You probably received the benefit of the Making Work Pay Credit in the form of reduced payroll tax withholding and slightly bigger paychecks last year. But you don’t get to keep the credit -- which reduces your tax liability -- unless you claim it on your 2010 tax return.
And if your income or filing status makes you ineligible for the credit, you’ll have to give it back. That could mean getting a smaller tax refund or owing more tax when you file your 2010 return, which is due by April 18, 2011.
Most taxpayers must file Schedule M -- as in “money” or “migraine” -- to claim the credit, which is worth up to $400 for individuals and $800 for married couples filing jointly. If you file Form 1040EZ, you need to fill out the worksheet accompanying the form. (But if you use tax-preparation software, it will do the calculations and fill out the appropriate forms for you).
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Self-employed workers, who often file estimated tax payments each quarter rather than having taxes withheld from their paychecks, are also entitled to the credit. Make sure you fill out Schedule M to claim it. If you did not adjust your quarterly payments to reflect the credit, you’ll get the full benefit when you file your taxes, as either a reduced tax bill or a bigger refund.
Not everyone qualifies
Some workers received the full credit through reduced payroll tax withholding even though they were not eligible. The credit is reduced for individuals with incomes of more than $75,000 and disappears completely at $95,000. For married couples filing jointly, the credit starts phasing out when their income reaches $150,000 and disappears completely at $190,000.
And anyone who can be claimed as a dependent on someone else’s return, such as a student who works part-time, is not eligible for the credit.
As a result, several groups of workers may face some unexpected problems when they tackle their 2010 tax returns. Individuals who held more than one job last year, for example, may have received more than the maximum $400 credit allowed per person. And some married couples with two working spouses may have received the benefit of the credit individually even though their combined income made them ineligible for the full credit.
Looking ahead
The Making Work Pay Credit disappeared at the end of 2010 and was replaced with a two-percentage-point reduction in the payroll withholding tax for everyone, regardless of income. That means all workers will enjoy the benefit of the payroll-tax holiday throughout 2011, and they won’t have to bother with Schedule M when they tackle their 2011 taxes next year.
-
Stock Market Today: Stocks Rally Despite Rising Geopolitical TensionThe main indexes were mixed on Tuesday but closed well off their lows after an early flight to safety.
-
What's at Stake for Alphabet as DOJ Eyes Google's ChromeAlphabet is higher Tuesday even as antitrust officials at the DOJ support forcing Google to sell its popular web browser. Here's what you need to know.
-
Premium Tax Credit: Are You Eligible For This Health Insurance Tax Break?Tax Credits The tax credit can help qualifying individuals pay for coverage from the Affordable Care Act’s health insurance marketplace.
-
FSA Contribution Limits Are Higher for 2025FSA A flexible spending account allows you to build tax-free savings for certain medical expenses.
-
Florida Tax Deadline Extension: What You Need to KnowTax Relief The IRS extended federal tax return file time due to severe storms.
-
IRS: Here’s How to Recover Your Tax Records After a Natural DisasterTax Records Your tax documents can help you get federal relief faster, the IRS says.
-
Voters Approve New Veteran Property Tax ReliefTax Relief Thanks to the election, some Veterans will soon see expanded property tax exemptions.
-
Nevada Approves Diaper Tax Relief Amid Childcare CrisisTax Relief Nevada voters have expanded sales tax relief to diapers. But are prices still too high?
-
Earned Income Tax Credit (EITC) 2024: How Much Will You Get?Tax Credits The refundable amount for workers with or without children is slightly higher this year. Here’s what you need to know.
-
IRS Expands Tax Breaks for Breast Cancer Screenings, ContraceptivesHealthcare Now you can get a tax deduction or reimbursement for certain medical expenses, like over-the-counter birth control and condoms.
