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Calculating the Making Work Pay Credit (2011)

February 15, 2011 · 29 comments

There have been few changes in the Making Work Pay Credit since last year (look for my post later today summarizing what you need to know). Those changes are, however, enough to throw taxpayers, so I’ve updated what you need to know to calculate the credit.

As it was last year, if you were paid a wage or salary by an employer, you saw a little more in your paycheck in 2010 than in 2008 as a result of the Making Work Pay tax credit. If you didn’t make a change on your form W-4 last year, your employer withheld a little less over the year – the amount works out to about $7.69/week for individual taxpayers (that was bit less per week than in 2009 since the credit kicked in later that year). The credit will provide up to $400 per individual worker and $800 per working married couple.

The amount of the credit will be figured on your 2010 income tax return. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their tax returns. You’ll claim or report the credit on line 63 of your federal form 1040:

1040-payments.jpg

To claim the credit, you need to complete Schedule M (downloads as a pdf). You need to complete Schedule M even if your withholding was adjusted by your employer or if you are self-employed.

I’ll walk you through the form, step by step.

If you are a nonresident (and are filing a federal form 1040NR) or can be claimed as someone else’s dependent, skip through to line 8. You are not eligible for the making work pay credit but you might be eligible for other credits. Similarly, if you do not work, you are not eligible for the credit.

Line 1a: If you (and your spouse if married filing jointly) earned wages of at least $6,451 ($12,903 if married filing jointly), check yes and skip ahead to line 3. If you checked no, enter the amount of your earned income (meaning wages or salary) on line 1a. Do not include unearned income such as interest or dividends.

Line 2: Multiply the number on line 1a by 6.2% – that’s the percentage used to calculate the credit for those who checked no (again, if you checked yes, move along).

Line 3: If you checked no, enter $400 if single or $800 if you’re married filing jointly – this is the maximum credit allowed. The maximum credit of $800 for married taxpayers applies even if only one taxpayer worked.

Line 4: If you checked yes at line 1a, enter $400 ($800 if married filing jointly) on this line – this is the maximum credit allowed. If you checked no at line 1a, enter the smaller of line 2 or line 3.

Line 5: Enter your AGI. You’ll find it on line 38 on your form 1040.

Line 6: Enter $75,000 ($150,000 if married filing jointly). The credit will phase out at a rate of 2% of income over these amounts. The result is that single taxpayers with income above $95,000 and those married filing jointly with income above $190,000 will not get the credit.

Line 7: If the amount on line 5 (your AGI) is more than the amount on line 6 (the phase out amounts), check “yes” and calculate the overage. Subtract line 5 from line 6 and enter that amount on line 7.

If you check “no”, skip to line 9.

Line 8: If you entered an amount on line 7 (meaning that you checked “yes”), multiply that amount by 2% – that’s the magic percentage for phase outs. Enter that amount on line 8.

Line 9: If you have an amount on line 8, subtract it from line 4 – this figures your maximum credit. If the result 0 or less, enter 0 (this means that you aren’t entitled to the credit). If you don’t have an amount on lines 7 or 8, enter the amount from line 4 on line 9.

Line 10: If you were entitled to an economic recovery payment because you were retired or disabled, or if you were entitled to the Special Credit for Certain Government Retirees, you’ll figure those amounts here. If you check “no” here, move onto Line 11. If you check “yes” you can’t claim the full Making Work Pay Credit and the special credits. So, enter the amount you received from ERP here.

Line 11: Subtract the amount on line 10 (if any) from Line 9. THIS is the amount of your credit. Enter it on line 63 of your form 1040 (or line 40 of the form 1040A), as shown here:

1040-payments.jpg

So now that you’ve calculated your credit… what next? Check out my posts later today to see what it all means.

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{ 19 comments… read them below or add one }

1 Steve February 19, 2011 at 11:37 am

My wife worked last year, but I’m retired. We’re filing jointly, so do we qualify for the filing jointly on Schedule M?

