The Making Work Pay credit was signed into law on February 17, 2009, as part of the American Recovery and Reinvestment Act of 2009.
The Making Work Pay credit is 6.2 percent of a taxpayer’s earned income with a maximum credit of $400 for single taxpayers and $800 for married couples filing a joint return. Most workers will qualify for the maximum credit, and the credit is refundable.
The credit is phased out for higher income taxpayers. This includes single taxpayers whose modified adjusted gross income is between $75,000 and $95,000, and married taxpayers whose modified adjusted gross income is between $150,000 and $190,000.
The benefit generally will be spread out over the paychecks employees receive beginning now and continuing until the end of the year. The benefit is a reduction in federal withholding tax withheld from an employee’s paycheck.
Eligible workers will get the benefit on this change without any action on their part. Workers do not need to fill out new W-4 withholding forms to receive the credit because it has been built into the new withholding tables.
Here’s the Important Part
For Individuals and couples with multiple jobs, or couples where both spouses work, employees may want to submit a revised Form W-4 to ensure that enough withholding is withheld to cover the tax liability for the combined income.
Yeo & Yeo has run some scenarios for married couples. Any taxpayer claiming married status for federal withholding will receive the full $800 credit if their yearly gross pay is at least $12,903. So if both spouses work, they could have $1,600 in reduced federal withholding for the year, with only an $800 tax credit to offset this shortfall, leaving them $800 short at tax time.
When the Internal Revenue Service revised the tables, they assumed that only one spouse works.
Please look at your withholding on your January paychecks and compare it to what is being withheld today. It is assumed that your gross pay is the same now as it was in January; if it has changed from the first of the year, this comparison will not work.
Employees claiming married for federal withholding and paid weekly should have a savings of $15.38.
Bi-weekly payrolls: $30.77; Semi-monthly payrolls: $33.33; Monthly payrolls: $66.67
If you need to have additional federal withholding, please fill out a new W-4 form and submit it to your employer. It is recommend that if you are going to be short in your withholding, file a new W-4 and on Line 6, Additional amount, if any, you want withheld from each paycheck put in the corresponding amount from about or whatever you need based on your circumstances to make sure that you are not under-withheld by the end of the tax year.
