[September 2009 - Updated with recent IRS information] The details of the making work pay credit and one time economic recovery (social security) payment are provided below with a number of frequently asked questions. These tax credits were part of the American Recovery and Reinvestment Act and 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. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.

- A one-time economic recovery payment of $250 in 2009 to retirees and disabled people receiving Social Security benefits. The making work pay tax credit ($400 or $800) will be reduced by $250 if you are eligible for both credits or special credits for certain government retirees. The one-time economic recovery payment will not count as income for SSI.

[Update] President Obama recently announced an Extra $250 Social Security Stimulus Payment in 2010 for Retirees, Veterans and the Disabled.

Note: The Making working Pay $400/$800 credit is being paid by the IRS (via adjusted withholding tables for employers), while the $250 social security payment is being paid out by the SSA.

Most qualified wage earners should already have or be receiving the making work pay credit, which was typically handled by their employers through automated withholding changes in May 2009. For the making work pay credit, this would be reflected with a larger paycheck as a result of the changes made to the federal income tax withholding tables (see irs.gov) . Some people may find that the changes built into the withholding tables result in less tax being withheld than they required and should update their W4 forms (via their HR or payroll depts).

If you're not eligible for the Making Work Pay tax credit, withholding changes could mean a smaller refund next spring. A limited number of people, including those who usually receive very small refunds, could in some situations owe a small amount rather than receiving a refund. Those who should pay particular attention to their withholding include:

Pensioners do not qualify for the Making Work Pay credit, unless they receive earned income. However, because the February withholding tables also apply to pensioners, the IRS has provided pension plans with an optional adjustment procedure. If you are a pensioner with questions about your withholding, contact your pension plan administrator.

Married couples with two incomes or Individuals with multiple jobs - The additional credits may require you to increase your withholdings in order to avoid penalties for tax liabilities in the subsequent year (for underpaid tax obligations). Review your pay check and check the IRS' updated withholding calculator.

Social Security recipients who work - Your employer may pay you the fill amount of the making work pay credit, but you should ensure that your withholding is adjusted by $250 for the one-time economic recovery payment you are also entitled to.

Self-employed individuals can also benefit now from the Making Work Pay tax credit by evaluating their expected income tax liability, allowing for this tax credit if they are eligible, and making the appropriate adjustment in the amount of their regularly scheduled estimated tax payments.

What to do if you have not received these payments

If you have not received the making work pay credit, contact your employers payroll department. They can work with you on your eligibility and ensure your pay is adjusted accordingly. The $250 economic recovery payment will be delivered in the same way your current Social Security or SSI benefit is sent. The Social Security Administration (SSA) reports that everyone who is entitled to the $250 payment should have received it by late May 2009. If you have not received it, make sure you visit the SSA website and follow up via the provided phone numbers.
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[Updated May 14 2009] The President has now signed the massive $787 billion economic stimulus package into law. Unfortunately the tax credits (detailed below) that were part of the "Making work Pay" program were cut in the final bill by about $2 Billion. The income tax credit has dropped by $100 and $200 respectively, so that it would now total $400 for individuals and $800 for couples (paid in 2009 and 2010), phasing out completely at $190,000 for couples filing jointly and $95,000 for single filers. Because the credit is refundable (people can get it even if they owe no tax), most low-income workers will also qualify for the full credit. You can calculate your credit by taking 6.2 percent of your earned income (and subtract it from the other federal taxes you owe).

This claw back of the working tax credit has been partially offset by a $70 billion provision to protect millions of middle-class Americans from having to pay the alternative minimum tax in 2009. The amount of exempt income is increased to $46,700 for single filers, up from $46,200 in 2008. And for married couples filing joint returns, it rises to $70,950 from $69,950.

How the Credit will be Paid: If you're eligible, your payroll administrator will make the withholding adjustment automatically and thereby increase your take-home pay. The average worker will see this tax credit in the form of a $13 bump in weekly paychecks starting in early Spring 2009. You may prefer not to adjust your withholding amount and can get your stimulus in a lump sum payment as a tax refund when you file your 2009 taxes.

