President Obama introduced the Making Work Pay Tax Credit in an attempt to reduce the tax burden on middle class Americans, but this tax credit is scheduled to expire at the end of 2010, attempts were made to extend but it only applies to 2010 income now.
Although this tax credit essentially means that average tax payers are eligible to get credits for anywhere from $400 to $800 a year depending on their income and other allowances it has not been as popular. This is probably due to the fact that employers were encouraged to adjust their tax forms for their employees downward to account for the credit, so in fact most people did not receive a lump sum rebate, but actually got less taxes deducted from their income by about $45 each month. Although this still amounts to more money in the pocket of the average middle class household it probably makes less of an impact because of the way it is distributed.
Who is Eligible for the “Making Work Pay Tax Credit”?
Almost everyone is eligible for this tax credit because it is supposed to provide relief for the majority of tax payers, but there are a few exceptions and they are as follows:
- Those who are Married and Filing Jointly with an income of over $190,000.
- Single tax payers who earn more than $95,000 in 2009 are also not eligible.
- Those who are dependents on someone else’s tax return may not claim the credit.
- Non-residents do not qualify for the tax credit.
- Those who were not employed for the year.
- Pensioners, retirees and the disabled are not eligible unless they have worked for a salary for the year.
How is the Making Work Pay Tax Credit Calculated?
This is a tax credit and not a deduction so it is not a simple matter of subtracting a base amount from your annual tax figure. To calculate the amount of the tax credit you would qualify for, you first need to calculate your tax due. The Making Work Tax Credit is a dollar for dollar tax credit up to a ceiling of $400 for single taxpayers and $800 for married taxpayers. Therefore if you are a single person and your tax liability is $900 then you will reduce your tax liability by $400 which is the ceiling and pay only $500.
Again this tax credit is usually taken care of by your employer but in the event that your taxes are not adjusted or that your employer does not apply the credit you can still get your credit when you file your tax return at the end of the tax year as a rebate. Even if you are self-employed you can file for the tax credit and have it adjusted against the taxes you owe. To do this all you need to do is submit the 1040 form and mention it on line 63. You also need to complete Schedule M along with your return.