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Making Work Pay Credit not likely to be extended

U.S. Capitol buildingCongress' effort to stimulate the economy included pushing through a series of tax breaks in 2009. The centerpiece of the legislation was the Making Work Pay Credit, which was intended to provide tax relief for working and middle class families. It may not last beyond this year.

The idea was to allow more taxpayers to have cash in their pocket during the year, as opposed to at tax time, by adjusting the amount of earned income withholding.



Under the current legislation, the maximum allowable credit is $400 for individuals and $800 for married taxpayers filing joint returns. The credit is figured at a rate of 6.2% of earned income. It phases out for individual taxpayers with modified adjusted gross income over $75,000 -- or $150,000 for married couples filing jointly; the phase out is at 2%, which means taxpayers who earn more than those limits still qualify for the credit, but will not receive the full amount. The credit is also refundable, so if you are due a credit that's larger than your tax liability, you qualify for a refund.

That's the good news. The bad news is that those taxpayers who benefited from the Making Work Pay Credit in 2009 and 2010 tax years should enjoy the extra dollars now, because the credit is likely not being extended to 2011 or beyond. As Congress battles it out over extending the Bush tax cuts, they also have to consider the cost of extending other tax credits. The Making Work Pay Credit is expected to cost an additional $600 billion over 10 years. The argument against extending the credit is that it's simply too expensive. Those in favor of extending the credit point out that the primary audience, the working middle class, has been the hardest hit during the recession.

It's not just a question of economics; it also boils down to political capital. The push to extend the so-called "Bush tax cuts" has gathered momentum over the past few months, while the notion of extending the "Obama tax cuts" has barely garnered any attention at all. The only thing that is clear is, semantics and politics aside, taxes are likely edging up next year.

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