2 FRED February 25, 2011 at 7:55 pm

I AM STILL CONFUSED. I AM SORRY. DO WE GET A TAX CREDIT IN BOTH 2009 AND 2010.

3 Kir February 25, 2011 at 8:16 pm

What is the publication or instruction form number that clarifies the phrase “The maximum credit of $800 for married taxpayers applies even if only one taxpayer worked.”?

4 Shirley Howe March 24, 2011 at 7:42 am

I am still confused. Your example (Line by Line) goes to line 14. Form M only goes to Line 11. ????????

5 Kelly March 24, 2011 at 7:50 am

Shirley, sorry about the confusion. The IRS reworked Line 10 into extra parts rather than extra lines and I didn’t make the adjustment. All fixed now.

6 Kelly March 24, 2011 at 7:51 am

Fred, yes, there was a credit in 2009 and 2010. There is NO Making Work Pay Credit for the 2011 tax year (the return you’ll file in April 2012); it’s been replaced with the payroll tax holiday.

7 Kelly March 24, 2011 at 7:52 am

Steve, yes, you still qualify as married even if only one of you worked. But if you received that ERP ($250 check) as a retiree in 2010, you’ll need to deduct it at line 10.

8 Kelly March 24, 2011 at 7:52 am

Kir, that’s from the instructions. What sort of clarification did you need?

9 Joshua April 10, 2011 at 10:10 am

Missed it last year, am I out of luck or can I still get it somehow?

10 Sharon April 15, 2011 at 8:33 am

Prob too late… I tend to do my taxes late because I always get a refund.

Now I’m trying to find out if I’m supposed to itimize the credit I got LAST YEAR somewhere…. afterall it was a tax I got right? Shouldn’t it be claimed as income or something just like your state refund?

And now your telling me I get the credit again THIS year – even though I claimed it last year? Please if you see this, just email me. I want to file my taxes over the weekend if possible. :) thanks.

11 Kelly April 15, 2011 at 9:40 am

Sharon, You don’t do anything with the credit you got last year. It’s a credit, no need to report it this year.

12 Lynn April 15, 2011 at 6:08 pm

I’m self-employed. Do I check yes on 1a and enter my business income (1040 Line 12) on 1a since I have no wages or salary, or check no and enter my AGI (1040 Line 37) on Line 5?
Bless you if you have time to answer this!

13 Lynn April 15, 2011 at 6:16 pm

Classic! I asked my question backwards. Should have asked do I check No and enter my business income on 1a as “earned income” or check Yes and enter my AGI on Line 5.

In other words does a self-employed person’s net income equal “earned income” even though it isn’t wages or salary.

14 Kelly April 15, 2011 at 6:22 pm

Lynn, yes, self-employment (SE) net income counts for purposes of the credit.
SE doesn’t count as wages, though, so check no at line 1 and then fill out the worksheet found in the instructions at M-2: http://www.irs.gov/pub/irs-pdf/i1040sm.pdf (downloads as pdf).

15 Sharon April 16, 2011 at 10:19 am

Thanks. :)

16 Nikki January 2, 2012 at 9:09 pm

Okay, so this post is intended for the year of 2010 for which taxes will be filed in 2011, right? I’m going to have a bit more complicated return than usual this year because it will be my first year figuring tuition costs with taxes. I don’t want to be looking for a place to fill in my info for this credit, and it not be there (for 2011 taxes). Thanks!

17 ron hansen January 25, 2012 at 1:21 pm

if you didn’t work in 2011 are you still eligible for making pay work for you

18 Patti January 28, 2012 at 2:22 pm

I just had an accountant tell me you cannot get a make work pay credit for the calendar year 2011. I that true? I am very confused by the information I am reading.

19 Kelly January 28, 2012 at 4:29 pm

Patti, your accountant is correct. This post was written in 2011 for the 2010 tax year – the notation (2011) was to distinguish from the posts written in 2010 about the 2009 credit.

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