Make Work Pay Credit (MWPC)

The provision was made for working tax payers to receive an additional $400.00 dollars a year in their pay. In early spring of this year (2009) you may have noticed a change in the amount of money you brought home. This was because the income tax withholding tables were changed to reduce the amount of taxes you paid, reflecting a higher take home pay than normal. As a result of this provision, some tax payers may be affected negatively by receiving too much money during the year. The people who are affected negatively by this are those who have more than one job and/or married couples. As with most tax situations, there is a phase out limit. Meaning when ones income reaches a certain level they are not eligible for the credit. For those who reach that level, it could mean that they were given the allowance and it will cause a negative effect on their 2009 tax return.

What does all this means for those that are affected negatively.

Individuals who have more than one job, married couples where both work, if you work and received the $250 Economic Recovery Payment, those who’s income reaches the phase out range, and dependents who work are all at-risk to be affected negatively. The IRS expects you to know how much you received during the course of the year when filing your taxes. If you do not report this information on your tax return, it may cause your refund to be held up.

Examples:

Example 1: Bob is single and has two jobs. His withholding was reduced by $400 for Job 1 and

$350 for Job 2, for a total reduction of $750. Bob’s maximum MWPC is $400. He is *under

withheld by $350 ($750-$400).

Example 2: Dan and Diane are married and both work. Withholding for each is reduced by

$600, for a total of $1,200. Their maximum MWPC is $800. They are *under withheld by $400

($1200-$800).

Example 3: Sally is semi-retired. She qualified for and received a $250 Economic Recovery

Payment last May. She also earned $10,000 from a part-time job. Her withholding was reduced

by $340. Sally’s MWPC is $400 – $250 = $150. She is *under withheld by $190 ($340-$150).

*’Under withheld’ meaning that the person received too much for the year and may cause an overpayment reflecting in their tax return.

 I hope this is clear for you, however if you still have questions, email questions here. Questions will be answered in the blog the following week. I will try to answer all questions, however I can not respond to each individual personally.

Next Week: The Economic  Recovery Payment

Figures that affect your taxes for the good.

This discussion will be about personal exemptions, Standard deductions, and Earned Income Tax Credit.

Personal exemption: when filing your taxes you receive one personal exemption for each dependent on your return. A personal exemption for the year 2009 is $3,650.

Example; If you and your spouse have two children, then you will receive 4 exemptions. That is 4X$3,650=$14,600.

Standard Deduction: the standard deduction is based on your filing status and for 2009 will be as follows:

Single...........................................$  5,700

Marrried filing Jointly................$11,400

Married filing Separately...........$  5,700

Head of Household....................$  8,400

Earned Income Tax Credit (EITC) this is a credit that is given to those who unfortunately had a low income for the year.  This credit is given after your tax liability has been figured making it a refundable credit. The amount that you receive is based on factors such as if you’re single or married and if you have children, and if so how many. The figures for 2009 are as follows:

No Children, the most you can get is $457 as long as your earned income does not exceed $13,460 and if you are married filing jointly your income cannot exceed $18,470.

One Child the most you can get is $3050 as long as your earned income does not exceed $35,535 and if you are married filing jointly your income cannot exceed $40,545.

Two Children the most you can get is $5,036 as long as your earned income does not exceed $40,363 and if you are married filing jointly your income cannot exceed $43,373.

Three children the most you can get is $5,980 as long as your earned income does not exceed $43,352 and if you are married filing jointly your income cannot exceed $48,362.

Next Topic: Make Work Pay Credit (MWPC)

Everyone Should File Taxes.

Every one should file taxes. If you worked and earned an income at any time during the year, you should file taxes. This is even if you did not make a lot of money, and even if you are a dependent of someone else. Every situation is different and the results will be different. So when you look for assistance with your taxes, and have questions about what you should do , you should chose someone who knows the tax laws and who would be willing to advise you for free.