Making Work Pay Credit

[AccTaxMan]

I think the Making Work Pay Credit has been given to the taxpayers through their payroll deduction in 2010...am I right?

But today when I prepared the first tax return this year, my tax program still gave $800 Making Work Pay Credit to the taxpayers in a Schedule M. Have I done something wrong?

[David1980]

So say your taxpayer was going to have a tax liability of exactly $1,000.

They were also going to have exactly $1,000 of tax withheld.

When they file their tax return, since tax liability = tax withheld, there's no refund or balance due.

Now enters the making work pay. They adjust the payroll tax withholding and now only $200 is withheld. So he "already got" his $800 making work pay, right?

They don't change anything on the tax return, because he already got it. So his tax liability remains $1000.

He now owes $800 back. So he got it, but he's sending it right back to the govt.

So the credit is there on the return, which reduces his tax liability to $200. Once again, no refund, no balance due. So it shows on the tax return, but you can think of it as something they got through payroll reduction.

[Will H]

So just to clarify, no, you haven't done anything wrong. The $800 credit should be on the return (and will be on most tax returns this year).

[AccTaxMan]

So say your taxpayer was going to have a tax liability of exactly $1,000.

They were also going to have exactly $1,000 of tax withheld.

When they file their tax return, since tax liability = tax withheld, there's no refund or balance due.

Now enters the making work pay. They adjust the payroll tax withholding and now only $200 is withheld. So he "already got" his $800 making work pay, right?

They don't change anything on the tax return, because he already got it. So his tax liability remains $1000.

He now owes $800 back. So he got it, but he's sending it right back to the govt.

So the credit is there on the return, which reduces his tax liability to $200. Once again, no refund, no balance due. So it shows on the tax return, but you can think of it as something they got through payroll reduction.

Thank you very much for your time to give such a detailed reply. You are great!

[erchess]

I hope I am not hijacking this thread

but I have what to my mind are related questions. Suppose that a taxpayer did not pay any withholding. Obviously any estimated tax they paid was not reduced by the credit. So do they in most cases get the tax they would otherwise owe on say investment and self employment income reduced by $800? Also what if the client has low enough income they have zero taxable income. Do they benefit from the credit?

I think the answer is yes but I want to be sure. I am actually going to run into people who do not want the money. I will try to explain to them that it is money the government decided it would help the economy by giving to them in the hope they would spend it. But seriously I have at least five clients I can think of right away who are number one going to understand their tax returns well enough to understand the government is giving them money AND these people are going to give the money to charity since they do not know how to or are not inclined to give it back to the government.

[David1980]

So do they in most cases get the tax they would otherwise owe on say investment and self employment income reduced by $800?

Investment income, no. Self employment income, yes.

Also what if the client has low enough income they have zero taxable income. Do they benefit from the credit?

Yes, it's a refundable credit.It's basically 6.2% of earned income with a maximum of $400 or $800 for MFJ.