Making Sense of the Making Work Pay Credit

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

A credit is a dollar for dollar reduction in your tax bill. So if you owed $1000 and the credit was $400, your tax bill is now $600. The tax rates didn’t change. The tax due didn’t 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. If everyone did their math right 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 and the credit now acts as a “payment” in the amount of $400 (or $800 if married filing jointly). So you paid in less, 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 owe tax because too little was taken out of your paycheck during 2009, you may qualify for special relief if the result is a penalty. The IRS will waive an estimated tax penalty that applies if it relates to the Making Work Pay Credit. If you receive an estimated tax penalty notice from the IRS, you can request a waiver using form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts (downloads as a pdf).

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.

So hopefully that cleared up some of the confusion. If you have special circumstances, I highly recommend that you check with your tax pro.

But the bottom line is that, to qualify for the credit, you must file Schedule M. You’re not double dipping (despite some of the explanations that I’ve seen) – it’s a requisite for the credit. If you don’t file Schedule M, you won’t receive the credit.

Make sense?

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71 thoughts on “Making Sense of the Making Work Pay Credit

  1. The way the making work pay credit reads and they way it’s calculated for a married couple seem to not mesh for me. Each person working is entitled to a $400 credit. If a married couple fills out Sch M and only one party has earnings, they still qualify for the full $800 credit as long as they meet all the other requirements, correct?

  2. Barbara, The way that I read the instructions, you rely on joint income in order to qualify for the $800. So the answer to your question would be yes.

  3. This is my first time filing federal taxes as a non-dependent. Because of the way that my income works out and I’m still in school, not very much FIT were taken out of my pay. Normally I would fill out Form 1040EZ, but I do need to do a plain old 1040 with the Schedule M in order to receive the credit? It doesn’t say anything about needing the Schedule M in the 1040EZ book.

  4. OK… I am still pretty confused.

    Let’s do some numbers if that is ok?

    If my employer withheld less (meaning I got $21 MORE a pay throughout the year)… does that mean I don’t get the credit because I got it throughout the year? Was this “credit” just basically a loan on what my refund was supposed to be?

    Here is where I am confused… I fully expected about a $1200 refund (same as I got last year)…. but my refund ended up being $800 (I did NOT fill out a schedule M)…

    I know this is obviously got paid around $400 more through the year (my $21 a week) but why does that screw my refund up? If this is truly a stimulus credit.

    I guess I am just confused because when I hear “stimulus”… I think … FREE MONEY (like the did with checks in the past). But in reality all I was getting was a prepayment on my refund that I am entitled to…. just getting it earlier?

    Does that sound right?

  5. So here’s your confusion: you didn’t get the credit throughout the year. That’s why you need to complete Schedule M. The only thing that changed throughout the year is that your employer withheld less money. So let’s say that your employer withheld $40 less every month since April 1. That means that you paid in $360 less than normal ($40 x 9). If there were no credit, you’d owe that $360 to the feds because you held onto it every week via withholding. But when you add in the credit, it’s the same as your making a payment of $400. So you’re actually ahead $40 in that example.

    Go back and fill out Schedule M. If you’re entitled to the credit, you’ll be at the same place (more or less) than you were last year, I’ll bet.

    You weren’t getting “free money” during the year – you were just paying in less, taking home more. The “free money” comes via the credit, which acts like an extra tax payment. If there had been NO adjustment to withholding during the year, you’d be ahead by $400.

    Did I clear it up for you?

  6. There is no such thing as “free” money. The govt doesn’t manufacture anything. They either tax people or print up money. Most of the “free” money or what some in Detroit call “Obama money” is money that is being taxed on others and then redistributed.

  7. Thanks for the helpful advice on the Making Work Pay credit. It is beginning to make sense to me. However, I am a little confused about it. Due to this credit, and combining it with other credits, I am getting back more than the federal tax withheld.
    Also how do I know if there were adjustments to tax withheld this year? (I changed from non resident alien to resident alien for tax purposes this year, and switched jobs as well, so this is rather new to me). Or for that matter how is that reflected on my 1040?

  8. My son and daughter in law got married end of 2009. She was a full time college student in 2009 and worked 2 part time jobs. Because she lived with her parents all of 2009 and they provided over half her support they have claimed my daughter in law as a dependent on their tax form.

