Making Work Pay tax credit means more money now

By: Michelle Carolla | SCNow
Published: May 04, 2009

Everyone would like more money in their paycheck. The new Making Work Pay Tax Credit passed earlier this year by the Obama administration puts more money in your check.
The tax credit comes with a few rules that may end up leaving you without the money you expected. You may already saw an small increase in your paycheck this year. The new tax credit kicked in as part of the American Recovery and Reinvestment Act.
The Internal Revenue Service website reports it provides a refundable credit of $400 for working individuals and $800 for married couples filing jointly. The credit is calculated at a rate of 6.2 percent of earned income, unless you make $75,000 or more as a single filer or $150,000 as a married filer.
You don't need to change your withholdings. Your employer will adjust your pay according to the new charts. However, you will pay it back at the end of the year. "In the long run, people are probably not going to end up with the refund they expected,” said Rad Lowery, a CPA in Myrtle Beach. “Unless people are aware of the tax credit and how it works and unless they're getting it throughout the year and they're in a lower withholding rate. So, I think as long as people are aware of that, then they're going to know at the end of the year when they hear about stimulus rebates, that it's not going to come through on their tax return as a refund."
Here’s how it breaks down:
If you work and earn an income, you're eligible for the credit throughout the year.
If you're self employed, you're still eligible. You will claim it when you file your taxes.
If you receive a pension, you don't receive the credit. However, your money is taxed at the new withholding rate and you most likely won't pay enough during the year. This could mean you'll need to pay when you file.
Basically, the credit you receive should even out at the end of the year resulting in a zero gain. There was just a little extra to work with during the year.
You can opt out of the credit or adjust your withholdings to compensate. This is especially important if you work more than one job. Speak with a tax consultant or go to http://www.irs.gov

Making Work Pay tax credit means more money now

Tax Surprise (Added: May 04, 2009)

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