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.
Earn and save more with our free course:
What would you do with more money in your bank account? Join over 15,537 other young professionals receiving our best money hacks to get out of debt by 30, increase your income (starting this year) and invest for financial freedom.
100% free! I will NOT spam you and I will NOT share your email.