Function

• As part of the American Recovery and Reinvestment Act of 2009, the Making Work Pay tax credit was designed to offer tax benefits to working Americans. For the 2009 and 2010 tax years, eligible taxpayers were able to receive a tax credit of up to $400 for individuals and up to $800 for married couples filing jointly. The program was designed to put more money in taxpayers' pockets, which lawmakers hoped would boost spending and stimulate the U.S. economy.
  
  

Eligibility

• To qualify for the Making Work Pay tax credit, you must have had earned income for the 2009 and 2010 tax years and a valid Social Security number. Program benefits were available to traditional employees and self-employed workers. Individuals who received private pensions were not eligible to receive the tax credit unless they also had earned income. According to IRS guidelines, the credit was not available to individuals who had a modified adjusted gross income higher than $95,000 or married couples with a MAGI of more than $190,000. You were also ineligible for the credit if you could be claimed as a dependent on someone else's return.
  
  

Claiming the Credit

• Under the terms of the program, most taxpayers enjoyed the benefits of the Making Work Pay tax credit in the form of reduced federal withholdings, which resulted in larger paychecks. In order to determine eligibility for further credits at tax time, taxpayers were required to complete IRS form Schedule M. The credit was reduced by $250 if you received Social Security benefits, retired railroad workers compensation or if you were a disabled veteran who received a $250 Economic Recovery Payment in 2010.
  
  

Considerations

• The Making Work Pay tax credit was phased out at the end of 2010, meaning it will not be available for the 2011 tax year or beyond. As a replacement, the federal government has implemented a 2 percent payroll tax holiday, which offers taxpayers additional tax savings. For 2011, the payroll tax rate will drop from 6.2 to 4.2 percent, meaning Americans will see a 2 percent reduction in the amount of Social Security and Medicare taxes taken out of their paychecks for the 2011 tax year. The one-year program offers a maximum potential savings of up to $2,136 per person.