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