Tax Topic

Payroll - Making Work Pay Credit

For 2010, as in 2009, you may be able to take a credit up to the lesser of 6.2% of your earned income, or $400 ($800 for a joint return). Technically, the credit is claimed by taxpayers when they file their returns; however, Congress wanted to accelerate the credit by delivering it in small increments through reduced payroll withholding beginning in early 2009. Even if your federal income tax withholding was reduced during 2010 because of the credit, you must complete Schedule M and claim the credit on your return to benefit from it. The credit is phased-out at a rate of 2% of the individual’s AGI above $75,000 ($150,000 for joint returns) and is completely phased out with AGI of $95,000 ($190,000 for joint return) or more.

An “eligible individual” for the purposes of the credit is any individual, except:
• A non-resident alien
• An individual who can be claimed as a dependent by another taxpayer
• An individual who doesn’t have a valid social security number
• An estate or trust

For more information on this credit, visit the IRS website at: http://www.irs.gov/newsroom/article/0,,id=233919,00.html


Looking Ahead: In 2011, there will be no "Making Work Pay" credit, but the employee-paid portion of the Social Security tax will decrease from 6.2% to 4.2% for the first $106,800 of wages. This will result in an increase in take-home pay for the year. The employer-paid portion of the Social Security tax will remain unchanged at 6.2%.



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