I’ve been wandering around the area of the IRS site dedicated to the American Recovery and Reinvestment Act of 2009 again, and thought I’d highlight some of the provisions that are less popular and talked-about than the First-Time Homebuyer credit I outlined in a previous post.

Perhaps the next most visible component of the Act covers what the government calls the “Making Work Pay” tax credit.  The basic point of this provision is to provide $800 to most working taxpayers, and $400 to most single taxpayers.

Who benefits?

Most working Americans will benefit from this credit.  There is a separate credit of $250 for social security recipients, disabled veterans receiving VA benefits, and recipients of benefits from the Railroad Retirement Board.

High-income taxpayers will not benefit from this, as it starts to phase out at $75,000 in modified adjusted gross income (MAGI) for single workers, and $150,000 for those who are married and filing jointly.  I realize that your income may exceed these levels, and yet you do not feel like you’re earning a particularly “high” wage.  For better or for worse - and I’m going with better - you are statistically at the high-end of the wage scale.  The credit is fully phased out for singles that have a MAGI of $95,000 and married couples with a MAGI of $195,000.

How does it work?

The credit is calculated at a rate of 6.2% of earned income for eligible taxpayers, subject to the $400/$800 maximum.  New withholding tables have been made available to employers, and withholding should be adjusted to reflect the new credit.  By now, you have probably seen a positive change in his or her paycheck.  Note that the withholding tables are never perfectly precise because there are so many factors that can affect a taxpayer’s situation.  Any discrepancies will be resolved with the filing of 2009 taxes early next year.