For many the changing economic environment has meant scaling
back on hours, losing a job or simply missing out on a promotion. At the most basic level, this means there is
less cash flow to go around. The
government, fully aware of this trend, decided to introduce a few tax
incentives to lighten the financial burden of the crisis. For the unemployed, EI benefits eligibility
was extended and increased. However, for
those remaining gainfully employed, the government introduced through the
American Recovery and Reinvestment Act (2009) the Making Work Pay Tax
If you are one of the lucky ones who still punches the clock
everyday and logs those hours, the IRS has provided 10 tips to help you determine
your eligibility for this tax credit and to ensure you receive the entire
amount for which you are eligible.
1. In 2009 and 2010, the Making
Work Pay provision provides a refundable tax credit of up to $400 for
individuals and up to $800 for married taxpayers filing joint returns.
2. For taxpayers who receive a
paycheck and are subject to withholding, the credit will typically be handled
by their employers through automated withholding changes.
3. Taxpayers receiving less than
the full amount of the allowable credit through reduced withholding will be
entitled to claim any remaining credit when they file their tax return.
4. The amount of the credit
actually received during 2009 in the form of reduced withholding will be
reported on your 2009 tax return. Taxpayers who do not have taxes withheld by
an employer during the year can claim the credit on their 2009 tax return filed
5. Taxpayers who file Form 1040 or
1040A will use Schedule M, Making Work Pay and Government Retiree Credits to
figure the Making Work Pay Tax Credit. Completing Schedule M will help
taxpayers determine whether they have already received the full credit in their
paycheck or are due more money as a result of the credit.
6. Taxpayers who file Form 1040-EZ
will use the worksheet for Line 8 on the back of the 1040-EZ to figure their
Making Work Pay Tax Credit.
7. In 2010, you may notice that
your paychecks are slightly lower than in 2009. The slight decrease may be
because of the Making Work Pay Credit. Most of the credit for wage earners
is distributed through reduced withholding. The credit – which was spread out
over nine months last year – is being spread over 12 months this year. A
little less credit in each paycheck means slightly higher withholding.
But don’t worry, in the end it all adds up.
8. Certain taxpayers should review
their tax withholding to ensure enough tax is being withheld in 2010.
Those who should pay particular attention to their withholding include: married
couples with two incomes, individuals with multiple jobs, dependents,
pensioners, Social Security recipients who also work, and workers without valid
Social Security numbers.
Having too little tax withheld
could result in potentially smaller refunds or – in limited instances – small
balance due rather than an expected refund.
9. To ensure your current
withholding is appropriate for your individual situation, you can review
Publication 919, How Do I Adjust My Tax Withholding? You can also perform a
quick check of your withholding using the interactive IRS Withholding
Calculator on www.IRS.gov
10. If you find you need to adjust
your withholding, submit a revised Form W-4, Employee's Withholding Allowance
Certificate to your employer.
Visit IRS.gov for more information about the making Work Pay
Tax Credit, Schedule M, Form W-4 or Publication 919. You can also call
800-TAX-FORM (800-829-3676) to order forms and publications.
January 22, 2010