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Calculating the Making Work Pay Credit

February 2, 2010 · 53 comments

I’ve received a bunch of questions about the Making Work Pay Credit. I agree – it is confusing. Let me see if I can make some sense of it for you.

To keep things simple, I’m doing this in two posts. This first post will assist you in calculating the credit and completing Schedule M. The second post (tune in later today) will help you sort out what it all means.

Here’s the part that you already know: if you were paid a wage or salary by an employer, you saw a little more in your paycheck in 2009 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 $11/week for individual taxpayers since the time that the credit kicked in (April 1). 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 2009 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.

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.

Lines 10 – 12: 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.

Line 13: You can’t claim the full Making Work Pay Credit and the special credits at lines 10 through 12. So, subtract line 12 from line 9. If zero or less, enter 0. If the credits at lines 10 through 12 don’t apply to you, just enter line 9 again.

Line 14: Add lines 11 and 13. 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 next post and see what it all means.

{ 43 comments… read them below or add one }

1 a funding consultant February 9, 2010 at 5:55 am

This is my first time i visit here. I found so many entertaining stuff in your blog, especially its discussion. From the tons of comments on your articles, I guess I am not the only one having all the enjoyment here! Keep up the excellent work.

2 april February 13, 2010 at 12:53 am

Will the tax credit Making Work pay Be added to your final refund amount? or is it givin back to you per your pay check through the next fisical year?

3 Kelly February 13, 2010 at 8:47 am

When you figure the credit, it will be applied towards your overall taxes due, just like it was a payment. If you are due a refund, you’ll get it back just like normal.

4 Mel February 24, 2010 at 9:22 pm

I retired from the Post Office (a government agency) in 2008. I didn’t have any earned income in 2009, but my wife made $26,000+ at her job. Am I eligible for an $800 credit or something less? The instructions don’t seem to be very clear on this. Thanks!

5 Tony March 3, 2010 at 2:54 am

Do you have to have earn income to take the “Making work pay credit”
I have a disability retirement from a government job, which I stop work in 1992 but not collercting social security . I have not worked since then. Can I take “Making work Pay and Government Retiree Credit”?
Not Clear

6 Kelly March 3, 2010 at 7:49 am

Tony, yes, you have to have earned income in order to claim the credit.

7 Justin March 18, 2010 at 4:58 pm

I know that I did have less taken out of my paycheck this year and if I did things right on my income tax return it shows that I owe $430.00 back to the IRS. Do I qualify for the tax credit? I am single and make about $22,000.00 a year. If I qualify how do I make sure that I receive my credit. Can you help me?

8 Kelly March 18, 2010 at 10:59 pm

Justin, did you fill out the Schedule M? That’s what you need to complete to take the credit. If you’re filing a form 1040-EZ, use the worksheet on the back instead of a Schedule M.

9 Gwen March 18, 2010 at 11:18 pm

What I found conceptually difficult even after reading all these taxgirl, bankrate, and other posts, was a misconception that since I already received the credit in the form of lowered federal withholding in my paychecks last year, that I would not get to “take the credit again” in my taxes.

To be really clear, since my husband and I had full time jobs at least part of the year last year, line 14 of schedule M comes to $800, and $800 gets filled into line 63 of my 1040 form. I re-read the simple form and instructions 15 times because I kept thinking I must have done something wrong, since my intuition said that I’d already gotten the money last year so I should be getting $0 as the Schedule M result.

Maybe an example will make this crystal clear:

You worked last year and had $5000 taken out in taxes. You know from looking at paycheck stubs that you and your spouse each had less withholding in the spring of last year, so you must have gotten the Making Work Pay credit. You’re filling out form 1040. Let’s say you have no other credits (lines 62, 64-70 are $0)

Line 61 (tax withheld) = $5000
Line 63 (Making work pay credit) = $800
Line 71 (total payments) = $5000+800 = $5800

On the other hand, pretend that the making work pay tax credit never existed. Now, you didn’t have less withheld from your paycheck last year, so your total taxes were $5800 last year.

