Making Work Pay Tax Credit

What is the Making Work Pay tax credit? 

The Making Work Pay tax credit is a temporary refundable tax credit for tax years 2009 and 2010. The credit equals 6.2% of your earned income, up to $400 ($800 married filing jointly). Most eligible workers get the Making Work Pay credit throughout the year, in their paychecks, rather than as a single payment at tax time.

Am I eligible? 

You are eligible for the Making Work Pay tax credit if:

• you have income from working
• you cannot be claimed as a dependent by another taxpayer
• you are not a nonresident alien
• your modified adjusted gross income is less than $95,000 ($190,000 married filing jointly)
  Note: The credit phases out for workers with adjusted gross incomes higher than $75,000 ($150,000 married filing jointly)

How much credit will I get?

The Making Work Pay tax credit equals 6.2% of your earned income, up to $400 ($800 married filing jointly). Like other tax credits, the Making Work Pay credit lowers your taxes dollar for dollar. If the credit is more than the amount of taxes you owe, the government will give you a refund.

The Making Work Pay tax credit is reduced if you received the Economic Recovery Payment for people getting Social Security, Railroad Retirement, SSI, or certain other government benefits, or if you take the new Government Retiree Credit. The reduction is $250 ($500 for married filing jointly).

How do I get the credit?

Unlike most other tax credits, you do not get the credit all at once when you file your tax return. Instead, you get an advance on your credit each pay period during the year. Your employer takes less federal taxes out of your paycheck based on an estimate of your tax credit amount, and you get more take-home pay.

If you are self-employed, you get the Making Work Pay credit either by reducing your estimated tax payments throughout the year, or by waiting until you file your tax return and getting the entire credit at once.

Even if you have been getting the Making Work Pay credit throughout the year in your paychecks, you must file a federal tax return to claim the credit. If you use Form 1040 or 1040A to file your tax return, attach Schedule M to claim the credit. If you file Form 1040EZ, use the worksheet on the back of the form.

On your tax return, the Making Work Pay tax credit amount should offset the reduced withholding taxes, and you will come out even. However, if your withholding taxes were not adjusted correctly, you may owe taxes, or you may be entitled to a refund.

If you owe taxes because your employer did not take enough taxes out of your pay, and the IRS gives you a penalty notice, you can request a waiver of the penalty. See Qualify for Penalty Relief on the IRS web site.

For more information, see Making Work Pay and Schedule M Instructions on the IRS web site.

Child and Dependent Care Credit

What is the Child and Dependent Care Credit?

The Child and Dependent Care Credit is a federal tax credit that helps working parents or caregivers pay for child care or other dependent care. The credit is nonrefundable, meaning that the credit amount is limited to the amount of taxes you owe.

Am I eligible?

In general, to be eligible for the credit:

• You must pay someone to care for one or more qualifying children or other dependents. In most cases, a child must be your dependent and under age 13 to qualify. Dependents (or a spouse) of any age who are physically or mentally not able to care for themselves also qualify.

• The person you pay cannot be your dependent or your child under age 19.

• You must need the child or dependent care so that you can work or look for work. If married, your spouse must also be working, looking for work, unable to work, or in school full time.

• You must have earned income. If you are married, your spouse must also have earned income.

• Your filing status cannot be married filing separately, unless you qualify for an exception.

• You must provide the name, address, and tax identification number of your care provider on your tax return.

• Most of these requirements have exceptions. For details, see Publication 503 Child and Dependent Care Expenses on the IRS web site.

How much credit will I get?

The Child and Dependent Care Credit ranges from 35% to 20% of your costs. People with lower incomes get a higher percentage of costs than people with higher incomes.

The maximum credit is $3000 for the care of one child or dependent, and $6000 for the care of two or more children or dependents. The credit cannot be more than your earned income for the year. If married, the credit also cannot be more than your spouse's earned income for the year. 

How do I get the credit?

To claim the Child and Dependent Care Credit, you must file Form 1040 or 1040A, not Form 1040EZ. You must complete Form 2441 and attach it to your return.

For more information, see Publication 503 Child and Dependent Care Expenses and Instructions for Form 2441 on the IRS web site.

Government Retiree Credit

What is the Government Retiree Credit?

The Government Retiree Credit is a federal tax credit for retirees who received a pension or annuity payment in 2009 from a government job not covered by Social Secuirty. The credit is $250 ($500 filing jointly if both spouses qualify). The credit is refundable, meaning that you can get the credit even if you don't owe any taxes.

Am I eligible?

You are eligible for the credit if:

• you received a pension or annuity payment in 2009 from a federal, state, or local government job not covered by Social Security
• you did not receive a $250 ($500 married filing jointly) Economic Recovery Payment in 2009
• you have a Social Security number

How much credit will I get?

The Government Retiree Credit is $250 for an individual, or $500 married filing jointly if both spouses qualify. The credit is refundable, meaning it is not limited by the amount of taxes you owe.

How do I get the credit?

You must file a federal tax return to claim the credit. You should use Form 1040 or 1040A and attach Schedule M.

For more information, see Government Retiree Credit and Schedule M Instructions on the IRS web site.

Other Federal Tax Credits section last updated on 5/03/10