Making Work Pay Tax Credit & Estimated Taxes

Here’s a common question we get when we talk to people about 2009 estimated taxes,

“How does the government’s economic stimulus plan affect the quarterly estimated taxpayer?”

Good question. If you are self-employed or don’t have any income withheld from your paycheck (the most common occurrences of those that pay estimated taxes), then you need to know about the Making Work Pay tax credit.

To go back one step, the Making Work Pay tax credit is a refundable tax credit in 2009 and 2010 for working taxpayers. It amounts to $400 for individuals and up to $800 for married taxpayers filing joint returns. Taxpayers that are not self-employed get this credit a little bit at a time in their paycheck (as opposed to getting it in one lump sum).

Back to the self-employed. How are they supposed to reap the benefits of this tax credit? There are two ways:

1. Pay estimated taxes like normal and then claim the credit on their 2009 tax return.
2. Adjust the remaining estimated tax payment (by paying a little less) to account for the credit. Be careful here. This isn’t free reign to skip payments. Failure to pay enough could result in penalties.