Key IRS Rulings : The IRS has now provided more information on this tax credit and there are some important points to note:

The amount of the credit received must be reported 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 married couples whose combined incomes place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his or her combined income

The benefit will generally be spread out over the paychecks they receive beginning this spring and continue until the end of the year. Many higher-income taxpayers will see little or no change in their take-home pay. That’s because the Making Work Pay credit is phased out for a married couple filing a joint return whose modified adjusted gross income (AGI) is between $150,000 and $190,000 and other taxpayers whose modified AGI is between $75,000 and $95,000.

Taxpayers will not get a separate, special check mailed to them from the IRS like last year’s economic stimulus payment.

Pensioners do not qualify for the Making Work Pay credit, unless they receive earned income. See below for the $250 Social security payment they will qualify for.

Self-employed individuals can also benefit now from the Making Work Pay tax credit by evaluating their expected income tax liability, allowing for this tax credit if they are eligible, and making the appropriate adjustment in the amount of their regularly scheduled estimated tax payments.

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Per the 150+ comments on this post, there are still some details and special situations that need to be resolved by the IRS. I will update as more information comes to hand and also post the latest payment schedule when published.

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$250 Social Security Payment and Working Credit: I also received some questions regarding whether this payment would be available to otherwise qualified retirees or disabled people who are also social security recipients. The answer is that it will, but in a reduced fashion. Because there is another provision in the overall stimulus bill of a one-time payment of $250 in 2009 to retirees and disabled people receiving Social Security benefits, the $400 income-tax credit (rebate) will be reduced by $250. To clarify: You get the $250 SS credit (which will distributed as an additional payment) plus a reduced $150 working tax credit (total is still $400).

Update to $250 SSI payment: The Social Security Administration (SSA) reports that everyone who is entitled to the $250 payment should receive it by late May 2009. No action is required on your part. They are currently working on the details regarding it will be issued to nearly 55 million beneficiaries. Note: The Making working Pay $400/$800 credit is being paid by the IRS, while the $250 social security payment is being paid out by the SSA. The one-time economic recovery payment will not count as income for SSI.

To receive payment, the beneficiary’s address of record must be in a valid US state or territory. Only individuals eligible for Social Security, SSI, Veterans, or Railroad Retirement benefits at any time during the months of November 2008, December 2008, or January 2009 may be eligible for the one-time payment. The $250 payment will be delivered in the same way your current Social Security or SSI benefit is sent.

[Further Reading on Stimulus Payments]

See this article for a summary of all the key tax breaks in the final economic stimulus package. For all the key stimulus payment dates see this post or these articles for details on the specific stimulus tax credits and deductions:

- $8,000 New Home Buyer Tax Credit
- Tax Deduction for New Cars up to $49,500
- $15 Bn Small Business Tax Breaks
- Will my Mortgage now Qualify for Refinancing under the Obama Plan
- Green Energy Home and Auto Tax Credits in the 2009 Economic Stimulus Package
- More Stimulus Checks, Social Security Payments and Tax Credits in 2010, 2011 and Beyond

[Update Feb 3 2009] One of the most common questions/comments I get is around how Obama's 2009 stimulus tax rebate be paid. While the 2009 stimulus has not been approved by the Senate (due to vote this week), the following is my understanding for payment of the tax credit.

Workers- You can get the tax credit through adjustments in the federal tax withholding on your paycheck. This will result in an increase in your take home pay of between $10 and $20 based on your tax rate. The tax rebate is also available as a lump sump rebate in your 2009 and 2010 tax returns.

Unemployed or Disabled - If you do not have a job, the best way to get the tax rebate is to actually file a tax return, even if you do not owe taxes. The IRS (irs.gov) has provided special filing instructions for those who do not otherwise have a filing requirement. This includes low-income workers, Social Security beneficiaries, and those who receive certain benefits from the Department of Veterans Affairs

2007/2008 Stimulus payments - The Bush administration did mail out stimulus checks last year and many people did not claim their share or didn't qualify. If you didn't get an economic stimulus payment in 2008, you may be eligible to receive the recovery rebate credit in 2009. See the 2008 tax forms or use automated tax software (such as turbo tax) to determine your eligibility.

