The Making Work Pay tax credit is not receiving much attention on Capitol Hill. Image: Flickr / willpalmer / CC-BY

After two years in effect, the Making Work Pay tax credit is due to expire. Unless Congress takes action, most middle-class taxpayers will see a reduction in their paychecks. The Making Work Pay tax credit will likely expire amongst debate over the Bush tax cuts.

The effect of Making Work Pay

The American Recovery and Reinvestment Act of 2009 included the Making Work Pay tax credit. This credit cut payroll taxes, adding about $33 a month to the average single person’s paycheck. This credit takes full effect for anyone making $75,000 or less, with partial credit for those earning more. About 90 percent of U.S. workers received some benefit from the Making Work Pay credit.

The expiration of the Making Work Pay credit

The Making Work Pay credit was designed to expire at the end of 2010. This credit was capped at $400 for anyone filing as a single person and $800 for joint filers. The money came in a slight increase in paychecks, rather than a one-time increase in tax returns. When the tax credit expires, deductions out of paychecks will increase, making a no fax payday loan tougher to get for some workers. There are currently two proposals to extend the Making Work Pay credit in the works, but none have been presented.

The tax cut debate

The debate over extending the Making Work Pay credit is not very loud. During the lame-duck Congress, the Bush tax cuts are most likely to be the center of the discussion. The major debate in Congress will likely be tax cuts for the 5 to 6 percent of Americans making $250,000 per year or more. If the Making Work Pay tax cut is extended, it will cost about $60 billion per year. Critics claim that the incremental nature of Making Work Pay reduces its impact. Proponents say that the extra $33 a month can have a huge impact for low-income families. How about you? Did you notice the Making work Pay credit in your paycheck?

Sources:

News Advance
CNN.com

Republicans have said if the rich can't keep the Bush tax cuts, no one can--however John Boehner, looking ahead to the mid-term election, appears to be softening his stance. Image: Thinkstock.

The Bush tax cuts sat at the top of the agenda as Congress returned from a five-week vacation Monday. No one expects Congress to get much done before lawmakers drop everything in about four weeks to campaign for the mid-term election. Democrats propose repealing the Bush tax cuts for all but those making $250,000 a year or more. Republicans have said they will not vote for anything but making the Bush Tax Cuts permanent for everyone. The typical Congressional stalemate seemed inevitable. However, House Minority Leader John Boehner added intrigue to the debate Sunday when he said he would vote for ending the tax breaks for the rich if that was his only choice for a tax cut.

Boehner’s Bush tax cuts surprise

The Bush tax cuts applying to all taxpayers enacted in 2001 and 2003 expire at the end of the year. The Obama administration wants to extend the Bush tax cuts to everyone but America’s richest people. CNN reports that Republicans and some Democrats oppose the plan, calling it a tax increase in a weak economy. Republicans have threatened a filibuster unless the tax cuts are extended to all–which would essentially allow them to expire for all. Democrats have accused Republicans of holding middle class tax breaks hostage in order to get tax breaks for the rich. Then Boehner’s suggestion that he may compromise on the Bush tax cuts surprised everyone.

Fearful Democrats crawl in bed with Republicans

Boehner dropped his bomb even as a growing number of Democrats fearful of the mid-term election have said they may prefer to extend all the Bush tax cuts for another couple of years as the economy recovers. The Washington Post reports that half a dozen Democratic senators and Senate candidates have suggests such a temporary extension of tax cuts for the rich. In the House, the number of incumbents taking that position are growing. A third way that is getting attention proposes raising the $250,000 tax cut threshold to $1 million per household, to compensate for regions of the country with higher costs of living.

Boehner maneuvers for power, not the middle class

Democrats crowed when Boehner appeared to blink on the Bush tax cuts issue. However, the Christian Science Monitor suggests that Boehner may simply be preparing for his ascension to Speaker of the House should Republicans gain control of the government following the mid-term elections. The Monitor said that unlike the opposition leader, the speaker is actually responsible for getting bills passed. By suggesting he may be willing to compromise, Boehner could set up a tax-cut deal he could take credit for. Plus, if a tax bill gets passed in the short time that remains ahead of the mid-term election, Republicans could say it offers proof they are better than Democrats at getting results. Whether or not Boehner has the good of the middle class in mind with his strategy, the Monitor did not say.

Arthur Laffer, extremely rich person, fondly remembers the Reagan era and predicts economic collapse after the Bush tax cuts expire in 2010. Flickr photo.

Arthur Laffer is making news by predicting that the U.S. economy will collapse next year when George W. Bush tax cuts expire in 2010. His theory on the Obama tax plan is based on how the super-rich can choose when and how they collect their income to evade taxes. Laffer believes the economy is doing better this year than it should because these aristocrats are collecting more of their loot and spending more of their money before taxes rise. He says that when taxes go up, Americans who can will choose to make less money, thus reducing the government’s tax revenue anyway.

