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:
- 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.
- 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.
- You must have earned income in order to claim the credit; if you didn’t work, you may not claim the credit.
- You must have a valid Social Security Number to claim the credit.
- You may not claim the credit if someone else claims you as a dependent (sorry, college students).
- You may not claim the credit if you are a nonresident alien.
- 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.
- 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.
- 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.
- If you file using a form 1040-EZ, use the worksheet on the back of the form to figure the credit.
- 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).
- 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.