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Budget Header 2011

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Extend the “Making Work Pay” Credit through 2011

The economic stimulus act (“American Recovery and Reinvestment Act of 2009,” or ARRA) created the “Making Work Pay” (MWP) tax credit, an Obama campaign proposal to offset part of the Social Security taxes paid by low- and middle-income workers. ARRA made the credit effective only for 2009 and 2010. The president proposes to extend the credit for one year through 2011 at an estimated cost of $61 billion.

MWP provides a refundable tax credit equal to 6.2 percent of earnings (the employee share of the Social Security payroll tax), up to a maximum credit of $400 for individuals ($800 for couples). Neither nonresident aliens nor taxpayers claimed as dependents by other taxpayers are eligible for the credit. Couples may claim the full $800 credit, even if only one spouse works.

The credit phases out at a rate of 2 percent of income over $150,000 for married couples filing joint tax returns and $75,000 for others. Therefore, couples with income above $190,000 and others with income above $95,000 are not eligible to receive the credit.

The credit offsets the regressivity of payroll taxes and encourages low-income people to work. Because workers in the phaseout range would face higher marginal tax rates, however, it could give those workers an incentive to work less.

MWP would reduce income taxes for three-fourths of all tax units in 2011 by an average of $385, raising average after-tax income by 0.7 percent. The credit is highly progressive: after-tax income would rise by 2.6 percent for the poorest 20 percent (quintile) of households, compared with 1 percent for the middle quintile and 0.2 percent for the top quintile.

Distribution tables
        Making Work Pay Credit
2011 versus current law by cash income
2011 versus current law by cash income percentiles
2011 versus current policy by cash income
2011 versus current policy by cash income percentiles

Additional Resources
Stimulus Act Report Card: "Making Work Pay" Tax Credit