When you file your federal income tax return for 2010, you should remember to take advantage of the Making Work Pay Credit if you qualify. This credit is still in effect for 2010. This is a refundable credit and is 6.2% of earned income up to maximum credit of $400 for single taxpayers and up to $800 for married taxpayers filing jointly.
If you receive a salary or wages, you have seen the benefits of the credit during the year, through less withholding and slightly larger paychecks. But you need to report the credit on your return. If you don’t, the credit will not be taken into account and you could receive a lower refund than you should, or you could owe tax.
If you e-file using tax software, the credit may be calculated and entered automatically. If you use IRS free-file online fillable forms or if you file a paper return, you will need to complete Schedule M – Making Work Pay Credit if you file Form 1040 or 1040A. If you file Form 1040-EZ you should complete the worksheet on the back of the form to calculate your credit.
You do not qualify for the Making Work Pay Credit if you can be claimed as a dependent on someone else’s tax return, if you are a nonresident alien, or if your modified adjusted gross income is $95,000 or more if you file as single, or more than $190,000 if you are married filing jointly. The amount of the credit is reduced if your adjusted gross income is more than $75,000 or $150,000 if you are married filing jointly.
If you are self-employed, the net profit from your business reported on Schedule C or C-EZ qualifies for the Making Work Pay Credit. Also, if you work on a farm, the net profit reported on Schedule F qualifies for the credit. In these cases you would need to complete the worksheet in the Instructions for Schedule M. If you use tax software, this calculation may be done for you.
If you received social security benefits, railroad retirement benefits, or veterans’ disability compensation or pension benefits, you may have received an economic recovery payment in 2010 if you did not receive the payment in 2009. This payment would be $250 if you are single or $500 if you are married filing jointly. If you received this payment in 2010, you have to reduce the Making Work Pay Credit by that amount.
As indicated by the IRS, because the federal income tax withholding tables were adjusted for the Making Work Pay Credit, if you are not eligible for the credit you could end up receiving a lower refund or may even owe a small amount of tax when you file your return. If you owe tax and are charged a penalty for underpayment, you can request a waiver of that penalty by filing Form 2210 – Underpayment of Estimated Tax by Individuals, Estates, and Trusts.
Form 2210 – Underpayment of Estimated Tax by Individuals, Estates, and Trusts
Instructions for Schedule M (Form 1040A or 1040) – IRS
The Making Work Pay Credit – IRS
Schedule M – Making Work Pay Credit – IRS