Taxpayer asks:
Are retired persons who have a working interest in natural gas wells eligible for the making work pay credit?
taxgirl says:
If the interest means that you’re simply receiving a check from the gas company, then no. You have to have earned income in order to qualify for the Making Work Pay Credit. Passive income, such as interest and dividends (and generally also rents and royalties), does not count for purposes of determining eligibility for the credit.
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I think by definition a working interest is earned income. It is generally reported on Schedule C and subject to SE tax. It’s status is one of those tax breaks for oil and gas companies.
Thanks Jeff, for the clarification. Even though I’m in PA, I don’t see many of these natural gas issues these days (that’s more towards Scranton than Philly). You’re right that if it’s considered active and is reported on a Schedule C and subject to SE tax, the net would be includable for purposes of figuring the credit.
I checked with the IRS regs on this and it’s tricky – depends on how it’s held and whether there are losses. I’d definitely consult with a tax pro familiar with the gas industry on this one.