    I have worked my sons and DIL’s taxes both as married/separate and married/joint. When I do their taxes as married/separate (using a free online efile program) my son’s MWP tax credit automatically figures in at $400 for him but when I do their taxes as married/joint the MWP doesn’t come up for either.

    So the question is, when you file married/joint where as one spouse can still be claimed on someone else’s taxes does the other spouse who IS claiming themselves only still eligible for the MWP credit?

    Or is it, because she is being claimed as a dependent on someone else’s taxes that they must file separate in order for my son to still get the MWP credit for himself.

    If they file separate she owes $837, he gets a refund of $963. If they file joint WITH my son claiming $400 MWP they get a refund of $229, if he can’t claim this MWP credit on a joint form then they owe $171

  9. I didn’t find out about this until today. The problem is I mailed off my taxes yesterday. Is there a way I can fix this or am I out of luck.

  10. You ought to be able to file an amended return – but follow the rules for submitting an amended return so that both returns aren’t bounced. Alternatively, you could try calling the IRS in a few weeks (1.800.829.1040) and see what they say. My guess is that they will institute something to deal with this problem – I’m guessing you’re not the only one with this issue.

  11. I too just heard about the credit today from a coworker. I mailed my taxes last week. Can’t beleive I didn’t hear about it in the news.

  12. I have heard from several people that if you forget to do the schedule M … they are catching a lot of them and amending the return for us.

    I did mine online and took off the $400 I was to get.. but when I got my refund I got the $400 … and my return status said that they would send me a letter telling me about why they changed my return.

  13. I just found out about this sch. m… and i sure hope the IRS catches it and adds it($400) in to my refund:) i did mine by hand and mailed it feb 1 . will the IRS catch the hand done taxes or just some online returns?? thanks

  14. IRS should note both. But I’m not sure what’s happening with folks who don’t file Sch M – I’ve heard that they’re being kicked back and I’ve heard that they’re being “fixed” by IRS. I’ll let you know when I hear something concrete.

  15. I’m in the same boat.

    Filed my return by mail at the end of January.
    IRS says they received & processing the return as of last Friday.

    I’m crossing my fingers that they catch it and amend the return.

    But to play it safe I already put in an order for 1040 X.
    However, I looked at the form online and I didn’t see anything in the instructions or form about where to put the info regarding Schedule M into the 1040 X.

    Any help regarding the 1040X?

  16. Kelly… I have heard from a friend that is a manager of an H&R Block that said I was just lucky and got a “cool” IRS person when my return came into their hands… that is why mine got fixed.

    Bob as for your 1040X I THINK line 14 has a checkbox for Schedule M (first box)…

  17. I have a question. When I went to complete my taxes, I was shocked to discover that I owed money for the first time ever this year. After some research, I found that my employer literally stopped taking Federal Taxes out of my paycheck starting in March of 2009. When I talked to payroll, they said it was due to the adjusted tax schedule. They said it was my job to complete an adjusted W-4 to account for the reduced withholding.

    Since it was not being paid into Federal Taxes I technically received the money throughout the year, but I was planning on a tax return this year and was surprised and upset to discover that I owed money.

    I just filed my 2009 tax return online and in the process TurboTax asked a few questions about the credit. After I input my answers, It seems I was eligible and was also given the $400 credit.

    Is this correct? Do I get the credit even though I got that money (through taxes not being deducted) throughout the year.

    I still ended up owing money, just not as much as I originally anticipated.

    Also, does this new tax schedule affect state taxes? This is the first year I owe on my state (Ohio) taxes too!

  18. If you qualify for the credit, you qualify for the credit irrespective of what your employer did or did not do. So, if you complete Schedule M and the result is that you got the credit, you’re fine. The only thing that you *got* during the year is less withholding. You didn’t get the credit. You don’t get the credit until you complete Schedule M.

    The new tax schedule DOES NOT affect your state taxes. It is solely a federal income tax adjustment.

  19. i am a civil service retiree that qualifies for a 250 dollar credit my wife still works and qualifies for the make work credit 400 dollars we file a joint return how much of the two credits do we get

  20. Do I have to take he making work credit? When I do enter it my tax refund is $723, when I click no to the crite my refund is $916. I am having a hard time understanding this, and turbo formum wasn’t much help.

