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Make Work Pay Stimulus Tax Credit

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PaycheckI’ve been getting a lot of emails about what people are calling a 2009 stimulus check, passed by Congress and signed by President Obama last month. People are confused, wondering what the stimulus check is, if it’s a tax credit, who is eligible, etc. It’s a little confusing but I think I can put it all to rest.

Make Work Pay Tax Credit

The Make Work Pay Tax Credit was a law included in the new stimulus package called the American Recovery & Reinvestment Plan and called for a refundable tax credit to workers in 2009 and 2010.

Details:

  • Workers get a tax credit of 6.2% of their earned income, up to $400 for individuals and $800 for couples.
  • Nonresident aliens and individuals claimed as dependents are not eligible.
  • The credit phases out at 2% of income over $150,000 for couples and $75,000 for single filers, with the credit completely eliminated for couples earning more than $190,000 and singles earning more than $95,000.
  • The credit is reduced by any other payments associated with the stimulus package, such as the Social Security benefit of $250.

The credit will come by way of a reduction of paycheck withholdings, meaning your paycheck will be slightly larger than before. It won’t seem like a lot but it’ll be $400 or $800 (or less, based on your income) you didn’t have before! The Tax Policy Center has a little writeup about it, giving it a B+.

One thing to watch out for is how employers implement this. For single filers, you don’t have to worry because your employer knows your complete tax picture. For couples, you may want to work with your HR to determine the proper amounts. If you believe your combined income is in the phaseout region, or above it, be sure to tell your HR representative. If they give you the credit and you aren’t supposed to get it, you will owe taxes, and perhaps penalties, next year, warns MarketWatch.

That’s it! That’s the Make Work Pay Credit and what some people call the new stimulus check!

(Photo: oyf)

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115 Responses to “Make Work Pay Stimulus Tax Credit”

  1. Rajeev TIPS says:

    Very informative post. keep them coming

  2. SA says:

    I actually just noticed a slight bump in my pay check yesterday, this would explain why. My only issue is, I only am only staying at this job for another month or 2, thus will not earn the $400 before I leave. Does this mean I forfeit whatever is not given to me by the time my job ends? Or when I get another job (as long as its in 2009/2010) will this credit continue again at that new job?

  3. gt says:

    not much clarification….
    is the 150k/75k gross income?
    if a couple is single income, or like us, full-time, part-time, how is this calculated. you said just go to HR, unfortunately my HR dept is less than helpful. cant we just adjust the withholding ourself?

    • Jim says:

      When the government says income, it’s almost always adjusted gross income.

      If a couple is single income, the single earner would get double. You can adjust the withholding yourself but it wouldn’t be as accurate because what you want is to get a $400 or $800 credit, which is hard to simulate by adjusting your withholdings. If you don’t adjust it, it’s no big deal either because you would get the adjustment to your taxes next April (or whenever you filed).

  4. Flexo says:

    Even for single filers, the employer may not know your complete tax picture if you have significant income that is not reported on that company’s W2. If you work two jobs (both W2), both will make the adjustment, and you’ll end up owing tax back. If you work one job and have self-employment income or significant interest/dividend income, you may owe tax back. Your employer only assumes that what’s reported on the W2 is your only income.

  5. katy says:

    I wonder how someone who is working as a temp with an uneven/erratic :( income would receive this?

  6. thomas says:

    Come on people. We are talking about a couple bucks a month. Even if HR totally screws up you are talking less than $400. Most likely you all get returns to begin with so it shouldn’t be a problem.

    I would rather my employer not take it out as I owe every year. I don’t want to keep up with a couple hundred dollars that I have to forcefully give away later.

  7. H-Town says:

    That’s a good point thomas. It really shouldn’t make a difference on your paycheck to paycheck scale.

    Unfortunately, this has a salary cut-off, leaving my family out in the cold. I’m not a fan of these stimulus packages that only some people get.

  8. mapgirl says:

    Jim, you might want to correct your article. Per the SSA as of this morning, the stimulus pay for SSA recipients is only $250, not $400.

    http://www.ssa.gov/payment/

  9. Doug M says:

    Phased out at incomes over $95k… so in the big cities, where cost of living (and salaries) are much higher… not so stimulating.

  10. Allen D says:

    How can this be a credit when the threshold for entering the 28% bracket has been lowered from $84,300 to $66,530 for singles and from $144,800 to $118,130 for couples? This means singles earning from $66,530 to $84,300 and couples earning from $118,130 to $144,800 are now taxed at 28%, where they were taxed at 25%. I repeat, how is that a credit? It looks like an upper middleclass tax increase to me.

    • Alan S says:

      You’re exactly right Allen (you must be smart cause of your name). This is like a bad magic act for young kids who don’t know anything about money where they give you (1) $5 bill in exchange for (2) $1 bills and tell them that 2 is better than 1. The problem is that Obama, Biden, Pelosi, Reid, Geithner, and all the other crooks in Washington think that the American people are idiots and we’ll all be fooled by their games and attempts to control us and every dime in the US economy. We may have not all went to Harvard, but we’re not the morons they think we are!

