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When filing your taxes this year you may notice an additional $400 or $800 tax credit on line 63 of your return. This is the Making Work Pay Credit. Don’t worry, it is a good thing. We often have individuals come into the Ramstein Tax Center and are concerned about this new number on their return. The goal of this article is to explain the credit and outline who is eligible to receive it.
In 2009, when Congress passed the American Recovery and Reinvestment Act, they included a provision that provides a refundable tax credit of up to $400 for individuals and up to $800 for married couples filing jointly for the 2009 and 2010 tax years.
Any couple filing jointly whose earned income is greater than $12,903 or any individual whose earned income is greater than $6,451 qualifies for this credit.
However, the amount of the credit could decrease (or completely go away) depending on your modified adjusted gross income (MAGI). If a couple filing jointly has a MAGI between $150,000 and $190,000 the credit will be phased out incrementally and will completely go away if they make over $190,000. Likewise, if other taxpayers MAGI is between $75,000 and $95,000 they will also lose some of the credit with it disappearing completely if they make over $95,000.
Other factors that could disqualify someone from receiving the credit are if they can be claimed as a dependent on someone else’s return, if they (or their spouse if filing jointly) do not have a valid social security number, or if they are a nonresident alien.
Additionally, any taxpayer who received an economic recovery payment or who claim the government retiree credit will have their Making Work Pay Credit decreased by the amount they received from these two items.
So once you get the credit, how does it benefit you? Certain credits such as the child-care credit are used to decrease the taxes you owe and are only good to decrease your tax liability to zero.
Once these credits have been applied to remove all tax liability, there is no additional benefit. In other words, you may not owe anything, but these do not help you get anything back.
Other credits, such as the Making Work Pay credit, are refundable credits.
These credits actually go towards paying off any tax you may owe and, if you no longer owe taxes, you get this money back in the form of a refund. For example, if your tax liability was $2,000 the first thing the IRS looks at is how much tax was withheld from your employer. If you paid $3,000 in taxes throughout the year and you were eligible for the $800 Making Work Pay Credit, it would be as if you paid $3,800 and you would get $1,800 back instead of just the $1,000 you actually overpaid.
Bottom line, the Making Work Pay Credit is meant to get some money back into the pockets of the taxpayers who have worked during the past year.
If you have any questions regarding the Making Work Pay Credit or need help filing your taxes, contact the Ramstein Tax Center.
The Tax Center is located in the Law Center (Bldg. 2137) and is open on a walk-in basis for active duty members 9 a.m. to 3 p.m. Monday, Tuesday and Thursday, 9 a.m. to 6 p.m. Wednesday (closed March 23), and 9 a.m. to 1 p.m. most Fridays (closed March 25, April 8 and 22, May 20). Department of Defense civilians (non-contractor) and retiree taxpayers are seen on an appointment basis only.
For questions about the Tax Center or to schedule an appointment, call 480-5911/5912.
For information regarding will preparation, powers of attorney or other general legal information, remember to visit the Legal Assistance website at https://aflegalassistance.law.af.mil.