  21. I was non-resident alien in 2009 with J-1 Visa.
    It was my 2nd year in USA.
    Do I also qualify for work credit which is 400 dollars?
    Some people say it is for resident-alien, green card holder, or citizenship owner. Is it true? I’m so confused.

  22. disha,
    In many cases (one exception being if you have lots of income in another country), filing as a resident tends to be more advantageous than as a non-resident because you are able to claim more deductions and credits than before. This might explain your boost.

  23. Monika,
    In almost every case, the Making Work Pay Credit should help you, not hurt you, since it acts like an additional payment. Even if you are phased out because of income, there would be no difference. I can’t imagine why the software would kick your refund out. I’d run the numbers again.

  24. Wadzu,
    Assuming that you’re otherwise qualified, you should be eligible for the $800 credit for married taxpayers LESS what you already received as part of the Economic Recovery Payment. So if you qualify due to income, etc., you should get a combined credit of $550.

  25. According to the IRS site my return has been in processing for over 2 weeks now.

    I just called up the IRS, boy is it confusing to get a hold of a live person. I asked them what the delay is and I mentioned the Schedule M. She said that they are automatically catching the error and are fixing returns. Thus the delay in refunds.

  26. Thank you for these explanations; I am still trying to understand this new credit, so please assist if I have misunderstood.

    In 2009, my wife and I both worked for large employers and were subject to payroll taxes. When I fill out schedule M, I calculate our MWP credit to $800. Then, on our 1040 line 71, I add this to our other payments including FIT withheld and subtract from our total tax (line 60). Is this correct?

    I think our employers adjusted their tax tables to reflect this credit last year, but I am not explicitly sure about this. Do I need to clarify this with our employers before I take this credit? Is this a credit in the sense that I must pay it back in the future?

    Thank you again for these articles and patience.

  27. Our minor son receives SSI disability payments. My wife, as his representative, in turn received the $250 economic recovery payment last May. Since the Making Work Pay tax credit requires us to deduct the $250 from the credit if we received it, do we say that we did even though it was technically our son who received it?

    I just want to avoid having the IRS delay or reject our tax returns because we answer it wrong.

  28. I had to retire in Jan 2009, because I needed my health Insurance. Will the Retiree Credits Scedule M help, do I qualify.

  29. I had to retire in Jan 2009, to receive my medical benefits, also was layed off. Also received unemployment benefits. Do I still qualify for Schedule M credits.

  30. GREAT NEWS…..after two weeks of processing…the feds corrected my return (added $400) and will deposit it tomorrow!!!! and they are sending a letter to my with the reason for the change(we all know why)….THANKS IRS and everyone here

  31. Gwen, if you met the earned income requirements in January, you would qualify. Run the numbers on Schedule M and see if you qualify.

  32. So I just got my return direct deposit this morning and was surprised to find it was larger than expected. I am guessing it’s related to this Making Work Pay thing, which I glossed over when I filed my return because the instructions didn’t make sense to me and I assumed I was not eligible. I did them by hand and submitted it by mail early February and had been wondering about why it was taking so long for the return to show up.

    What’s odd, however, is that $388 was added to my return… not a round $400. So I’m not 100% sure that it IS this Making Work Pay thing… when I went back and ran all this through the Schedule M I should have gotten $12 more than I did. I can’t figure out where else that extra money came from, though. Does that make sense?

    Either way, I’m happy with the extra cash, I need it… but I’m worried that it’ll turn out to be an error and I’ll end up having to pay it back, so for now it will just sit in savings until I get some explanation. I’m hearing they do send explanation letters for stuff like this – anyone know how long that usually takes?

  33. I didn’t file the Schedule M either…and got an extra $400 back on my return. I hope to holy hell that it’s the IRS catching it and amending it for me!!

  34. The IRS caught it on mine too and is refunding the $400.00. Taxes ARE confusing but I’m glad the IRS is fixing these for us!

  35. Okay, submitting the 1040X to include the $400 Making Work Pay entitlement because I missed it the first time, thus no Schedule M included – and since I owed the IRS, they haven’t processed it yet.

    So, do I now include a schedule M or just check off line 14 Scheule M without any document? Thanks

  36. I’m using H&R Block at Home software and it’s calculated the Schedule M and added $800 to our total payments, (line 71 on form 1040), in effect, increasing our refund by that amount. My question is, after our itemized deductions and exemptions, our adjusted gross income is reduced to a Zero taxable income and so there is no tax liability due. It makes sense that out withholding will be refunded but how is that Making Work Pay credit due to us as a refund if it’s not something we paid in and we end the year with zero tax liability. It feels, somehow, like cheating.


