Downing and Strickland - Serving the Kansas City Area

Making Work Pay Credit

By Downing and Strickland

Posted on December 22nd, 2009

There are several pitfalls with the Making Work Pay Credit. Because of these, you may see a smaller refund or even owe this year when you did not expect too. So what is the Making Work Pay Credit? This credit stems from the American Recovery and Reinvestment Act of 2009. This act was signed by the President on February 17, 2009. The idea was to raise the income of eligible workers for 2009 and 2010.

The credit is $400 ($800 for joint filers) or 6.2% of the taxpayers earned income, whichever is less. There are some instances were this doesn’t work out the way it was planned. If you fall into one of these categories you should be aware of the potential impact on your tax return for 2009 and 2010.

If you are an employee with more than one job you could have a problem. The reason for this is that the withholding will be reduced at each and every job. So, while the credit is limited to $400, each employer the taxpayer has will reduce the withholding based on the taxpayers w-4.

Joint filers that both claim two allowances on there w-4 will have the same problem. Each employer will reduce withholdings based on the $800 limit. This could result in the withholding being reduced beyond the $800 limit.

Now there is one way where this will work in the taxpayers favor. If there is only one working spouse then the employer will only withhold a maximum f $614. This means that the remaining portion of the $800 will be captured on the taxpayer’s tax return unless the taxpayer filed a modified w-4 with the employer.

The information contained on this site should in no way be considered to be professional advice in the form of either tax, accounting, or legal service or consultation. You should always consult with a professional familiar with your individual circumstances before making any specific decisions related to accounting, tax, or legal matters.