Are there any CPAs here? "Making Work Pay" credit (taxes, rates)
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I have a question about the Making Work Pay credit.
Okay, first of all, my taxes are VERY simple: two W-2s and one 1099-INT and standard deduction. So simple I normally do the 1040-EZ, and I normally do my taxes myself -- because, hello...super basic, right? Addition, substraction, basic reading comprehension. Got it.
This year I did my taxes and came across the Making Work Pay credit for $400. I read the instructions backwards and forwards, upside and down, and any way I read it, I was eligible for the full $400. The result was that I wound up being due a federal refund of about $352. Still, I was not completely confident in my calculations and interpretation, so I ran my taxes through TurboTax. Yep...$352 refund.
But now I've got people telling me that I'm not eligible for the credit.
The reason I'm not eligible, they tell me, is because back in March or so, I started keeping about $20 per pay check due to the revamping of the tax tables (as part of the Recovery act that was effective by April 1, 2009). This wasn't a change I made, through adjustments to my W-4.
The Making Work Pay credit is $400, but people are telling me that since I saw my take-home pay increase by $15 or so each paycheck, I've already gotten my "credit" -- that I got it over the course of the year.
I say this is BS. First of all, when you fill out your tax return, all you have to go by is your W-2. I put in the information that's on my W-2. Secondly, I hit all the eligilibility requirements for the credit. (Nobody can claim me as a dependent and my income is below the $75K threshold for a single person.) Thirdly, the instructions say that the $400 credit is reduced if you've already received a $250 economic recovery payment in 2009 because you were a recipient of SS benefits, and a couple other things that don't apply to me. And fourthly, the instructions say "Even if the federal income tax withheld from your pay was reduced because of this credit, you must claim the credit on your return to benefit from it."
So...
I get the credit, right?
Sorry for the length of this post. I was just trying to be clear.
Last edited by Niftybergin; 01-30-2010 at 08:05 PM..
You are 100% correct. Yes, you already "received" the credit over the course of the year (just as you are receiving it this year, too). However, it should be considered more of a loan until you file your taxes. In your taxes, you actually claim the credit.
The reason behind this is the way the Making Work Pay credit was formulated. President Obama wanted everyone making up to a certain level to receive the full $400/$800 (married filing join, MFJ). However, you could not do this simply by adjusting the tax rates/tax tables. People would either be receiving too much or too little, and a lot of people would receive the credit who should be exempted (either because of dependency, household income threshholds, whatever). So, the "best" way to do it is by a specific line/form on the tax return.
However, President Obama and Congress did not want to make people wait until 2010, when 2009 taxes were filed, to receive the credit money. Neither did they want to go through the hassle and expense of mailing checks like the Bush 2008 stimulus. So, they had employers adjust withholding schedules during 2009. This would allow workers to receive the credit in 2009, though they had to officially claim it when they filed in 2010.
I am not surprised to hear you have had misguided individuals telling you that you are wrong. I was surprised by the Schedule M requirement, and my Masters is in taxation (I do not, admittedly, actively practice tax right now). I had not heard about nor read any articles that explained that you had to fill out this additional schedule to truly receive the credit. I think there will be a lot of people, including some who pay preparers, who unwittingly give back the Making Work Pay credit through a higher tax payment or lower refund.
..I am not surprised to hear you have had misguided individuals telling you that you are wrong. I was surprised by the Schedule M requirement, and my Masters is in taxation (I do not, admittedly, actively practice tax right now). I had not heard about nor read any articles that explained that you had to fill out this additional schedule to truly receive the credit. I think there will be a lot of people, including some who pay preparers, who unwittingly give back the Making Work Pay credit through a higher tax payment or lower refund.
I too was confused by this credit. I am an accountant, but also not a tax accountant. I typically file 1040 with one W-2, I itemize my deductions, no investments, no capital gains. I used a free, online tax return preparing software. The instructions for this line were confusing, the software defaulted to "no" next to a question asking if I received money from Social Security. There was a little note that read, "Most taxpayers can skip this question."
I too was confused by this credit. I am an accountant, but also not a tax accountant. I typically file 1040 with one W-2, I itemize my deductions, no investments, no capital gains. I used a free, online tax return preparing software. The instructions for this line were confusing, the software defaulted to "no" next to a question asking if I received money from Social Security. There was a little note that read, "Most taxpayers can skip this question."
I sent a mass email to all my friends/relatives telling them to look out for the credit and how to claim it. And I've posted about it on a couple boards. I keep hearing people saying that their returns this year yielded smaller returns or that they owed money when they weren't expecting to, and I'm wondering if missing this credit is part of the reason why. So I'm just trying to get the word out that you have to claim the credit on your return.
You're right that if you do your taxes with TurboTax or whatever, it doesn't make a big deal of the credit. You get to the page with the credits -- top of the list being EIC -- and I think a lot of people just pass it by, thinking it's not going to apply to them. I'm trying to tell as many people as I can that, yes, it probably DOES apply to them!!
No, you'll get the credit. It just means another schedule to be filled out. Really, when you think about it, taxes are pretty easy. They set it up so you're looking at yes/no answers, and it all runs according to flowcharting. As long as you read the forms carefully, and make the correct entries--as you have--you'll get the "right" answer.
I believe Turbotax by default sticks in this credit. I didn't even know about the credit and when I finished my taxes it was already put in there by TT.
I keep hearing people saying that their returns this year yielded smaller returns or that they owed money when they weren't expecting to, and I'm wondering if missing this credit is part of the reason why.
Actually, I'm guessing that the reason is related to this credit, but not in the way you are saying.
In a lot of 2 income households, both husband and wife could have been getting extra back on their paychecks due to the new tax tables. However, they are only allowed a TOTAL of an $800 credit. I know my husband had almost $750 less held out, just by himself. Fortunately, I went by the old tax tables and didn't hold out less (I write my own checks, and thought ahead).
Therefore, come tax time, the couple may have had $1400-$1600 less held out than normal, but only have a $800 tax credit, so they have to make up the $600-$800 extra, either in less refund or by actually paying. I expect this to be a big problem in some households who don't understand the credit, and didn't know to have their workplaces make this adjustment.
And to the OP, the advice you received here is correct. You DO get to take the credit, it just doesn't give you a bigger refund, as you already got the money earlier this year. If you don't take the credit (that you should be eligible for), you would end up owing, because you already got the "refund" throughout the year, which you would have to pay back. Clear as mud?
Last edited by Lacerta; 02-02-2010 at 03:53 PM..
Reason: Clarification
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