Q1. What is the Making Work Pay Credit?
A. In tax years 2009 and 2010, the Making Work Pay provision will provide a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns.
Q2. How will taxpayers get this credit?
A. For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes to be made in early spring 2009. These changes may result in an increase in the amount of take-home pay. The amount of the credit will be reported on the 2009 income tax return. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return filed in 2010.
Q3. How will the self-employed (those who do not receive Social Security, Veterans Affairs or Railroad Retirement Board income) claim this credit?
A. Self-employed taxpayers can claim the Making Work Pay credit on their 2009 return filed in 2010. Self-employed individuals should evaluate their expected income tax liability and determine whether they want to make any adjustments in their estimated tax payments.
Q4. Can private pensioners (those who do not receive Social Security, Veterans Affairs or Railroad Retirement Board income) claim this credit?
A. Private pension recipients are not eligible for the Making Work Pay credit unless they have earned income. However, because the new withholding tables reduce the taxes withheld from all taxpayers, pension recipients may not have enough tax withheld from their pension benefits to cover their tax liability on those payments. The IRS recommends that pension recipients evaluate their expected tax liability for the year and consider whether they need to make estimated tax payments or adjust their withholding on Form W-4P, Withholding Certificate for Pension or Annuity Payments (PDF).
Q5. Are employees required to have a valid Social Security number (SSN) to be eligible for the Making Work Pay tax credit?
A. Yes, eligibility for this credit is conditioned upon providing a valid SSN.
Q6. If a taxpayer is eligible for more of a credit, how can it be claimed?
A. The modified tables take the anticipated credit into account through reduced withholding. However, the Making Work Pay credit will be reported on all filed 2009 income tax returns, along with the taxpayer’s withheld income tax. Taxpayers receiving less than the full amount of the anticipated credit through reduced withholding will still be entitled to the full credit on their return.