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

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

Related Posts:

• Tax Time: Last Minute List of Overlooked Deductions.
• Tax Time: Kiplinger’s “Do It Yourself Pay Raise” (Video).
• Are You Prepared to Pay $3,598 More in Income Tax for 2012?
• How to Get Your Tax Refund Now!
• How to Get Free Help With Taxes!

How to Get Free Help With Taxes!

If you need help filing your tax return, but don’t have the money to hire an account or pay for software you may be able to get the help you need for free. If you owe back taxes to the IRS, you can get help with that too for free, or less than you might think. Here are some community based services and other resources you might not know about…

Tax Clinics.

Local university law school might provide access to law students working under the guidance of licensed attorneys for a fraction of the cost of a private attorney or tax pro – maybe even for free. Fees may be dependent upon your income level, but they will likely be cheaper than going to a tax pro. Many clinics provide help for simple tax filing to settling your IRS debt for a fraction of what you owe.

Call your local university and ask if they offer tax clinics. If so, be sure to ask what income level qualifies for assistance, how long it will take to get an appointment and what kinds of fees may be involved.

The Local IRS.

Contact your local IRS office and see if you meet the minimum income requirement. Local IRS offices can help you file your current return, or an amended return for years past. BONUS: even if you don’t meet the minimum qualifying income, you can ask as many questions as you need – for free!

The IRS Help Line.

Did you know that when you find yourself knee deep in your taxes, you can phone a friend at the IRS? Well, maybe not a friend, but you can get the help you need for free. There’s no limit to the number of questions, but expect to be transferred if you have a wide range of questions since the IRS has specialists for various areas of the tax code. The number is 800-829-1040.

Taxpayer Advocate Service Office.

If you are filing taxes for a business or an individual and you have a larger, long term tax problem – other than simply filing or amending a return – then the IRS’s tax payer advocate service may be for you.

Free Tax Software.

The big tax software companies all offer a free, if limited version regardless of your income level. TaxACT, Free File and TurboTax all offer free versions, but they won’t have many of the bells and whistles for squeezing out the most of your deductions and credits and they won’t include the forms for state taxes. Still, if you have a simple, straightforward tax return and know what you’re doing it can save you time and money.

Regardless of the source you go to for your tax help, you’ll want to make sure you have the following to get the most out of your experience:

• Your W-2s for the year(s) you need help filing
• Two forms of ID, normally your driver’s license and social security card
• Bank statements
• Investment or savings accounts statements
• Mortgage statements

Source

Related Posts:

• Tax Time: Kiplinger’s “Do It Yourself Pay Raise” (Video).
• TaxTime: 2010 Tax Law Changes.
• Tax Time: 4 Big Tax Changes for 2011.
• Tax Time: Last Minute List of Overlooked Deductions.
• Are You Prepared to Pay $3,598 More in Income Tax for 2012?

TaxTime: 2010 Tax Law Changes.

With all the drama at the end of 2010, it’s easy to lose track of all the changes to the tax code and the result of all the bickering in Washington. Here’s a quick list of the changes to the tax law as well as things that stayed the same.

Income tax brackets.
No changes here until 2012, then rates spike up to 2001 levels.

Taxes on investments.
For tax payers in the 15% income tax bracket: 0%!
For all others: 15%.

These are historically very low, of course more people have access to investments than ever before thanks to the Internet and discount brokers. Investing is no longer just for the rich.

Estate and gift taxes.
The first $5 million of an estate is tax free, the remainder is taxed at 35%, at least until 2012 unless congress changes the law. Again.

The annual exclusion for tax-free gifts stands at $13,000 per donor – you can give unlimited gifts of up to $13,000 to different people before taxes are owed on the gift.

Payroll taxes.
Every worker gets a temporary 2% cut on Social Security taxes until 2011. I guess they’ve given up the pretense of funding Social Security ?

AMT (Alternative Minimum Tax).
This blight on the tax payer still lives, though it’s been held at bay somewhat until 2011. The current exemption goes to $47,450 for individuals and $74,450 for married couples.

Roth IRA Conversions.
There is no longer any income limit for converting an IRA to a Roth IRA, but taxes are due on the amount converted and any taxes due on conversions after 2011 must be paid for the 2011 tax year – the option to defer or split the tax bill over two years no longer exists.

Foreign-Account reporting.
As part of its effort to crack down on the hiding of money in foreign bank accounts, the government has expanded its requirements for reporting foreign income. This new regulation will be required for filing 2011 taxes, and the IRS has not yet released any details. Guess they don’t want to give the crooks any time to shuffle the shells they’re hiding their money under.

Medical expenses.
As part of the new healthcare law (A.K.A. Obamacare) Flexible Spending Accounts (FSAs) can no longer be used for over the counter (OTC) medication. They can be used for many other health related needs, but one wonders for how long? If the purpose of Obamacare was to expand coverage, then why reduce the tax-free power of the FSA, in effect reducing affordable access to medication?

Cost-Basis reporting by brokerages.
I have to say that this is one of the few changes to the tax code that not only make sense to me but that sounds like a good idea! Beginning with 2011, brokers must now track a client’s stock purchase (and other securities as well) and report them to the IRS when a stock is sold. This helps prevent tax fraud on the part of investors, but it should also help clear up one of the trickier tax questions when filing in a year you sold a stock: What do I put for the cost basis when I bought multiple share over a long period?

Energy tax credits for homeowners.
Lastly, a change that doesn’t make sense. The 25(C) tax credit for energy efficient improves has been cut back from $1,500 to $500 and will be ended at the close of 2011. All we keep hearing about is the energy crisis and the need to become more efficient, why not extend the credit all the way?

Source

Related Posts:

• Tax Time: 4 Big Tax Changes for 2011.
• Tax Time: Kiplinger’s “Do It Yourself Pay Raise” (Video).
• How to Get Your Tax Refund Now!
• How to Get Free Help With Taxes!
• Tax Time: The Difference Between Tax Deduction And Tax Credit.

Tax Time: I saved $17.50 on TurboTax – and You Can Too!

I blogged about TurboTax being on sale last week for $10 off, and just before that sale ended, I received an email from Staples with a %15 off coupon! I doubled up and ended up paying $17.50 less for TurboTax Deluxe than the going price at many other stores.

No one likes to pay taxes and no one likes filing their taxes, but at least if we have to do the deed we can save a little cash at the same time right?

The good news is that the $10 off TurboTax sale has been extended for this week as well, but Staples is still one of the stores participating (along with some others). Here are the details…

$10 off TurboTax at the following retailers (no coupon required, ends 1/29/2011):

• Staples
• Sam’s Club
• OfficeMax
• OfficeDepot
• Fry’s

The 15% off coupon can be found here and is good until 1/29/2011, only in stores and needs to be printed.

Step 1. Click on the coupon link.

Step 2. Print the coupon.

Step 3. Visit your local Staples and present the coupon at the register.

It’s that simple.

Related Posts:

• Tax Time: Last Minute List of Overlooked Deductions.
• Tax Time: Kiplinger’s “Do It Yourself Pay Raise” (Video).
• Are You Prepared to Pay $3,598 More in Income Tax for 2012?
• How to Get Your Tax Refund Now!
• Tax Time: How to Claim the Making Work Pay Credit on Your Taxes.