Work Pay Tax Credit
By Ruth Ann Ritter
The American Recovery and Reinvestment Act of 2009 that was passed by Congress on February 17, 2009 created a NEW Work Pay Tax Credit. It was intended to partially offset an employee's portion of Social Security payroll taxes. The credit is $ 400 for individuals and $ 800 for joint filers. It is for 2009 and 2010. It begins phasing out for single filers with modified adjusted gross income above $ 75,000 and joint filers with modified adjusted gross income above $ 150,000 at a rate of 2%.
Important - The credit is claimed by taxpayers when they file their 2009 and 2010 federal tax returns BUT Congress wanted to accelerate the credit (a stimulus to the economy) so they mandated employers to reduce payroll withholdings by a small increment. You may have noticed that your net paycheck increased a little in Spring of 2009. This is why. So don't plan on getting an additional $ 400 or $ 800 refund when you file your taxes. And if you have outside income (rentals, self-employment income) or a married couple with each earning $ 75,000 a year you may actually end up owing taxes at the end of 2009 and 2010.