Making Work Pay Credit - An extra $400-$800 in your pocket!
A new credit is available
for your 2009 and 2010 federal income tax returns. You and your
spouse will each receive a tax credit of up to $400. That is, if you
have at least $6,452 (or a combined total of $12,904 if married) of
wages or self-employment income. The credit is reduced proportionally
if your earned income is less than that.
But wait...
Don't start
celebrating yet! Congress wanted you to have this extra money right
away so you could spend it and stimulate the economy. To do this,
they had the IRS revise the withholding tables last Spring and take
less federal taxes out of your paychecks, leaving you with more current spending money. For some people, however,
the lower withholding amounts went too far. They may not be taking
out enough withholding, and you could actually see your refund decrease a little.
For the self-employed, who
receive no "paychecks", this credit may be a wonderful blessing!
Unless you reduced your quarterly tax estimate payments accordingly,
you will actually be able to SEE the difference this credit makes on
your tax return. Considering the extra tax burden paid by the
self-employed person, this is a real boon!
No credit is allowed for
those who can be claimed as a dependent by a parent or other party.
And, the credit is phased out at higher income levels. Since the credit is
based on earned income, those who do not work, do not receive, hence
the name "Making Work Pay." (But see a future blog on Economic
Recovery Payments for some of those folks.)
Finally, if you received
the $250 "Recovery" payment in 2009 (think Social Security
beneficiaries), and also qualify for the $400 credit, you will need
to reduce the credit by that amount. Don't look for another $250 in
2010, though. We don't expect to see that happen again soon!
