Shauna Xpressions!

Do you remember last April when your paychecks got a little fatter?  That was due to the Making Work Pay Credit which was the government’s 2009 method of stimulating the economy.  This credit is similar to 2008’s Recovery Rebate Credit in that it was a way for our federal government to get more money in your pocket in hopes that you would spend it to stimulate our economy.  Rather than sending out paper checks or depositing money in your bank account, this credit was given to you through fatter paychecks. 

Now when you file your 2009 tax return you will attach a Schedule M to calculate this credit.  The credit will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.  The credit phases out if your AGI exceeds $75,000 or $150,000 for married filing joint.

So will the MWPC make your 2009 tax refund bigger.  First of all if you don’t work you won’t get the credit.  Retirees will get a reduced $250 credit. Second, your refund is a function of the tax withheld from your paychecks in 2009.  Some taxpayers may be dismayed to learn that the withholding adjustment was more than the credit and now their refund is smaller than expected. 

Now is also a good time to determine if your 2010 withholding is enough to cover your expected 2010 tax.  Having too little tax withheld from your paycheck will result in a smaller refund or a balance due at filing time.  The Making Work Pay Credit is also in effect for 2010.  The adjustment to withholding is spread out this year over all 12 months rather than 9 months.  Ask your tax professional to help you determine if your 2010 withholdings are going to cover your 2010 tax.  You can also perform a quick check of your withholding using the interactive IRS Withholding Calculator.

Also find out more about the American Recovery and Reinvestment Act of 2009.