Legal Alert: Making Work Pay - A Little

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The Economic Stimulus Bill, enacted as the American Recovery and Reinvestment Act of 2009 (the "Act") created a refundable tax credit called the "Making Work Pay" credit, as described below. For most eligible individuals, the credit is supposed to be made available through decreased income tax withholding. The IRS has now released new withholding tables that take into account the new Making Work Pay credit, which will result in more take-home pay for tens of millions of Americans. The Act provides for a refundable income tax credit for two years -- 2009 and 2010. The amount of the credit is the lesser of (1) 6.2% of the individual's earned income (including non-taxable combat pay) or (2) $400 ($800 on a joint return). This is equivalent to the Social Security tax (FICA) – disregarding the Medicare portion – that an employee pays on the first $6,450 of salary for the year. All individual taxpayers are eligible for the credit, with the exception of nonresident aliens and persons who can be claimed as a dependent by someone else (such as a college student who works summers or part-time).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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