Line 61 (tax withheld) = $5800
Line 63 (some other credit bc Making Work Pay doesn’t exist) = $0
Line 71 (total payments) = $5800

Voila, from a bookkeeping standpoint, your total payments were the same ($5800), but in reality, with the Making Work Pay Credit, Uncle Sam kicked in $800 of those total payments, so that’s $800 less out of your pocket.

10 Lucky March 21, 2010 at 11:45 am

TaxGirl, my question is do I need to show this making work pay credit from Federal 1040 on my State 1040 line 10 as a schedlue M earned income amount?

Thanks.

11 Kelly March 21, 2010 at 8:34 pm

Lucky, the Schedule M for your federal form 1040 should not affect your state return so far as I know – but then I don’t know if any states are doing anything wacky.

12 Cheryl March 24, 2010 at 11:08 am

I have already filed my 2009 taxes but did not take the Making Work Pay Credit. How can I fix that?

13 Karen March 26, 2010 at 4:15 pm

To Cheryl- We filed our return in February–and duh I did not do anything with the Work Pay Credit on our return.I just got a letter from the IRS and they calculated the tax credit for us!! and added to our refund!! it says for next year to be sure and fill out schedule M–so hold on they may do the same thing for you!

14 shirley March 28, 2010 at 10:02 am

I didn’t work in 2009, so I didn’t have any earned income credit. I filed a married file jointly with my Husand who worked in 2009. Do I also entitle to the $400 making work pay credit or just my husband? Please advise. Thank you!

15 wendy April 8, 2010 at 12:28 pm

I have already filed my 2009 taxes. I missed the Making Work Pay Credit.
Can I get this rectified?

16 Bao April 8, 2010 at 2:23 pm

Taxgirl. Both my wife and I retired and get SS benefits, but we also still work and got paycheck in 2009, how do I enter the line 10 of Schedule M? $500 or $0? How much may I claim this work pay credit for us, $800 or $300? Thank.

17 Kelly April 9, 2010 at 7:14 am
18 Angie April 12, 2010 at 12:46 am

Well when I entered the MWPC into my taxes, (hubby got the 250, so the amount on the taxes was 550), it didnt change my refund cropped by $200+. So essentially I paid out over 5000 in taxes thru the year, got the 550 and my total refund is to be 603. That means I am only getting $53 back out of my 5200 paid in, how is it possible to be a credit-something that is gonna help you out and then my refund is just over 1/3 the amount I got last year and nothing what so ever has changed from last year???? You quoted that “The credit just acts like an extra payment on your tax return.” There is certainly NOTHING extra to my refund. I worked it out on 3 sites and same thing with each of them.

19 shana nir April 15, 2010 at 8:24 am

my husband already fail on short form on line our taxes for the year, with out all the deduction that we we need to fail. how i can fix it ??? thanks , shana.

20 Pablo April 25, 2010 at 11:14 am

If the making work pay credit is NOT claimed for 2009, should an amended return be filed, or wait until 2010?

21 Kelly April 26, 2010 at 7:21 pm

Pablo, do you mean that you forgot to file the Schedule M? If so, the IRS is suggesting that you wait – they are catching those that missed it and making the corrections.

22 Griz June 30, 2010 at 11:46 am

I am 62 and retired and did not know about the MWPC. My wife works, pays my taxes, health insurance etc. IRS just figured out that they owed us another $550.00 due to the MWPC error. When I told my wife that we where getting the money she said it is all yours Griz….What a Country.

23 Spartythekat July 2, 2010 at 11:38 pm

Interesting…We had an error in one of our attachments, and we corrected that with the standard form, etc. We got our refund after waiting 4 months from time of mailing the return, but I’m glad I waited.

For some reason, the explanation letter showed that our total tax would be decreased by exactly $2000. Married, jointly, 2 kids. Did I miss something here? I thought the credit was only $800 for jointly….

24 KATHRYN LEWIS August 11, 2010 at 5:56 pm

Can we take (a married couple) take this credit if we are both self-employed?

