Making Work Pay Credit

For 2009 and 2010, you can claim a refundable Making Work Pay Credit if you are employed. The amount of the credit equals the lesser of 6.2 percent of your earned income or $400 ($800 if married filing jointly). However, the credit is phased-out when your modified adjusted gross income is between $75,000 and $95,000 ($150,000 and $190,000 if married filing jointly).

If you receive a paycheck, the credit is handled through your withholding, so you may have an increase in your take-home pay. If you do not have taxes withheld, you can claim a credit when you file your tax return.

The lower withholding amount may cause unexpected results if you have more than one job or you are married and both work. Because each employer is withholding less, the total reduced withholding may exceed the allowable credit and you may end up owing more taxes. To prevent this from happening, consider increasing your withholdings by filing Form W-4, Employee's Withholding Allowance Certificate, with your employer.