I will update the above payment options for the 2009 tax rebate as more information comes to hand.

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[Update Jan 29 2009] The House of Representatives approved the $819 billion economic stimulus plan by a 244-188 majority. The Republicans (GOP) did not support the bill, as President Obama had hoped. The bill now heads to the Senate, with a goal of getting it signed into law on President's day [February 16]. Democrats hold an effective 58-41 majority in the Senate, so the bill should get passed and the $1000/$500 stimulus tax credits made available shortly after that, via the methods detailed below.

See this article for details on Obama's complete American Recovery and Reinvestment Plan/Package.

[Update Jan 26 2009] The Senate and the House are currently debating the economic stimulus package and included rebates. The House version of Obama's "Making Work Pay" tax credit would give workers making $75,000 per year or less the full $500 tax credit; couples with incomes up to $150,000 a year would receive a $1,000 credit. The plan would also provide a temporary $2,500 tax credit to help pay for college. It would boost the earned income tax credit for low-income workers and permit them to receive the entire $1,000 per child tax credit as a refund in 2009-10 if they make as little as $8,500 a year and wouldn't otherwise qualify. As expected, Republicans are fighting the extra spending on the Stimulus and TARP packages, but they should clear both get congressional approval by President's day next month (Feb 16th).

In a recent poll on this site, 80% of respondents said that the next economic stimulus check would be mailed out by March 2009. Unfortunately they were wrong on two counts. Firstly, there is no second economic stimulus check. Rather the Obama administration plans to hand out tax rebates to approximately 150 million workers making less than $200,000. The tax breaks would be worth $500 for individuals and $1,000 for couples. Secondly, any relief for consumers won’t be available till March/April at the earliest as the new President tries to get his near $800 Billion stimulus package (over 2 years) through congress.

President Obama’s advisers said that they were searching for a way to get that credit into Americans’ pockets quickly to help stimulate spending, but would not duplicate the rebate checks sent last year. Instead the administration plans to include about $300 billion in tax cuts, or 40% of the total economic recovery program (stimulus package), for workers and businesses. The tax cuts would be implemented by altering tax-withholding rules, so that workers would see an immediate increase in their take-home pay.

Senior Democrat officials have acknowledged that the economic package would not be ready for President Obama’s signature immediately after his inauguration on Jan. 20, as they once hoped. Instead it will be heavily scrutinized by house and senate members to ensure bipartisan support of the package. Proponents of more government spending (via fiscal policies) have said that additional delays will send the economy into a depression by mid-year if no action is taken as soon as the new President is sworn in, and want the stimulus package to be even larger.

Republicans, who have generally opposed further stimulus packages and rebate checks, favor tax relief and tax credits as part of the economic measure and said Congress should consider reducing the 25 percent income tax rate to 15 percent. The Obama administration has also pulled back on its campaign rhetoric to increase taxes for the rich by not trying to repeal Bush’s tax cuts for the wealthiest Americans sooner (they are due to expire in 2010).

Overall, I think the Obama administration is right in its efforts to focus on job creation and stimulating the economy over the long term. I also agree that issuing stimulus or rebate checks (even if there were near $5000 as initially rumoured) would have done little in the medium to long term to revive economic growth. It would have been a populist, short term impact, move which I am glad the Obama administration has decided not to pursue. Tax cuts are a better solution, and will also help win support from congressional Republicans to ensure the ultra-large stimulus package is passed sooner rather than later.

Related Posts:

~ I Want My Bailout Too and Here's Why
~ Will the Bailed-out Automakers be Back for More Money?
~ Is my stimulus payment taxable?
~ How people are (mis)spending their stimulus checks
~ Obama and Wall Street Greed