  37. Gerry, it’s a refundable credit, which means you get it even if your liability is zero. It’s the same credit as everyone else – it just so happens that you didn’t otherwise owe. It’s not cheating, enjoy the refund.

  38. Thanks for replying, even on a Sunday! You’re very young to be a professional. :-). The pic you include. Just kiddin’. Your child of course.

    Too late, I sent it in yesterday after confering with an IRS agent from their toll free number and got the scoop on what it means and how to complete the form. I owed money originally and had more income to declare but now I get a refund, but they’ll know whgat to do. Besides, It’s their job to be confused :-). Not worried, it’s only money!

  39. I am filing jointly with my husband. I receive a state pension, and less federal taxes have been taken from my check. However, I am not working. Because we are filing together, do we get the $800 credit, or just $400 because only 1 of us is working?

  40. I am a full-time student and earned $6800 in 2009 at a restaurant. I have a 1098T with$ 2900 in box 1 and $10,300 in box 5, pell grant, fseog, bright futures. I am independent and filing for the first time the 1040 ez form. Can I take this work pay credit and get $400 back. The government already owes me $278 that was taken out of my salary, and I owe nothing in tax. Does that mean I will get $678 from the government?


  41. Maybe someone here can help me out! My husband and I are filing jointly and we’ve submitted our taxes twice now…the IRS keeps sending them back to us with this message:
    “The IRS requires that the amount entered for your Economic Recovery Payment(s) already received matches the amount
    indicated in the IRS records.”
    So, after the first time we got them back, we changed some things, then refiled, then we had them returned to us again today. I don’t know what is wrong…but it has something to do with the economic recovery payment and honestly we can’t remember if we got one or not last year. The IRS seems to be implying that what we are entering doesn’t match their records, yet they won’t tell us what their records say! Need advice! Thanks

  42. Shannon, if you are not a dependent, it seems like you would qualify. Use the worksheet on the back of the 1040-EZ form to figure whether you qualify – if you do, yes, that would mean an additional amount in your refund.

  43. I’m filing for the first time as a resident alien. I have a couple of questions: how do I know if I qualify for MWP? And if I do, how do I know if my employee is subtracting that credit from my withholdings? (there is no mention of it in my W-2) Also, how would I know how much credit I should be getting?

  44. Rodrigo – don’t worry about your employer. He or she just adjusted your withholding according to the tables. You need to fill out the Schedule M to see if you qualify for the credit (you haven’t received it already).

  45. Here’s a twist. This Making Work Pay credit, along with my other deductions etc., is going to give me a refund larger than the amount of witholding on my W2. The government will be paying me instead of me paying them. Is this correct? I assume this is okay because it’s a stimulus? Line 63 is in the Payments section on form 1040, so it does not just reduce my tax to zero where I would get a full refund, I get more! My brain is screaming audit as I fill out my 1040. Any thoughts?

  46. IRS just corrected my refund to reflect that I had not completed Schedule M. That is, my refund increased by $400 compared to how I calculated it when I prepared my taxes. Somehow I got an extra $400 from the government, but as others here have said, I have trouble wrapping my head around it.

    MAN, was this confusing!–as reflected by everyone’s comments so far. I keep asking myself, Did I get more money in my pocket, somehow, and if my employer had reduced withholding (as it had), was I entitled to take it? Your answers confirm I was.

    My employer knew they adjusted withholding last year, but could not explain the impact it had on my credit. They seemed unaware of the credit at all, and kept referring me to my tax professional. (That is, ME–I am not a tax professional and always fill out a paper return, so had no automatic “prompt” to complete Schedule M.) At minimum, the IRS should’ve told employers what to tell employees when they ask about this–basically, that withholding adjustments do NOT mean that you “got the credit.”

    A friend of mine, an attorney and fellow employee at my company, used tax preparation software and said she was prompted to click on a site that would tell her whether her company had “given her the credit” already. (I think she must be wrong about this, that instead she probably was prompted to check whether she had received a stimulus payment–the IRS has a link that will tell you if you did, which I noticed yesterday.)

