Making Work Pay Credit

from www.irs.gov

Most eligible taxpayers qualify for the maximum making work pay credit of $800 for a married couple filing a joint return or $400 for other taxpayers. The credit equals 6.2 percent of earned income up to the maximum amount. Thus, any eligible couple whose earned income is $12,903 or more qualifies for the $800 maximum credit. Other taxpayers qualify for the $400 maximum if their earned income is $6,451 or more.

For most workers, the credit is based on the taxable wages reported to them on Forms W-2. Self-employed individuals figure the credit using the net profit or loss they receive from a business or farm. Additional calculations are necessary for some taxpayers, including those who have net business losses, wages from work performed while a prison inmate or foreign earned income. More information, including a worksheet, can be found in the instructions for Schedule M.

Some taxpayers are not eligible for the making work pay credit, including:

• Joint filers whose modified adjusted gross income (MAGI) is $190,000 or more.
• Other taxpayers whose MAGI is $95,000 or more.
• Anyone who can be claimed as a dependent on someone else’s return.
• A taxpayer who doesn’t have a valid social security number.
• Joint filers, if neither spouse has a valid Social Security number.
• Nonresident aliens.

Other taxpayers qualify for the credit but must reduce the amount of the credit they claim, including:

• Joint filers whose MAGI is more than $150,000 but less than $190,000.
• Other taxpayers whose MAGI is more than $75,000 but less than $95,000.
• Taxpayers who received an economic recovery payment. This special $250 payment was made during 2009 to recipients of Social Security benefits, supplemental security income (SSI), railroad retirement benefits or veterans disability compensation or pension benefits.
• Taxpayers who claim the government retiree credit.

See Schedule M and its instructions for details.

Though all eligible taxpayers must file Schedule M to claim the making work pay credit, most workers got the benefit of this credit through larger paychecks, reflecting reduced federal income tax withholding during 2009.