Making Work Pay 2010
On February 17th the American Recovery and Reinvestment Act of 2009 was signed into law by the President. For tax years 2009 and 2010, the Making Work Pay provision of the Act will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns. This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000 or $150,000 for married couples filing jointly. For people who receive a paycheck and are subject to withholding, the credit will be handled by employers through automated tax withholding changes starting in April. These changes may result in an increase in take-home pay due to less federal income tax withheld. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 and 2010 tax returns.
Employees do not have to submit a new Form W-4, Employee Withholding Certificate, to get the automatic withholding change. Please note that while the amount of the credit is based on your filing status, it does not necessarily mean that you will receive the full amount of the credit through less tax withholding in your paychecks by the end of the year. Multiple factors, such as the filing status and the number of allowances claimed on your current W-4 form that is in effect, along with your pay frequency and the number of paychecks remaining that you will receive this year, and the amount of your earned income determine the federal tax withholding amount from the new IRS tables. You will receive the full amount of the credit when you report it on your 2009 and 2010 income tax returns.
Caution: Some taxpayers may be under withheld due to the reduced withholding taxes. This may result in a balance due on the taxpayer’s tax return. For example:
- Taxpayers (single or married) who have more than one job
- Taxpayers with modified adjusted gross income in excess of the allowable credit
- Married couples whose combined income will place them in a higher tax bracket
- Married couples, each with a job where the withholding tables will apply the credit for each person
To avoid under withholding, taxpayers can claim fewer withholding allowances on Form W-4, line 5, or request an additional dollar amount to be withheld on line 6. W-4 forms can be filled out in the Payroll Office, 322 Administration Building or the form can be found on the Payroll web site and submitted to the Payroll Office when completed. http://www.bgsu.edu/downloads/finance/file50026.pdf.
For additional help, taxpayers can review IRS Publication 919, “How Do I Adjust My Tax Withholding” http://www.irs.gov/publications/p919/index.html or visit the IRS website at http://www.irs.gov/ and use the “Withholding Calculator” http://www.irs.gov/individuals/article/0,,id=96196,00.html The new tax withholding tables can be found at http://www.irs.gov/pub/irs-pdf/n1036.pdf
Note: The $250 one time Economic Recovery Payment sent to taxpayers receiving benefits from the Social Security Administration, Department of Veterans Affairs or the Railroad Retirement Board will reduce any eligible Making Work Pay credit.