Help A Reader: How Does The Make Work Pay Tax Credit Work?
March 23, 2009 by Erik Folgate
Filed under Spending and Saving
Do you know what the deal is with the Making Work Pay Tax Credit? I got an email from my employer about it today, but I couldn’t figure out if it was an actual tax cut. I was reading about it on some websites, and it sounds like if we qualify (which I’m pretty sure we do) then our withholding tax will automatically be reduced, but then it also sounds like we’ll get back a smaller a tax refund next year. So are we really making any money or is it just getting moved around?
The “Make Work Pay” tax credit is the tax credit that went to individuals in the Economic Recovery Stimulus Plan for 2009 that was recently passed into law. It is being applied as a reduction in your payroll withholdings rather than receiving a lump sum check. You may have read articles in the newspaper about the “$13 dollars a week” tax credit. This is the tax credit those articles were referring to. My understanding is that your employer handles the tax credit and you do nothing. Then when you file your 2009 taxes, you claim that you received the tax credit on your taxes, but it doesn’t add or deduct anything from your tax liabilty.
Anyone else have any insight to this tax credit? I am definitely not an expert when it comes to this stuff. Here is the link from the IRS website, but it’s not exactly crystal clear.
From what I read of the comment/answer as to whether it reduces your withholding, thereby reducing your refund, the answer just said that it wouldn’t increase your tax liability, which isn’t the same as reducing your refund. Wonder if it was a government employee?
I’ve heard no information regarding Tax reduction, just Withholding reduction, thereby reducing your refund. That’s why they encourage higher income couples and individuals to increase their whithholding. Me personally, I hate to have to pay when I file taxes, and while I don’t like ‘parking’ extra money with the IRS, I still wouldn’t want to pay more after the fact.
Of course, we could all live in CA where they’re talking about delaying the refunds for state income tax.