Will the Making Work Pay Tax Credit Cost You at Tax Time?
The Making Work Pay credit is equal to 6.2 percent of a person's earned income. If you earned less than $6,451, you won’t get the full $400 granted to single filers. Married couples had to earn at least $12,903 to get the full $800 payment. The benefit is phased out for singles earning $75,000 or more and couples earning $150,000 or more.
Making Work Pay payments came in the form of reduced tax withholdings over nine months of 2009, which could have caused problems for those whose spouses were also getting the payments and those who worked two jobs.
In both those cases, your employer may have given you too much Making Work Pay money. That could happen if your spouse’s income pushed you over the limit, but your employer didn’t know, or if you had two employers that both put extra Making Work Pay money in your paycheck.
And since they don’t qualify, students and others who can be claimed as dependents, Social Security recipients who work and workers who don’t have a valid Social Security number may also not have had enough taxes withheld if their employer thought they qualified.
Pensioners are another group with the potential to have incorrect withholding because pension income doesn’t qualify for the tax credit. The IRS warned pension funds to adjust their withholding, but your fund may have missed the memo.
Retirees who collect Social Security, Supplemental Security Income, VA benefits or Railroad Retirement benefits and who also got a one-time Recovery Act check for $250 in 2009 need to subtract that amount from their Making Work Pay tax credit.
And anyone who was unemployed for part of the year might find they’re either underwithheld because they took the Making Work Pay money but didn’t earn enough to qualify, or that they will receive Making Work Pay funds because they qualified but didn’t yet collect their $400. You can use Schedule M to claim those owed funds.
But if the Making Work Pay tax credit left you underwithheld, the IRS may send you a letter saying you owe an estimated tax penalty. If that happens, use Form 2210 to ask the government to waive the penalty.
How do you find out if your withholding is correct? Use the IRS withholding calculator to compare what should be coming out of your paycheck with what is coming out of your paycheck.
Still confused? Consider seeking professional help or using software to calculate your taxes -- it will do all the computations for you.