Tax Changes ARRA
Making Work Pay Credit (MWPC)
The MWPC is a new tax credit for working people worth up to $400 for an individual and $800 for a married couple filing jointly, regardless of whether or not they have children. In order to quickly provide the credit to most workers, the IRS has reduced the amount of income tax employers should withhold from each paycheck, so most workers are paying less tax and getting more income with each pay. Workers will receive $400 spaced out in their paychecks between April 1 and December 31, 2009 rather than waiting until they file a tax return to get the credit. This increase in income could be as much as $50 per month. You did not need to do anything to start getting the credit and it won't be counted as taxable income when you file your tax return. If your employer did not change the withholding on your pay, don't worry, you'll be able to claim this credit when you file your 2009 tax return.
How this will affect you:
This extra tax credit is good news for workers, but because most people are getting the money in advance and everyone's situation is different, some people could end up getting more money than they're entitled to. Those who receive too much during the year will have to pay it back to the IRS when they file their 2009 taxes. This would either reduce your refund or make you owe money to the IRS.
Workers with children should be eligible for enough other credits to still receive a refund. Workers without children in the categories below may want to change their withholding to avoid owing money to the IRS at tax time:
- Anyone who has more than one job at one time. You will get paid the MWPC by each of your employers and receive too much.
- Joint filers when both spouses work. Each worker is eligible for a $400 credit, but the new withholding tables pay each spouse $600 during the year. If each spouse is paid $600 for a total of $1200 and they're only entitled to $800, they will owe the IRS $400 at the end of the year or have their refund reduced by that amount.
- People who work AND receive Social Security, SSI or Veteran's Disability Benefits. If you received the one time payment of $250 in May, you will have to reduce the amount of your MWPC by $250 and may owe that $250 back at tax time.
- Workers who are claimed as a dependent by someone else. You are not eligible for the MWPC and will have to pay back the $400 if you receive it in your pay.
If you wish to change your withholding to avoid owing additional tax, talk to your employer about withholding additional taxes by changing your W-4 form. Click here for a downloadable PDF.