Making Work Pay Credit

[Lucho]

How can you explain this?

During the year, taxpayers got extra money in every paycheck to amount the $400.00 for the credit.

Now that I am doing a return for single taxpayer I am getting another $400.00 credit. The instructions in Schedule M say: “Even if your federal tax withholding was reduced during 2009 because of the credit, you must complete Schedule M and claim the credit on your return to benefit from it.

Did tax payers get the credit during the year or not? If not, what was the idea to change the tax withholding tables to reduce the withholding?

Thank you

Lucho

[JohnH]

Their withholding was reduced during the year in an effort to approximate the amount of the credit. Claiming the credit on the return reduces the tax liablity in order to net out the reduced withholding. It isn't a matter of getting something twice - claiming the credit on the return is a matter of netting everything out to zero in order to avoid an underwithholding situation. No different than adding an exemption in order to reduce one's withholding if a child is born during the year in anticipation of getting an additional credit on the return at year-end.

[Lucho]

I got it JohnH

Thank you.

Lucho

[jainen]

>>I am getting another $400.00 credit<<

Let me make up some numbers to demonstrate how this works. Suppose under the old tables you would have $1000 withheld, and your tax liability is $750 so you get a $250 refund. When you count the $400 credit, your tax liability goes down to $350 so now your refund would be $650.

Except because the credit was already figured in the new tables, your actual withholding was only $600. That's what they mean by saying you received more money in your paycheck. So now your refund is back down to the original $250. No change on your tax return; you just got bigger paychecks.

Compare that to a dependent who is not eligible for the credit. He is still going to have the bigger paycheck from the new tables okay, but he's stuck with the original $750 tax liability so now he OWES $150.

[Pacun]

Not only that, if that person had 2 jobs, both employers are short and that tax liability will be higher. AND please don't make me start with the ones who had two jobs and they were short to begin with. Those tax payers will not be happy campers this year and that unhappiness is transmitted or blamed to the tax preparer.

[taxguy057]

So with all being said, if the TP has 0 tax liability after adjustments, will he receive the 400.00 in the refund seeing that this "is" a refundable credit?

[Pacun]

So with all being said, if the TP has 0 tax liability after adjustments, will he receive the 400.00 in the refund seeing that this "is" a refundable credit?

correct.

[taxguy057]

Hey I'm starting to get the hang of this tax stuff! lol!

[TAXBILLY]

At least until next year when the rules change again.

taxbilly

[taxguy057]

Thats the IRS for ya, forever keeping us in suspense!! :unsure:

[jainen]

>>So with all being said, if the TP has 0 tax liability after adjustments, will he receive the 400.00 in the refund seeing that this "is" a refundable credit?<<

"With ALL being said"? In my opinion--not necessarily. First of all, $400 is only a presumptive amount; you would actually use the credit calculated on Schedule M. We also have to make a presumption about what you mean by "0 tax liability" because Line 60 Total Tax comes long after Adjustments but before any payments. And even if Line 72 is an overpayment, he might not have a refund on Line 73. And even if he does, he might not RECEIVE it for any number of reasons. I mean, in my opinion. With all being said.

[taxguy057]

Well let me clarify my case and point if you will... Now if Line 60 is "0" and if any payments made on Lines 61-70 (special attn given to Line 63 in this case) were made, they would be refunded back to TP since there's no "tax liability" (Line 60) for that amount of Line 71 to go against. Hence, the TP is entitled to the amount calculated on Sch M. Guess used 400.00 as an example of an amount derived from calculation on Sch M. Please forgive for the ambiguity of the amount used... :blush:

[TAXBILLY]

Schedule M is not as complicated as some of us make it out to be.

Get it out of your thinking that a credit was given during 2009. There was no credit given to anyone. The withholding tables were merely adjusted, the theory being that the economy would be stimulated if the taxpayer received a little more money in his/her paycheck.

The 400/800 credit is subject to reduction because of ecoomic recovery payments received (SS,VA and RR) as well as income limits.

Those who are not in the Social Security system and have a government reirement pension (Federal or State) get their $250 on Schedule M. If this is your client be sure to add the Schedule M even though he/she may not have earned income.

taxbilly

[cpa3917]

I just had a return that i e-filed rejected and the error was that Sch M rebate didnt match social security records. So I deleted Sch M for e-file to go through.

If taxpayers were ultimately eligible for part of the credit, will IRS recalculate and add to refund?

[Terry D EA]

I think you probably should have given the tax payer the phone numbers to call in an attempt to verify the amount they received before you filed the return. I have handled a couple that way and once the adjustment was made, the return was accepted. I am not sure the IRS will refigure the credit. I hope they do for your client's sake. JIMHO

[Randall]

If taxpayer's wife is deceased and he is receiving her state teachers pension, is he eligible for the $250 credit. It seems she would be if still living but I wasn't sure about him.

[TAXBILLY]

Did either receive Social Security?

taxbilly

[Randall]

Did either receive Social Security?

taxbilly

no