The Making Work Pay tax credit became effective yesterday. The tax credit, which is part of President Obama’s stimulus under the American Recovery and Reinvestment Act of 2009, might increase your take-home pay in tax years 2009 and 2010.
The stimulus Making Work Pay tax credit will kick back up to $400 per year to eligible individual taxpayers and up to $800 to eligible married taxpayers filing jointly.
According to a rough estimate by CNN Money, the average take-home pay increase will amount to about $10-15 per week for individual taxpayers and about $15-20 for married taxpayers filing jointly.
To be eligible for the stimulus Making Work Pay tax credit, workers must have a valid Social Security number (SSN). To be eligible for the full credit, workers must also earn less than $75,000 in modified adjusted gross income or $150,000 if married filing jointly.
Workers with a modified adjusted gross income of $75,000-$95,000 or $150,000-$190,000 if married filing jointly, will receive partial credit.
If you collect a paycheck that is subject to tax withholding (i.e., your employer takes taxes out before paying you), then you don’t have to do anything to get the tax credit if you’re eligible. Your employer will handle it by adjusting the amount of tax withheld from each of your paychecks. You don’t have to submit a revised W-4 form to your employer.
Eligible taxpayers who do not have taxes withheld by employers, such as self-employed people, may also receive the Making Work Pay tax credit by claiming it on their 2009 and 2010 tax returns. In the meantime, eligible self-employed people may adjust their estimated tax payments accordingly to increase net income.
For more information, see The Making Work Pay Tax Credit by the IRS, which includes frequently-asked questions (FAQs) with answers.
For worker assistance provided by President Obama’s stimulus in addition to the Making Work Pay tax credit, see the blog posts Unemployment Benefits Under the Stimulus Act and COBRA Subsidy Under the Stimulus Act.