heavier paychecks will continue into 2010.

Now, just because you work two jobs, does not mean you are entitled to double the return. It is very possible that both of your employers will withhold less from your paychecks, however, the Making Work Pay Tax Credit will only be responsible for paying the agreed maximum of $400. So, when tax time comes around, if you have received more, then you will be expected to pay that back. To avoid the situation, pay close attention to your next paycheck and be sure that your employer(s) is withholding the correct amount.

Also, the Making Work Pay Tax Credit does not apply to everyone. If you make above $75k ($150k for married couples) your Making Work Pay Tax Credit will be substantially smaller. If you make $95k ($190k for couples) then you will not be eligible for the credit. Also, retirees receiving social security or pension benefits will be eligible to receive a truncated version of the Making Work Pay Tax Credit, in that, they will get a $250 payment in the spring, as opposed to the yearlong tax credit.

The IRS recently issued new tax-withholding tables that generally will mean less withholding because of the credit. “For most taxpayers, the additional credit will automatically start showing up in their paychecks this spring,” IRS Commissioner Doug Shulman says. “Since employers and payroll companies will handle this change, people typically won’t need to take any additional action.”

If you work for yourself, you can still get the benefit of the new credit. Just adjust your quarterly estimated tax payments to reflect the new tax credit.

Many individuals and couples with multiple jobs may need to send in revised Form W-4s to make sure they have enough withheld, IRS officials warn.

Beyond the above listed stipulations, the Making Work Pay Tax Credit is a bit complex. For more guidance, see a new version of IRS Publication 919 on the IRS Web site (www.irs.gov).

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