    A tax law person at the IRS explained it to me briefly yesterday–you have to complete the schedule to REALLY get/take the credit–but the repeated references on many tax informational cites that employers adjusted withholding in 09, and this somehow “reflected the credit” is profoundly confusing to people who honestly try to submit accurate returns.

    Why bother adjusting withholding at all? I understand the government trying to get the money back in your pocket sooner, but coupling an employer action to reduce withholding, with taking a credit on a return, and talking of them in the same breath really compounds the confusion.

    Schedule M is a real hoot to fill out, too. I looked at it and the instructions. Once again, whoever writes instructions for the IRS follows their “follow the gazillion breadcrumbs through the maze” routine for something very simple. I have an MBA degree, and a journalism undergrad degree, and had trouble understanding it.

    Finally, a question: I understand this is supposed to be in effect for 2010 as well. That is, I need to complete Schedule M on my 2010 return. However, if the credit “goes away” in 2011, does that mean in 2011 that withholding will increase to prior levels (and nullify the affect of a credit)?

    Thanks for letting me sound off, too.

  47. i filed with H&R block did my return and just logged into my account and i had a option for the work credit and it jumped my refund up 400dollars. how do i get this 400 dollars?

  48. I too, did not know about the Making Work Pay Credit, I received a check and a letter of explaination from the IRS. However, I believe this means I have to file an ammended return with the State as I over stated the Federal tax paid. Is this correct?

  49. Hi Kelly- great article!

    Here’s my question; this is the first year (2010) that I will be claiming myself on my tax return (my parent’s are not claiming me) and because I’m still a student and my income is very low ($7,500) I have zero taxable income. Although, at the end of the year I will have paid roughly $250 in Federal Taxes…

    Will I “get” back the amount of my Federal AND the Making Work Pay Credit ($400) since my taxable income is zero?

    Thanks in advance!

  50. Kelly,

    Oh ok! Well, if I estimate right my earned income will be roughly $6,600.. So, since its over that minimum $6451 I should be good to go!

    Since I still won’t have any taxable income at that amount, will I just see an extra $400 in my refund?

    Thanks again!

  51. Sooooo…Bottom line is after having less tax withheld all year AND getting the $400 refund the total tax credit is a lot more than $400. Correct?

  52. No Craig. The total tax credit is still only $400. Your withholding was adjusted to accommodate the credit. If you had the withholding taken out correctly, you won’t be getting a refund of $400. The credit should roughly equal your withholding adjustment.

  53. My question is, I was doing my 2010 tax return and was asked it I received an Economic Revocery payment in 2010. I received the 250.00 from social security in 2009. I get social security and work- have no withholding taken out of paycheck. Wondering if the Making Work Pay 400.00 credit for single person, is per year or would I only get 150.00 credit on the 2010 tax return. Is the credit up to 400.00 for 2009 and up to 400.00 for 2010? Please comment. Thanks.

  54. I am doing the taxes for my parents and am unsure about the Making Work Pay credit. They file jointly, don’t work, both retired, on Social Security and my dad also gets a pension from Chrysler. They also receive royalties from a gas well on their property. TurboTax says they are eligible for the credit even though they don’t work. Is the royalty income triggering this? Are they really eligible? I searched the web for an answer and couldn’t find anything. I would hate to cause an audit by doing the wrong thing. Thanks for any help.

  55. Today, after getting a letter from the IRS stating our return was adjusted, I was on the phone with them for almost two hours. My husband completed our taxes before he was shipped out to sea, and used the M form. The IRS rejected our claim to the $800 credit because the return was connect to tax free combat pay.

    It turns out our filing was correct and we were entitled to the credit. I am posting this today to reach out to other military tax filers – if your credit is rejected, call the IRS to dispute it. Chances are, the IRS’s filing review program will not recognize a combat pay filing as a qualifier and will automatically reject the credit.

  56. dear taxgirl

    you are wonderful! astounding! stupendous! marvelous! a miracle!

    or, well, at least, thank you for explaining this mess to us.

    now I see one reason president Bush just wanted to send a check out. Yeah, it probably cost the government alot, but it was a hell of a lot less confusing.

    (i know i know, he did it for PR reasons too… but this whole mess has really made me reconsider the whole thing)

    Thanks again

  57. Wildflowergirl-When you disputed the combat pay issue did they handle it for you over the phone or did you have to send in some type of correspondence? I am having the same issue and they are telling me I need to send in a letter.

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