  11. Lynda E. says:

    When will we see the credit on our paychecks

  12. LYNN LACEY says:

    How & when will we get Social Security $250 ?

  13. Michael says:

    Yes, when is this to go into effect?

    • Doug M says:

      The company you work for should handle it… the place I work sent out a notice from HR yesterday.

      Basically “there’s this tax credit coming, it will be applied automatically unless you tell us otherwise / want to change your withholding.”

  14. donie says:

    Hello so i will like to know when is this all coming to affect…

  15. donie says:

    And how would the company that you work for know when to but it in ur pay and will it be a seperty check are all togther

  16. Julio says:

    I get paid twice a month, and get taxes withheld on the 15th of the month at around $18.00. Does this mean that I’ll be getting those $18.00 back until I reach the $800? (I’m married)

    I guess my question is if 800.00/12 months = $66.00 month, then shouldn’t I be getting $66.00 instead of $18.00?

  17. Carlin says:

    I am retired and receive Social Security will I be eligible to get the $250 in May

  18. karen says:

    This is a concern that’s been raised on another website I frequent: our federal tax withholding has been reduced, so our paychecks are a bit bigger. That’s nice. But what what is meant by a ‘refundable’ credit? Refundable To Whom? If the tax rate table for 2009 doesn’t go down, won’t I just owe this money back to the IRS on 4/15/2010?

    • JTPigskin says:

      Excellent question Karen. I think that’s the whole snake in the grass. All other things equal, if you are used to getting a $400 refund, i think you are now going to owe $400.

  19. one says:

    President Obama’s Stimulus Tax Change

    You will see reduced Federal tax withholdings effective on your March 20th check due to the stimulus tax changes going into effect. This means you may need to adjust your W-4 based on your individual tax position. You will need to speak with your tax preparer to decide if and how you should adjust this. Please review exceptions and requirements for eligibility. We cannot advise you on this matter and will not do so, as per the law.

    This is a result of the Stimulus Bill recently signed by President Obama that includes the “Making Work Pay Tax Credit.” This tax credit is automatically applied to your check, which is why you need to verify if you have to adjust your W-4 form tax settings. The IRS has revised the tax withholding tables so that taxpayers can see a tax benefit this year. Employers are required to implement the new withholding rates no later than April 1, 2009. Employees will not need to do anything to take advantage of the new withholding rates.

    Who Qualifies & Who Doesn’t
    1. Only U.S. citizens and resident aliens with a valid Social Security number are eligible for the Making Work Pay credit.

    2. Anyone claimed as a dependent is not eligible for the credit. That means kids who are working, including college students, who are still claimed as dependents, are not eligible for the credit. Because the paycheck withholding is going to be adjusted by employers, working dependents may need to adjust the withholding annually to avoid owing tax at the end of the year.

    3. Non-resident aliens, estates, and trusts do not qualify for the Making Work Pay tax credit.

    4. However, individuals and couples with multiple jobs may need to adjust their withholding to have more taxes taken out if they expect not to qualify for the tax credit based on their total income.
    a. This also applies to working dependents (who are not eligible for the credit) or working retirees (who may be eligible for a reduced credit).

    5. The Making Work Pay credit starts to be reduced for individual filers making $75,000 in modified adjusted gross income, or $150,000 for joint filers. The credit is reduced by 2% of the amount of income in excess of $75,000 (or $150,000) threshold. The credit is completely phased out for individuals making $95,000 or more, or $190,000 for joint filers.

    This information is being provided as a courtesy to employees so they can make the correct choices for their tax settings for this year and next year.

    The IRS will help you calculate your 2009 W-4. You will need your 2008 return and your last paycheck stub. Go to http://www.irs.gov/individuals/page/0,,id=14806,00.html

  20. Maggie Williams says:

    When will I see any changes on my paycheck.All of the employees have had a 10% cut in their pay. I get paid every week and I can tell the difference in the 10% cut. I have yet to see anything extra on my paycheck. As a matter of fact almost none of us do. There is only 1 or 2 people that say they have seen any extra money on their paychecks and that was in the tune of $7. The HR woman said that only certain people get it and I would like to know why is that when I am single and work as hard? I do not make that much money and I do not see why I do not get anything extra.

  21. Casey says:

    What if your employer does not implement the paycheck increase. What would happen at the end of the year.

  22. Andy says:

    Most people are getting these now, and perhaps (with the other credits) is the reason for the economic optimism that a lot of people are now feeling. It’s more the stimuls effect than the dollar value that makes the difference I guess.

  23. JEN says:

    WILL PEOPLE WHO WORK AS HOUSEKEEPERS AT HOTELS AND MOTEL GET IT ALSO. BECAUSE I KNOW SOME PEOPLE WHO IS NOT GETTING IT.

  24. Bridget says:

    This is a lot of thought on a failed attempt to stimulate anything but contempt for another failed program. I’m glad the auto companies are getting such a big share, so they can go bankrupt after paying off a few debts.

  25. Holly says:

    Can someone please explain to me why they aren’t taking any federal income tax out of my check?? Is this part of make work pay stimulus?? I feel I am going to be so screwed at tax time. Help…….


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