Tax Time: How to Claim the Making Work Pay Credit on Your Taxes.

Posted: March 9th, 2011 | Author: | Filed under: Taxes | Tags: , , | No Comments »

The Making Work Pay tax credit entitles single tax payers to up to $400 tax credit, and married filers to $800. You definitely want to claim this if you’re eligible because a tax credit is subtracted from your tax bill, and not your income. (read The Difference Between Tax Deduction And Tax Credit for a detailed explanation).

The credit was implemented by changing the withholding tables (withholding is what the government takes out of your paycheck before any other deductions. It’s why you can never truly pay yourself first), so you’ve really already received the money. Now you need to claim it on your taxes.

How you claim it is actually quite easy (as easy as anything gets when doing your taxes).

If you file a long Form 1040 or shorter Form 1040A, then you claim your Making Work Pay tax credit on the Schedule M. If you use the super short 1040EZ, then you use the worksheet on the back of the 1040EZ.

Why the need to claim the credit

You may be wondering if you’ve already received the credit in your paycheck, why do you need to claim it on your taxes?

The answer lies in the fact that it was implemented through the withholding on your paycheck. You may remember declaring your withholding for federal taxes when you filled out the paperwork with your HR department. There’s usually a worksheet with confusing questions along the lines of:

“If you claimed more than 0- on line 5, enter 3 on line 7. Otherwise enter 0 on line 7…”

That worksheet eventually leads to a number, and based on that number the government withholds (takes) a certain amount from your paycheck. The higher the number, the less they take.

Because not everyone has the same percentage withheld, the full amount of the Making Work Pay tax credit may not have been given to you in your paycheck.

To ensure you receive the entire credit, you must claim it on your taxes with the Schedule M.

Here’s what BankRate has to say on this:

“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.”

This whole process just makes me wonder even more why they chose to tinker with the withholding tables and not just offer the credit as a one-shot credit when filing your taxes.

Not so fast

Not everyone can claim the Making Work Pay credit. Single filers whose modified adjusted gross income is between $75,000 and $95,000 and joint filers between $150,000 and $190,000 won’t get the full amount. Those making more than $95,000 and $190,000 respectively cannot claim any of the credit.

Who says the rich don’t pay more in taxes?

Source

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Check Your Withholding to Avoid Paying Tax on Obama’s “Making Work Pay” Tax Credit

Posted: May 2nd, 2009 | Author: | Filed under: Saving, Tips | Tags: , | 1 Comment »

According to the AP, Millions of Americans may owe taxes next year on the money they receive this year as part of President Obama’s “Making Work Pay” tax credit.

This is due to the fact that it is not a tax cut, but the result of a modification to the tax withholding tables issued by the IRS. In essence, workers are having less money taken out of their paychecks each pay period. The result is that some may not be withholding enough to pay their Federal tax obligation for the year.

At risk of owing tax are:

“married couples in which both spouses work; workers with more than one job; retirees who have federal income taxes withheld from their pension payments and Social Security recipients with jobs that provide taxable income.”

People who fall into any of the above groups may want to set aside more money for tax season or adjust their withholding again to have that money taken back out. It is an ironic result since the “Making Work Pay” tax credit is meant to spur increased consumer spending.

Read more here for greater detail and a link to the IRS withholding calculator.

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