Coming to Grips with the Making Work Pay Tax Credit

The American Recovery and Reinvestment Act of 2009, better known as the Stimulus Bill, included many provisions to promote economic activity. One was specifically designed to help the average worker. It is known by the tongue twister name Making Work Pay Tax Credit.

The Making Work Pay provision is fairly straight forward. It is the equivalent of 6.2 percent of your income. This means that if you make $50,000, then you would theoretically get a tax credit of $3,100. In truth, the benefit is capped at $800 for joint filers and $400 for individual filers. The Making Work Pay provision is in place for the 2009 and 2010 tax years.

So, where is my check? This very question has resulted in a host of confusion and problems. There is no check. Instead, the benefit is reflected in reduced withholdings from your paycheck. You should have noticed an increase of roughly $30 in your take home pay in each one. Over the year, this will add up to the provision.

The problem with this approach is it opens people up to scams. There are a host of spam emails floating around promising to provide taxpayers with their stimulus check. All the recipient has to do is download a file or provide personal information about their bank account and so on. As you can imagine, the download is a malicious file and the personal information requests are used for identity theft or other nefarious purposes.

One legitimate area of confusion has to do with self-employed taxpayers. Since many do not have a bi-monthly paycheck per se, not adjustment can be made to their withholdings. That doesn’t mean the credit isn’t available to them. To take advantage of it, self-employed individuals should modify their estimated tax payments to reflect the reduced tax that needs to be paid in.

The Making Work Pay tax credit is a very nice tax bonus. Even better, it will be available through 2010, providing relief where it is dearly needed.

Thomas Ajava writes for ToledoBusinessTaxAttorneys.com - where you can find Toledo business tax attorneys to help you with all of your business tax issues.