Attention Employers: The IRS has issued updated withholding tables to help you implement the withholding adjustments required by the American Recovery and Reinvestment Act of 2009. News release 2009-13 includes information about these tables. More details about the Making Work Pay credit are available in Publication 15-T, New Wage Withholding and Advance Earned Income Credit Payment Tables (For Wages Paid Through 2009).

Attention Pensioners: Pensioners do not qualify for the Making Work Pay credit, unless they receive earned income. However, the new withholding tables apply to all taxpayers, including pensioners. The IRS has a withholding calculator pensioners and others can use to make sure enough tax is being withheld from their pay. Adjustments to withholding can be made by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments. 

General Information

In 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.

This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes in early spring. These changes may result in an increase in take-home pay. The amount of the credit will be computed on the employee's 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.

It is not necessary to submit a Form W-4 to get the automatic withholding change.  However, an employee with multiple jobs or a married couple whose combined income places it in a higher tax bracket should consult the IRS withholding calculator and, if necessary, submit a revised Form W-4 to ensure enough tax is withheld. Publication 919 provides additional guidance for tax withholding including a special Making Work Pay worksheet.

If you have questions about the Making Work Pay provision, these questions and answers might help.

Return to Tax Provisions in the American Recovery and Reinvestment Act of 2009.