How To Get The New $400 Tax Credit
YAHOO.COM - The Making Work Pay tax credit put some extra cash into most workers' paychecks in 2010. A single taxpayer was eligible for up to $400 last year, while married couples brought home a maximum of $800.
The money was added to paychecks via reduced payroll withholding. But that isn't the end, of the credit. Now that filing season has arrived, you have to account for that money by filing Schedule M.
The IRS wants this form if you file a long Form 1040 or the slightly shorter Form 1040A. Taxpayers who can file the shortest return, 1040EZ, will simply use a work sheet on the back of that form.
Why the Extra Work?
Although most eligible workers effectively got the credit amount because Uncle Sam took less money from their paychecks, that's not the official credit claim. Calculations made on Schedule M will help taxpayers determine whether they received the full credit in their paychecks or are due more money from the credit.
Once you complete Schedule M, you'll transfer the dollar figure you come up with on line 11 of that document to either line 63 of Form 1040 or line 40 of Form 1040A. Form 1040EZ filers will take their work sheet calculation and enter it on the EZ's line 8.
All these lines on the various tax returns are in the section that records all your tax payments. This includes withholding amounts from your W-2s, certain 1099s and any estimated tax payments you made.
Essentially, at filing time the credit is treated as additional withholding that can increase your refund or reduce any tax you might owe.
Not for All Filers
Because the Making Work Pay credit was in effect for all of 2010, there shouldn't be as much filing confusion as there was at this time last year. Also, retirees didn't receive a special payment last year, so they don't have to file the form this year.
But there still could be some issues with claiming the credit, especially for higher income earners.
The Making Work Pay amount is reduced for joint filers whose modified adjusted gross income, or MAGI, is between $150,000 and $190,000. Single taxpayers whose MAGI is more than $75,000, but less than $95,000, also won't get the full credit amount. If your adjusted income is greater than the maximum for your filing status, then you won't get any of the credit.
In addition, some workers aren't eligible for the credit. The Making Work Pay tax credit is not available to nonresident alien workers or to individuals who can be claimed as a dependent on someone else's tax return.
Schedule M will help taxpayers sort out those issues.
While extra tax paperwork is never fun, when it comes to the Making Work Pay tax credit, Schedule M could really pay off. The credit is refundable, meaning that taxpayers who qualify for it can get it even if they owe no tax.
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