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Economic Recovery Payment

Any economic recovery payment you receive during 2009 is not taxable. These $250 payments are being made to most people who:

  • Receive social security benefits, supplemental security income (SSI), railroad retirement benefits, or veterans disability compensation or pension benefits, and
  • Live in a U.S. state, the District of Columbia, Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, or the Northern Mariana Islands.

If you are married and you and your spouse both meet these requirements, each of you may get a $250 payment.
If you are entitled to a payment, you will get it automatically. You do not need to apply for it.
Making Work Pay and Government Retiree Credits
Two new credits you may be able to take for 2009 are the:

  • Making work pay credit, and
  • Government retiree credit.

Making work pay credit. You may be able to take this credit if you have earned income from work. Even if your federal income tax withholding is reduced during 2009 because of the credit, you must claim the credit on your return to benefit from it.
You cannot take the credit if:

  • Your modified AGI is $95,000 ($190,000 if married filing jointly) or more,
  • You are a nonresident alien, or
  • You can be claimed as a dependent on someone else’s return.

The credit is 6.2% of your earned income but cannot be more than $400 ($800 if married filing jointly). The credit will be reduced if:

  • You receive a $250 economic recovery payment (described earlier) during 2009,
  • Your modified AGI is more than $75,000 ($150,000 if married filing jointly), or
  • You take the government retiree credit discussed next.

Government retiree credit. You can take this credit if you receive a pension or annuity payment in 2009 for service performed for the U.S. Government or any U.S. state or local government (or any instrumentality of one or more of these) and the service was not covered by social security. The credit is $250 ($500 if married filing jointly and both you and your spouse receive a qualifying pension or annuity). However, you cannot take the credit if you receive a $250 economic recovery payment during 2009. If you file a joint return, both you and your spouse receive a qualifying pension or annuity, and both of you receive an economic recovery payment, no government retiree credit is allowed; if only one of you receives an economic recovery payment, the credit is $250.
Social security number. To take either credit, you must include your social security number (if filing a joint return, the number of either you or your spouse) on your return. A social security number does not include an identification number issued by the IRS.
Schedule M. Generally, you will use new Schedule M (Form 1040A or 1040) to figure both the making work pay credit and the government retiree credit. Both credits are refundable, which means they are treated like payments you made and may give you a refund even if you had no tax withheld from your pay or your pension. If you are filing Form 1040EZ, you can take the making work pay credit on that form and do not have to file Schedule M.