I see that it is a 6.2% tax credit with a limit of $400/year. I am only making $12 and not even getting 40 hours/week and mine works out to be over $1000/year. Am I doing something wrong? It would seem to me that just about everyone is going to just end up with $400. How is this handled? Will the federal withheld only be reduced until the $400 is used up?
Anonymous
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Dear B: The "making work pay" credit is a refundable credit, which means it will be refundable to you even if you do not have any tax liability. It is calculated by multiplying your income by 6.2% until you reach $400 for singles and $800 for couples. This credit is claimed on next years taxes or through a reduction in with holding in your pay this year.
This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to read more. Errol Quinn Enrolled Agent Master Tax Advisor