1040 Forms and Instructions
U.S. Internal Revenue Service
The Making Work Pay tax credit can reduce tax due or increase tax refund received by up to $400.00 and $800 if married and filing taxes jointly. The tax credit is available to different tax filers at differing income level caps; tax filers with Adjusted Gross Incomes (AGIs) below $75,000, and tax filers who are married filing jointly with an AGI below $150,000 may qualify for the Making Work Pay tax credit in full. The credit phases out and is eventually eliminated above these income levels.
I: HOW TO QUALIFY FOR THE MAKING WORK PAY TAX CREDIT
The Making Work Pay tax credit is a tax credit available to income earning tax payers for the tax years 2009 and 2010. This credit is recorded on line 63 of the 2009 IRS Form 1040 and line 40 of the IRS 2009 1040A. To qualify for the Making Work Pay tax credit in full requires the following criteria to be met. Otherwise the credit is either reduced, one is ineligible to claim it, or an alternative tax credit is claimed i.e. the Government Retiree tax credit also claimed using Schedule M.
• Adjusted Gross Income (AGI) below $75,000 if not married filing jointly
• AGI below $150,000 if married filing jointly
• Non-receipt of Recovery Rebate Credit of $250-$500
• Non-receipt of Government pension payments of $250-$500
• Income from employment or self-employment
According to the U.S. Internal Revenue Service, some employers may have reduced income withholdings from employee paychecks. This can be determined by inquiring with an employer human resources department. Either way, the Making Work Pay tax credit may be claimed, however if employee withholdings were/are reduced in 2009 or 2010. this may mean the tax credit could only reduce the amount of tax owed rather than increase the amount of tax refunded.
To further illustrate how the credit works, if tax withholding is reduced by $400.00 for the tax year on a $40,000 AGI, that $400.00 will still be owed when filing taxes all other factors held constant. If the Making Work Pay tax credit is not claimed in this scenario, the benefits of the credit are not realized because taxes will paid without the credit.
II: IRS FORMS TO CLAIM THE MAKING WORK PAY TAX CREDIT
To claim the Make Work Pay tax credit an IRS Schedule M will need to be completed and sent to the IRS. If you
claim the Make Work Pay tax credit and are filing taxes online, make sure the online tax filing service has this form available before filing taxes with that service to avoid complications. Schedule M and other required forms for filing the Make Work Pay tax credit are listed below:
• 2009 IRS Schedule M
• Schedule M Instructions
• Earned Income Worksheet?This worksheet is on page 2 of the Schedule M instructions.
• 2009 IRS Schedule C (if self employed)
• Form 8812 (if a child tax credit recipient)
• IRS Form 1040 (A different form 1040 may be required)
III: MAKING WORK PAY TAX CREDIT TIPS
The Making Work Pay tax credit is a limited time tax credit. The tax credit expires at the end of tax year 2010. This credit can benefit income earners with potentially lower taxable income or increased tax refund. In a sense this can be perceived as a tax subsidy to U.S. tax payers. For additional information on the Making Work Pay tax credit the following IRS website pages me be of assistance.
• The following IRS website pages about the Making Work Pay tax credit provide additional information on the tax credit which may be helpful in understanding and claiming it.
(1) Making Work Pay questions and answers. General Issues (IRS)
(2) The Making Work Pay tax credit (IRS)
(3) Five facts about the making work pay tax credit (IRS)
• It is important to claim the Making Work Pay tax credit if you are eligible. Otherwise, if your employer reduced withholdings and the credit is not claimed, you may end up paying too much tax.
• For those who can receive a refund from claiming the Making Work Pay tax credit, a reduced refund may be received from not claiming the tax credit.
• Line 13 of Schedule M subtracts Recovery Rebate Credit from the Making Work Pay tax credit
• Schedule M phases out qualification for the Making Work Pay tax credit by multiplying income in excess of the cap by 2% then subtracting the result from the credit qualified for. Ex: 2% of $10,000 additional income=$200 $400-$200=$200.
• Total phase out of the Making Work Pay Tax Credit beings at $95,000 for tax filers who qualify for the whole credit are not married filing jointly, and $190,000 for tax filers who qualify for the full credit and are married filing jointly.
Source: http://www.irs.gov (U.S. Internal Revenue Service)