grandmalee from madisoncomedy.comBACKGROUND:  The recent “Making Work Pay” tax credit will eventually be a credit that you see on your 2009 tax return (to be prepared in early 2010).  It will be based on 6.2% of your EARNED income with a limit up to $800 for married folks.

To get that money now, the guhvment has changed the withholding tables to recalculate what you are receiving in your regular paycheck (it may work out to about $13 or $15 per week).  The ultimate credit will reconcile what you were supposed to get with what you did get due to the withholding changes.

WARNING TO THE RETIRED:  However, for those who receive monthly pension/retirement payouts, beware because your withholding has changed too… but you won’t be eligible for the credit come tax time.

Basically, the money you are getting now in your paycheck is based on the fact that you will receive  a credit when your 2009 taxes are prepared (that’s more background).  But the credit will be based only on “earned” income, so retirement income will not generate this income tax credit when you prepare your taxes early 2010.  Those solely living off of retirement income may need to readjust their withholding to have the same amounts taken out during 2009 as they always have.  Bottom line: retirees are getting the credit through their withholding, but they are NOT eligible for the credit if in fact they only have retirement income.  Fill this form out to increase your withholding on your pension/annuity retirement income.

This is confusing, so feel free to post some questions in the comments and I’ll try to clarify.  And tell your lovely Grandma to check out this post too…

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.