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It’s Baaaack: Making Work Pay Credit

February 15, 2011 · 13 comments

Touch of Evil-Janet Leigh

My inbox is already filled with taxpayers trying to wrap their heads around the Making Work Pay Credit. Yep, it’s back and just as confusing as it was last year. Here are a few tips to help you sort it out:

  1. The Making Work Pay Credit did go away under the new tax deal (it was replaced by the Payroll Tax Holiday). That means you won’t see it again in 2011 (thank goodness). It was still around in 2010, though, which means you’ll claim it on your 2010 tax return when you file your taxes this year, in 2011.
  2. The maximum credit that you can receive is $400 for individual taxpayers and $800 for married taxpayers filing joint returns. If you file jointly, and otherwise qualify for the credit, you’re entitled to the whole shebang even if only one taxpayer worked during the year.
  3. You must have earned income in order to claim the credit; if you didn’t work, you may not claim the credit.
  4. You must have a valid Social Security Number to claim the credit.
  5. You may not claim the credit if someone else claims you as a dependent (sorry, college students).
  6. You may not claim the credit if you are a nonresident alien.
  7. If you were disabled or retired, you may have received an Economic Recovery Payment (ERP) during the year; it would have been a check for $250. If you also worked during the year (or if your spouse worked) and you are entitled to the Making Work Pay Credit, you must report the ERP when calculating the credit. The ERP is not taxable but you’re not allowed to claim the maximum credit if you received a check, as well.
  8. You didn’t already get the credit during the year: your withholding was merely adjusted. You still have to claim the credit on your tax return.
  9. If you file using a form 1040 or form 1040A, you’ll calculate the credit using a Schedule M (downloads as a pdf). For step by step instructions on how to complete Schedule M, check out this prior post.
  10. If you file using a form 1040-EZ, use the worksheet on the back of the form to figure the credit.
  11. Phaseouts apply. You’re not entitled to the credit if your modified adjusted gross income is $95,000 for individual taxpayers or $190,000 if married taxpayers filing jointly or more. The credit was intended to be for lower to middle income taxpayers so those at the higher end were left out (the Payroll Tax Holiday in 2011 actually gives you more of a boost).
  12. If your withholding, post Making Work Pay Credit, seems screwy, here’s why.

If you have specific questions about the Making Work Pay Credit that I haven’t addressed in a prior post, feel free to ask. Keep reading for more information; I’ll posting updates throughout tax season.

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{ 8 comments… read them below or add one }

1 Mary Kay Foss February 15, 2011 at 1:30 pm

The most confusing thing for 2009 was the credit for retirees. No one remembered whether they received the $250 or not and the information wasn’t always available from the IRS website. Some people received the $250 from Social Security even though they were receiving a state pension and never received Social Security.

2 Mike Farmer February 15, 2011 at 8:56 pm

Am I missing something here? I don’t find the Making Work Pay Credit confusing at all. It’s actually pretty straightforward, if you ask me. What is it that people need to wrap their heads around, but cannot?

3 Kelly February 15, 2011 at 9:32 pm

Mike, I agree that the credit is straightforward if you qualify, if your withholding was correct and if you didn’t get phased out. However, folks with two incomes; taxpayers who are in a phaseout; pensioners and the disabled who may have received the Economic Recovery Payment; folks whose employers didn’t withhold properly; the self-employed and some married couples have a more difficult time figuring it out.

4 Rainer von Saleski February 16, 2011 at 11:48 am

It seems unreasonable that Roth IRA Conversion amounts for 2010 should reduce the Schedule M credit (by increasing line 38 above $150,000). Am I missing something?

(My wife and I were ineligible to convert before 2010, so we both converted a lot — I will claim in 2010, she will claim in 2011 and 2012.)

5 Emily March 3, 2011 at 8:25 am

I’m confused…not on the tax credit itself, just when it’s going to show up. I filed early this year, calculated the credit on my forms, and have already received my refund. Last year, the credit appeared when the refund did, but this year it’s nowhere to be seen. Will it come separately or did I just not qualify?

6 Rainer von Saleski March 5, 2011 at 10:10 pm

Dear Emily,

If you included Schedule M with the return you filed, and you carried the credit from Schedule M to line 63 on you form 1040 (or the comparable line on other 1040 variants), then you have already received he Making Work Credit — it’s included in your refund!

7 Tom Gray April 10, 2011 at 4:46 pm

Mike, The credit in itself is not confusing. What is confusing is the language included in all IRS descriptions of the credit. Here’s one, from IRS publication FS-2011-3: “Though all eligible taxpayers must file Schedule M to claim the Making Work Pay Credit, most workers got the benefit of this credit through larger paychecks, reflecting reduced federal income tax withholding during 2010.” Why would you claim the credit if you already received it? Thanks to Taxgirl for point #8 above, which specifically said we DIDN’T already receive it. I might add that Form 1040 includes virtually no explanation of what this credit is all about–a further disincentive to claiming it.

8 lester November 6, 2011 at 5:14 pm

i’m self-employed, with tiny tiny income, and got the MWP credit last year. what i don’t understand is how it can still be available without a line on the 1040 form. (?)
i use taxact.com, which i love, and it did the calc for me and i threw away last year’s instruction book. who wants to read that crap anyway. it’s AWFUL!
anyway, my point is that i don’t see the line on the 2011 1040. bada-bing.

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