New credit, new paperwork
By
Mary Beth Franklin, Senior Editor, Kiplinger's Personal Finance,
Source: Kiplinger Consumer News Service
You probably received the benefit of the Making Work Pay Credit in the form of reduced payroll tax withholding last year. But you don't get to keep the credit -- which reduces your tax liability -- unless you claim it on your 2009 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 you'll get a smaller tax refund or that you'll owe more tax when you file your 2009 return that is due by April 15, 2010.
Most taxpayers must file a new Schedule M -- as in "money" -- 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 populate the appropriate forms for you).
Self-employed workers, who usually 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, either as 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 2009 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. Some married couples, if both spouses worked, may each have received the credit even though their combined income made them ineligible for the full credit.
Retirees who work face a special situation. As part of last year's economic-stimulus package, individuals who collected Social Security, veterans or government pensions received a one-time payment of $250. Retirees who held a job also benefited from the Making Work Pay Credit in the form of reduced withholding. But the combined total can't exceed $400 per person. So retirees who received the maximum $400 tax credit will be allowed to keep only $150 of it when they file their taxes.
Looking ahead
The credit is in force for 2010, too, and is again being delivered paycheck by paycheck via reduced tax withholding.
If you owe money on your 2009 tax return as a result of being ineligible for the Making Work Pay Credit, adjust your 2010 withholding by filing a new W-4 with your employer.
All contents copyright 2008 The Kiplinger Washington Editors, Inc.