25 Paul August 25, 2010 at 3:21 pm

I think you have an error in the 1st line wheren it says “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.” Shouldn’t it be line 4?
Plus line 3 and 4 seem to say the same thing.

26 Pampers Cruisers September 30, 2010 at 12:18 pm

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27 Gerald Revis January 10, 2011 at 1:00 pm

Couldn?t be written any better off. reading this post reminds me on my old room mate! He always kept talking about this. I will forward this article how to him. Pretty sure he will have on a good read. Thanks for sharing!

28 Cindy January 16, 2011 at 5:34 pm

In 2009, my employer did not deduct for the MWPC. Will it all work out on Schedule M?

29 Kelly January 17, 2011 at 10:09 am

Cindy, it should if you qualify.

30 Barbara January 19, 2011 at 12:05 pm

My Husband is retired from the post office and receives an annuity through CSRS. Does he get the $400 credit.

31 Darlene January 27, 2011 at 3:16 pm

Hi Tax Girl,
Can the credit be taken in both 2009 and 10? My husband rec’d stimulus money in ’09 but not in ’10. can we still take credit $800 for both of us? Kindly advise.
Darlene

32 Susej' January 27, 2011 at 6:00 pm

i just learned about this Make Work Pay credit from my son. I saw his tax papers from H&R Block. I feel so stupid that I didn’t apply for it for my husband last year. When did the credit start and can I make an amendment to recieve any back credit from 2009?. I feel so stupid.

33 charles carey February 1, 2011 at 11:20 am

I just received my retirement check and an additional $47 was withheld.The reason was a change in the tax code.According to the phone message it had to do with making work pay. I did not have an earned income .Was I given a tax deduction last year by mistake and now have to give it back?I am confused and I do not know whom to contact for an explanation.Thanks in advance for any assisstance you provide.

34 Linda McCants February 11, 2011 at 9:59 am

Thank you so much for this easy to follow explanation. I read From M and it if checked Yes enter $400 in 1a and skip 1-3, 4 says enter smaller of 2 or 3 unless you checked Yes. No indication of what to enter if you did check yes, and the Instructions for Schedule M don’t even address line 4.

35 george constantakos February 14, 2011 at 8:22 am

I worked part time for most of 2010, but i started collecting soc. sec. in june of that year. Im i still able to claim the making work pay credit’

36 Kathy Shepherd February 15, 2011 at 3:46 pm

My husband is retired and did not work last year. I have worked the full year. Can I apply for the $400 credit?

37 Bill February 22, 2011 at 10:54 am

Why is the schedule M link in your article a 2009 Schedule M document? Shouldn’t it be 2010 to be used in your 2010 return?

38 Bill February 22, 2011 at 10:56 am

Why is the schedule M link in your article a 2009 Schedule M document? Shouldn’t it be 2010 to be used in your 2010 return?

***just realized this is an old article dating it Feb. 2010. Is there an updated version for 2010 filing?

39 Kelly February 22, 2011 at 10:58 am

Hi Bill, the updated article with the 2010 link is here: http://www.taxgirl.com/calculating-the-making-work-pay-credit-2011/

40 JANE March 3, 2011 at 10:15 pm

Hi- I missed to file Schedule M in 2009 since I filed my tax manually and the IRS did not catch it, I just used one of the online taxes to try and redo my 2009 tax and it showed that I indeed qualify for the $400, what can I do now? Should I file an Amended return?

41 Joshua April 10, 2011 at 10:08 am

I’m with Jane, I missed it last year and had to pay, can I do anything about it now?

42 Shirley April 13, 2011 at 6:12 am

In 2009 I have income from employment reported on a W-2 and a net loss from a business reported on Schedule C. Therefore, according to Schedule M 1a instructions, I checked the “No” box to question 1-a even though my wages were more than $6,451 (single). According to the remaining calculations, I qualify for $400 tax credit. However, IRS has disputed my claim. Can you explain?

43 Kelly April 13, 2011 at 10:44 am

Shirley, I can’t. I’d ask the IRS why they said no. It might have stemmed from confusion with having wages and business income.

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