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Making Sense of the Making Work Pay Credit (2011)

February 15, 2011 · 11 comments

So now that you’ve calculated the Making Work Pay Credit for the 2010 tax year, what does it all mean?

It’s important to understand what a tax credit is exactly to figure out how it applies to you. A credit is a dollar for dollar reduction in your tax bill (as opposed to deductions which reduce your taxable income). For example, if you owed $1000 and the credit was $400, your tax bill is now $600. This means that the credit reduces your total tax bill at the end. The tax rates didn’t actually change: the credit just acts like an extra payment on your tax return.

With the adjusted withholding tables, your withholding throughout the year was less than normal so that you got more money in your pocket each pay period. That means that if the government normally withheld, for example, $23 from each paycheck in 2008, they withheld only $16 from each paycheck in 2010 (remember that the credit still applied in 2009). Your employer used updated tax tables from the IRS to figure the new withholding amounts. Again, remember that the tax rates didn’t change, just the amount taken out of your check.

If everybody’s math was correct and you were entitled to the full credit, you should end up with no difference. This is because you paid in $400 (or $800 if married filing jointly) less during the year in withholding and the credit now acts as a “payment” in the amount of $400 (or $800 if married filing jointly). So you paid in less during the year, but you got a credit, even Steven.

If you didn’t qualify for the credit, but your withholding was adjusted anyway (remember, your employer doesn’t know if you qualify or not), you’ll have to make up the difference when you file your taxes. This is because you paid in less but don’t have the credit to offset the lesser withholding.

If you qualified for the credit but the withholding wasn’t adjusted enough, you’ll have paid in more than expected and you are entitled to the credit. That should mean, barring any other special circumstances, a refund.

If you’re self-employed and didn’t have any withholding during the year, you’re still entitled to the credit if you otherwise qualify. You just aren’t offsetting any withholding. So long as you qualify, you’ll get the entire amount of the credit to apply towards your tax due.

To claim the credit, you must calculate the amount due by filing Schedule M if you file a form 1040 or 1040A (if you file a form 1040-EZ, you’ll use the worksheet on the back). You’re not double dipping or claiming the credit twice by filling out the schedule – remember, you didn’t get the credit during the year, you only had an adjustment to your withholding. If you don’t file Schedule M, you won’t receive the credit.

Make sense?

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{ 10 comments… read them below or add one }

1 tamara February 19, 2011 at 6:23 pm

Regarding the “Making work pay credit”. If I claimed this on my 2009 taxes do I get to claim it on my 2010 taxes again or was it a 1 time credit. I am confused. Please clarify. Thanks

2 Doug February 19, 2011 at 9:43 pm

Will the MWPC affect my Earned Income Tax Credit?

3 Amelia February 21, 2011 at 7:05 pm

no… i still don’t understand. If you are just a regular worker and tax payer, and your employer has taken out the correct adjusted witholding, and you don’t have any other special circumstances (not self employed, no multiple jobs, etc.) do you still add the Making Work Pay Tax Credit on your return? In my case, using a 1040EZ and using the worksheet on the back, adding 400.00 to line 8, it means I will get a much bigger refund. I don’t want to do the wrong thing. thank you very much for reading this

4 Kelly February 21, 2011 at 7:22 pm

Amelia, yes. If you haven’t yet claimed the credit (and you wouldn’t have done so without filing a return), you would add the credit (after doing the worksheet) at the end. Your refund would be bigger as a result.

5 stevieray February 28, 2011 at 1:48 am

I have a simple question about this credit, but cannot find an answer.

Does unemployment compensation count as earned income? I am filing a 1040EZ, and if I simply follow the instructions on the back of the form, it would appear that unemployment compensation figures into eligibility requirements for the Make Work Pay credit, as it is tied into adjusted gross income (line 4).

However, everything I read about this credit emphasizes “only earned income” counts, and nothing in the literature I have seen even mentions unemployment at all — it neither prohibits nor allows it… it just elides right by it.

So I guess my question is this: Does unemployment compensation count as a type of earned income for Make Work Pay purposes?

6 Joe March 3, 2011 at 8:40 pm

Still confused (in spite of instructions to Schedule M (2010). Re: line 10 – my wife and I received SS benefits in Nov and Dec 2008, and January 2009. We also received “economic recovery payments” in 2009 which were deducted from the maximum $800 credit, in filing our return for 2009.

For the year 2010 return, is our response to this line No or Yes?

7 Grace March 7, 2011 at 12:44 pm

My 24-yr-old daughter was unemployed, but picked up enough little jobs here and there to have earned $9700 in 2010, with no federal taxes withheld. After subtracting the standard deduction for a single person, her taxable income is $350, which means she would owe about $34 in federal tax. But the $400 MWP credit results in $366 being sent to her as a “refund,” even though she did not pay any taxes. Is this possible?

8 KOH March 9, 2011 at 10:10 pm

Grace,
Yes, you can get refund without paying tax.
Making Work Pay Credit is refundable credit. It absorbed tax she owed, and the amount of credit left is refunded to her.

9 dianesue February 10, 2012 at 10:21 am

Is there a schedule M for 2011?

10 Kelly February 10, 2012 at 3:02 pm

No, there is no Schedule M because there is no Making Work Pay Credit for 2011.

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