$400 or $800 Making Work Pay Tax Credit

Bundled in the 2009 economic stimulus plan is the $400 ($800 for couples) Making Work Pay tax credit that will provide a tax credit in 2009 and 2010 equal to 6.2 percent of your earned income up to a maximum of $400 for individual filers and $800 for couples.

Here’s what you need to know:

The $400/$800 Making Work Pay tax credit took effect in July 2009. Workers who have taxes withheld from their paychecks will see a decrease in the federal income taxes withheld from each paycheck by about $30 per paycheck every two weeks or $60 for couples.

If you are self-employed, you can claim the credit when you file your 2009 tax return or reduce each of your 2009 quarterly estimated tax payments by $100. Software like TurboTax will automatically prompt you to take this credit.

The credit will phase out by two percent of any income over $150,000 for couples and $75,000 for others. Couples earning more than $190,000 and individuals earning more than $95,000 will not benefit from the credit.

Unlike the 2008 economic stimulus tax rebate checks that were mailed to taxpayers in a lump sum, the government is hoping that offering the $400 Make Work Pay tax credit as a reduction in payroll deductions will encourage taxpayers to spend the credit rather than save the money or use it to pay down debt.

• Need to File Your Taxes? Get started with TurboTax for free now.

According to some estimates, the Making Work Pay tax credit will cost the U.S. government $116.2 billion over 10 years, making it the largest tax provision in the 2009 stimulus plan.

Get ahead of your money with a MoneyUnder30.com email subscription. It's like a cheat sheet for your finances. Get it.

.

Published on February 20th, 2009.

Related Posts

• Will You Get Your Economic Stimulus Tax Rebate Check?
• 2009 Economic Stimulus: What It Means For You
• First-time Home Buyer Tax Credit Provides up to $7,500
• $8,000 First-Time Home Buyer Tax Credit
• How to Avoid an IRS Audit