Bush tax cuts expire 2010

Arthur Laffer became famous when he influenced the Reagan administration to cut taxes. His Laffer Curve regarding taxes appears in economic textbooks. Laffer, in his Wall Street Journal column, said that Reagan tax cuts brought the economy out of what was the worst U.S. recession since the Depression — until the Mt. Everest recession we’re still trying to get out of now made that one look like a speed bump. He said when tax cuts went into effect on Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5 percent in 1983 and 5.5 percent in 1984. He doesn’t mention how Bush tax cuts in 2001 and 2003 in the face of two wars eventually ran the U.S. economy into the ground and destroyed a budget surplus he inherited from Bill Clinton.

The Arthur Laffer curveball

The Laffer Curve tax cut argument misleads his readers, according to Asha Bangalore at Northern Trust. As another recession set in after Laffer’s utopic Reaganonomic era, Bangalore wonders why the economy posted substantial growth after tax increases were implemented by Bill Clinton in 1993. A revival of bank lending after the Reagan hangover led to self-sustained growth despite the tax increases. Bangalore also points out that if the Laffer Curve theory about tax cuts is valid, the U.S. economy would have done better than record the weakest period of economic expansion in history following the Bush tax cuts of 2001 and 2003.

Obama tax plan lower than Reagan’s

Arther Laffer’s predictions of economic collapse when tax cuts expire in 2010 is also questioned by The Motely Fool. In his column Laffer says we’re all going to die when the highest federal personal income tax rate goes to 39.6 percent from 35 percent. The Fool says it’s worth noting that the 1983 cuts Laffer remembers so fondly lowered top rates from 69.13 percent to 50 percent. Top marginal tax rates under all but one year of Ronald Regan’s presidency were more than 50 percent. The Obama tax plan wants to revert the highest personal income tax rates to 39.6 percent, where they were in the ’90s when the economy boomed and the government collected more taxes than it spent.

Arther Laffer feels your pain

Arther Laffer, the chairman of an investment consulting firm and obviously very wealthy, is making predictions of economic collapse from a very narrow point of view. Bangalore goes further to point out that the obstacles the economy will face in 2011 have nothing to do with tax increases. A severe credit crunch, lackluster job growth, and housing market challenges are factors that will have far greater influence on the economy. Most people will keep their head up and try to survive. But when Arthur Laffer’s personal income tax rate goes up 5 percent, the millions he won’t pocket will seem like the end of the world indeed.

It may take a small loan to fund child care these days, but there are ways to manage. The Child and Dependent Care tax credit is a new credit the government has initiated to help consumers cut their tax liabilities. There are some eligibility requirements, but overall it is another good way to eek down a high tax bill. Here are some of the basics of the Child and Dependent Care tax law.

How much does the credit pay?

The tax credit does not pay for all of your child care costs—that isn’t its goal. Rather, it is set up to aid parents in their difficulties. The IRS limits the amount parents can claim and once you reach that, you only get a percentage of that cost back. A parent can claim up to $3,000 for one dependent or up to $6,000 for two or more dependents. As long as parents keep records of spending on child care, they should be able to combine tax cuts and benefit nicely.

The limits on the tax cut

Next there are limits to address regarding the tax cut. Once you figure out how much you pay in child care costs, you get to take off a percentage of it to figure out your actual tax credit. That means that the maximum credit is $1,050, or 35% of the $3,000 limit. The 35% rate, however, is for low-income taxpayers. If your salary is higher, you could be eligible for only 20%.

When it comes to your dependents, the formal definition of “child” as per the IRS must be adhered to. The child must be under 13, related to you and live with you the majority of the time. Divorced parents have different clauses, but in general these are the requirements. The Child and Dependent Care credit also covers dependents who are incapacitated for some reason, either physically or mentally. There needs to be the proper documentation, but if you are providing care for any child or dependent, you should take advantage of this tax law.

Other requirements

There also is a job requirement. To claim the tax break you have to be employed and if you are married, both partners have to be employed. There are other tax filing requirements and a tax consultant should be utilized to remain in compliance with the law. Jamie Breuer, small loan and tax consultant, said, “Many people don’t know the vast amount of tax breaks out there. In particular now after the recession there is a whole new family of laws that everyone should be taking advantage of.”

In addition to dependents, tax filers also need to cite their child’s caregiver and be able to provide employer identification numbers if applicable. Things like daycare providers and summer camp providers should not be ignored. In addition, private home nurses, licensed caretakers, nursery school costs, and household help can all be included in the tax preparation process and cut down on tax liabilities. The costs of care for children and dependents is not set to decline any time soon, so parents need to have tools to bring down their tax liabilities. Though in the past they had to use small loan products, savings and outside help, today the government is offering some much-needed assistance.

Apply for a Small Loan HERE!