Do You Have to Repay the Making Work Pay Tax Credit?
Posted by
on February 15, 2010
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Running into making work pay tax credit problems? As you probably know, early this year congress enacted the Making Work Pay Credit as part of the stimulus package. The Making Work Pay Credit is valid in 2009 and 2010 and is worth 6.2% of earned income (up to $400) for each qualified individual. Companies were required to recognize the credit by reducing withholding, thus adding a small amount to paychecks, beginning last April. The making work pay tax credit eligibility also includes self-employed individuals.
The mandate to adjust withholding applied to ALL workers regardless of making work pay tax credit eligibility. Unfortunately, that means those workers who were NOT eligible for the credit will have to pay it back at tax time. The result will be a reduction of tax refund, and those who would not receive a refund will owe the IRS money.
The following people may not qualify for the Making Work Pay credit and have to pay it back at tax time:
The Making Work Pay Credit is documented on the new IRS Schedule M. Reporting what you have received will help determine whether you owe money back. If you file your taxes with an accountant, he or she should be aware of the potential issues.
Nonetheless, if you believe you received the credit even though you were not eligible, be sure to highlight the reasons why so that your accountant can file accordingly. TurboTax should ask you whether you received the $250 credit for retirees and recognize whether your withholding reflected the $400 for workers.
If your lack of credit eligibility leads to you owing taxes, you should be exempt from an underpayment penalty. For more information, see this notice from the IRS.
In 2010, the Making Work Pay Credit will continue to be given in the form of adjusted withholding. If you had to pay it back this year or believe that a personal status change will disqualify you from receiving the credit in 2010, you may want to “unadjust” your withholding to negate the effects of the credit.
In 2011, the 2011 Payroll Tax Cut will replace the Making Work Pay Tax Credit.
You can use the IRS withholding calculator to determine an appropriate withholding amount and then revise your W-4 form. This will prevent you from facing this problem come this time next year!
The most obvious benefit is that you do not have to get your hands dirty.