What the "Making Work Pay" Tax Credit Means For You

(Mortgage Market Guide, April 6th) The economic recovery package that Congress passed in February included a "Making Work Pay" tax credit that eligible workers will receive through their paychecks in 2009 and 2010. Employers will use new withholding tables to lower the amount of tax that is withheld from eligible workers' paychecks. And since the Obama administration has asked that employers begin implementing these changes this month, you may have already noticed an increase in your paycheck.

While single filers can receive up to $400 a year from these changes, ($800 a year for joint filers), just how much extra money you will get depends on a number of factors, including your salary, marital status, and the allowances or exemptions you claim. Here are the highlights:

The full amount will be paid to single filers with modified adjusted gross incomes of $75,000 or less, ($150,000 or less for joint filers). Partial amounts will be paid to single filers earning between $75,000-$95,000, and to joint filers earning between $150,000-$190,000. Since the amount is based on modified adjusted gross income, any income earned in a foreign country, or in Puerto Rico or American Samoa, will also be factored in.

Anyone who is claimed as a dependent on another person's tax return is not eligible, even if the dependent works and earns income. If lower-income workers do not make enough money to have taxes withheld, they won't receive any extra money in their paychecks but they can claim the amount when they file their 2009 tax returns.

In addition, it's important to make sure you aren't overpaid since you will have to repay the amount when you file your taxes next year, or have the amount deducted from your refund. Here are a few things to look out for:

If you are a joint filer and your spouse works... Both you and your spouse may receive extra money in your paycheck, resulting in an overage.

If you have more than one job... You may receive the amount from both of your employers, resulting in an overage.

If you receive investment or rental property income...If you are paid the amount from your employer, but the other income you earn increases your modified adjusted gross income above the eligibility limits, you may owe the IRS for the overage you receive.

Also, take note of when your company starts paying. The new withholding tables are structured so that payments starting in April will equal the appropriate amounts by the end of the year. If your payments started in your February or March paychecks, you may receive a bit more than you were due. And if your payments start later in the year and you receive less than you are entitled to, you can claim the difference on your 2009 tax return.

The above article is provided for informational purposes only. It's always a good idea to consult an accountant or tax professional if you have any questions about your specific situation. Let me know if you would like me to recommend someone.