Get the Making Work Pay tax credit right for 2010
(ARA) - The Making Work Pay credit confused many taxpayers on their 2009 returns, and for some, the confusion led to delayed refunds, smaller refunds or taxes owed. To help make sense and cents out of it all, TaxACT has the most essential information and tips for getting it right on your 2010 tax return.
Who qualifies and how to get it
The Making Work Pay credit replaced the 2008 federal stimulus checks for 2009 and 2010. Most taxpayers receive the credit through reduced federal withholding in each paycheck. The refundable credit is worth 6.2 percent of your earned income, up to $400 for individuals and $800 for married couples filing jointly. If you don't withhold federal taxes, you must file a federal tax return next year to receive the credit.
The credit phases out for joint filers with a modified adjusted gross income (MAGI) between $150,000 and $190,000, and for single taxpayers whose MAGI is between $75,000 and $95,000.
Since the credit is being spread out over 12 months rather than nine months for 2010, this year's paychecks are likely be a few dollars less than last year's. However, you'll still receive the full credit amount you're due.
Why the credit delayed some refunds in 2009
The same tax act that included the Making Work Pay credit included two provisions that reduced the 2009 credit amount.
Retirees, disabled individuals and Supplemental Security Income recipients receiving benefits from the Social Security Administration, disabled veterans receiving benefits from the Department of Veterans Affairs and those receiving benefits from the Railroad Retirement Board received a one-time economic recovery payment of $250 in 2009.
Government retirees who don't receive social security could also claim a one-time $250 refundable credit on their 2009 federal tax return.
Economic recovery payment and Government Retiree Credit amounts had to be subtracted from any Making Work Pay credit amount. Many taxpayers failed to do so, resulting in rejected returns and delayed refunds in 2009.
Others didn't realize they had to claim the Making Work Pay Credit on their 2009 returns even if they received the credit in their paychecks. Claiming the credit on your federal return made up for the reduced federal withholding throughout 2009.
It will be easier to get the credit right on 2010 returns. The economic recovery payment and Government Retiree Credit have expired.
Why the credit meant smaller refunds or taxes owed for some in 2009
When the federal withholding tables were adjusted for Making Work Pay in 2009, few taxpayers adjusted their withholding. The IRS said most taxpayers withheld enough, but certain groups were more likely to have had too little tax withheld in 2009, especially:
* Married couples with two incomes
* Individuals with multiple jobs
* Pensioners
* Dependents
* Some Social Security recipients who work
* Workers without valid Social Security numbers
As a result, these groups may have received smaller refunds or owed a small balance of taxes for 2009. These taxpayers still have the opportunity to make changes now to prevent the same thing from happening next year.
Assess your withholding now
To ensure you're withholding the right amount from your paychecks, use the IRS withholding calculator at www.irs.gov.
Self-employed workers should consider changing estimated tax payments, but be leery of quarterly underpayment.
To adjust your federal withholding, complete Form W-4, Withholding Allowance Certificate, and turn into your employer. Married couples filing jointly and individuals with multiple jobs should complete the W-4 dual earner worksheet.
Get the credit right on your 2010 return
Remember, you'll generally still need to claim the credit on your 2010 federal return even if you receive the credit in paychecks. Claiming the credit on your return makes up for the reduced federal withholding throughout the year.
Taxpayers filing Form 1040 or 1040A should figure the Making Work Pay Credit amount using Schedule M. If filing Form 1040-EZ, use the worksheet for the line to figure the credit.
One of the surest ways to get the credit right on your 2010 return is to use tax preparation software like TaxACT at www.taxact.com. Answer simple questions and TaxACT will figure your credit amount and report it on the correct line of the appropriate form. It will also identify other credits and deductions you may qualify for, and includes a maximum refund pledge. Best of all, you can prepare, print and e-file your federal return for free with TaxACT Free Edition. TaxACT 2010 will be available for use starting in October, allowing you to walk through tax law changes for 2010, get a head start on next year's return, and make year-end adjustments to further minimize your taxes.
For more information about the Making Work Pay credit, visit www.irs.gov. Learn more about TaxACT at www.taxact.com.
Courtesy of ARAcontent