Oklahoma Panhandle State University
Making Work Pay Credit
Please share the following information with all employees within your departments. It may have an impact on their federal tax liability at the end of the year.
The Making Work Pay tax credit is available for tax years 2009 and 2010. It is 6.2% of an eligible taxpayer’s earned income up to a maximum credit of $800 for a married couple filing a joint return and $400 for all other taxpayers. Because the credit is refundable (people can get it even if they owe no tax), most low-income workers will qualify for the full credit.
Taxpayers will not receive a separate check from the IRS like they did with last year’s economic stimulus payment. The benefit will be spread out over the paychecks they receive beginning this spring and continue until the end of the year. Eligible workers do not need to fill out new W-4 withholding forms to receive the Making Work Pay credit. New federal withholding tables will be incorporated in the payroll calculation as soon as possible and most workers will see an increase in their take-home pay.
Who is eligible for the Making Work Pay credit?Individuals with earned income are eligible for the Making Work Pay credit. Earned income is income received from employment and self-employment. The maximum credit is reduced for individual filers with an annual modified adjusted gross income over $75,000 and for married couples filing jointly with annual modified adjusted gross income over $150,000. For individual filers, the credit is reduced by 2% of the amount of income in excess of the $75,000 and is completely phased out at $95,000. For married couples filing jointly, the credit is reduced by 2% of the income over $150,000 and is completely phased out at $190,000.
Who is NOT eligible for the Making Work Pay credit?
- Non-resident aliens (NRAs) do not qualify for the credit. The credit is only for US citizens and resident aliens with a valid social security number. If NRAs have previously filled out their W-4s as an NRA, the federal tax calculation will not take the credit when calculating the withholding.
- Any employee who can be claimed as a dependent on another taxpayer’s tax return is not entitled to the credit. Therefore, student workers on their parent’s tax return do not qualify for the credit.
- Individuals with income greater than $95,000 do not qualify for the credit.
- Married couples filing jointly with income greater than $190,000 do not qualify for the credit.
What does this mean to OPSU employees?The IRS has revised the federal tax withholding tables so that workers will see a tax benefit this year through increases in their take-home pay, rather than next year when they file their tax return. Employers are required to implement the new withholding rates no later than April 1, 2009. OPSU employees who qualify for the Making Work Pay credit will not need to fill out new W-4 forms.
However, employees who can be claimed as dependents and employees with higher incomes who do not qualify for this credit may wish to consult their tax advisors to determine whether they should increase their federal income tax withholding to offset this credit. Otherwise, these individuals may be under-withheld at the end of the year.
In addition, in the case of married couples filing jointly, the new withholding tables assume that only one spouse is working and will allow both spouses to receive the entire $800 credit through their paychecks. If both spouses are working, the couple is only entitled to receive one $800 credit and if their combined incomes exceed $190,000, then they are not eligible for the credit. These individuals may also wish to consult their tax advisors and adjust their federal tax withholdings accordingly.
For more information on the Making Work Pay credit, please contact Cheryl Ashpaugh, Director of Human Resources 580.349.1570.