Yes, we are back, rested and ready to hit the road running after a little break over the Holiday season! To start off the new 2010 tax year, I wanted to cover a topic that will affect most taxpayers in a positive way , the Making Work Pay Tax Credit.
This tax credit is worth up to $400 for each individual taxpayer or up to $800 for married couples who file Married Filing Joint so it’s definitely worth checking out.
How it works:
This credit is 6.2% of a taxpayer’s income which maxes out at $400. If you are married it works the same way, the credit is 6.2% of the couples total earned income with the maximum credit of $800.
Higher income taxpayers will be subject to the credit phasing out. A single taxpayer will have their credit reduced by 2% of the amount of Modified Adjusted Gross Income (MAGI) if they make over $74,999 and the credit is completely phased out at $95,000. If the taxpayers are Married Filing Joint they will have their credit reduced by 2% of the amount of Modified Adjusted Gross Income (MAGI) if they make over $149,999 and the credit is completely phased out at $190,000.
Earned income from wages or self employment taxable income is required for this credit. However military personal who receive combat pay which is excluded from income are eligible for this credit.
You must be a US Citizen or a resident alien with a valid Social Security number to be eligible for the credit. Dependents of taxpayers are not eligible for the credit.
Taxpayers who are Social Security recipients, retired railroad workers and disabled veterans are eligible for a 1 time $250 tax credit. If they also work and meet the thresholds they may qualify for an additional $150 totaling $400 in a tax credit. Unfortunately, if you received a pension and no earned income (or those who do not receive Social Security, Veterans Affairs or Railroad Retirement Board income), you will not be eligible for the Making Work Pay Credit.
This credit is claimed on Schedule M.
With the recent changes to the federal income tax withholding tables, some tax payers may find that too little was taken out of their paychecks over the tax year. If you’re not eligible for the Making Work Pay tax credit, this could mean a smaller than usual refund OR you may even end up owing tax. There is special relief that the IRS may grant if an estimated tax penalty applies. If you receive a estimated tax penalty from the IRS you can request a waiver by filing form 2210.
If you are in one of these categories, keep an eye on your withholdings:
- Pensioners
- Married couples with two incomes
- Individuals with multiple jobs
- Dependents
- Some Social Security recipients who work
- Workers without valid Social Security numbers
If you’re still not sure about your qualification for the Making Work Pay tax Credit or if you’ve got questions regarding your estimated tax penalty, I would highly recommend contacting your accounting or tax professional to guide you through this. Tax issues like these can become very complex and may be affected one way or the other by other factors within your financial situation. Most accountants and tax professionals offer a free initial consultation; at that point they can advise you on your options and let you know if they may be able to help you reduce your tax bill.
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