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.
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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.
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