Making Work Pay tax credit

The Making Work Pay Tax Credit was a tax credit allowed by the Internal Revenue Service of the United States.^[1] It was authorized in the American Recovery and Reinvestment Act of 2009.

The credit was given at a rate of 6.2 percent of earned income up to a maximum of $400 for individuals or $800 for married taxpayers. Making Work Pay could be claimed by single filers making between $8,100 per year and $95,000 per year. Joint filers in the range of $8,100 and $190,000 could claim it annually. Typically employers reduced withholding to provide an increase in take-home pay without any effort required from taxpayers. If the taxpayer had multiple jobs or was self-employed, they needed to adjust withholding. However, if the worker had multiple jobs or was unemployed, they had the option to receive the credit via lump sum (all $400 to $800 at once) after tax day.

The key thought behind the Making Work Pay tax credit was to stimulate consumer spending. In fact, the credit was the key policy in President Barack Obama's stimulus package in 2009. Because Making Work Pay contributed to higher take home pay by reducing withholding, it was assumed that the recipients would spend the majority, if not all, of the credit. A group of economists have pointed to the positive impacts that the credit could have on the economy. They wish to have Making Work Pay extended, because consumer spending is such a huge part of the economy.

The credit expired at the end of Tax Year 2010; it was only in effect for tax years 2009 and 2010. The Democratic bill to extend the credit was defeated by the newly elected Republican controlled House of Representatives in 2010.

References

External links

• Making Work Pay Tax Credit information at IRS.gov
• Making Work Pay Questions and Answers at IRS.gov
• Tax Policy Center Tax Topics: 2011 Budget Tax Proposals
• Withholding of Income Taxes and the Making Work Pay Tax Credit Congressional Research Service