Lock In Your Payroll Tax Cut
If you don’t claim the Making Work Pay Credit on your tax return, you lose it.
You probably received the benefit of the Making Work Pay Credit in the form of reduced payroll tax withholding and slightly bigger paychecks last year. But you don’t get to keep the credit -- which reduces your tax liability -- unless you claim it on your 2010 tax return.
And if your income or filing status makes you ineligible for the credit, you’ll have to give it back. That could mean getting a smaller tax refund or owing more tax when you file your 2010 return, which is due by April 18, 2011.
Most taxpayers must file Schedule M -- as in “money” or “migraine” -- to claim the credit, which is worth up to $400 for individuals and $800 for married couples filing jointly. If you file Form 1040EZ, you need to fill out the worksheet accompanying the form. (But if you use tax-preparation software, it will do the calculations and fill out the appropriate forms for you).
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Self-employed workers, who often file estimated tax payments each quarter rather than having taxes withheld from their paychecks, are also entitled to the credit. Make sure you fill out Schedule M to claim it. If you did not adjust your quarterly payments to reflect the credit, you’ll get the full benefit when you file your taxes, as either a reduced tax bill or a bigger refund.
Not everyone qualifies
Some workers received the full credit through reduced payroll tax withholding even though they were not eligible. The credit is reduced for individuals with incomes of more than $75,000 and disappears completely at $95,000. For married couples filing jointly, the credit starts phasing out when their income reaches $150,000 and disappears completely at $190,000.
And anyone who can be claimed as a dependent on someone else’s return, such as a student who works part-time, is not eligible for the credit.
As a result, several groups of workers may face some unexpected problems when they tackle their 2010 tax returns. Individuals who held more than one job last year, for example, may have received more than the maximum $400 credit allowed per person. And some married couples with two working spouses may have received the benefit of the credit individually even though their combined income made them ineligible for the full credit.
Looking ahead
The Making Work Pay Credit disappeared at the end of 2010 and was replaced with a two-percentage-point reduction in the payroll withholding tax for everyone, regardless of income. That means all workers will enjoy the benefit of the payroll-tax holiday throughout 2011, and they won’t have to bother with Schedule M when they tackle their 2011 taxes next year.
-
Use An iPhone? You May Be Hearing From A Class-Action Lawsuit Group
A handful of suits against the iPhone maker seek to crack down on everything from app store purchases to messaging.
By Keerthi Vedantam Published
-
Capital One/Discover: What's In Their Wallet For You?
Push back on Capital One's planned merger with Discover is growing with one group of consumer advocates calling for a public hearing.
By Keerthi Vedantam Published
-
How Much Richer Could You Be Without a Big Tax Refund?
Tax Refunds A big tax refund isn’t a reason to celebrate if you overpaid throughout the year. Here’s how much money your interest-free loan to the government could have cost you.
By Katelyn Washington Last updated
-
How to Calculate Your Adjusted Gross Income — and What It Means
Income Tax Your eligibility for certain money-saving tax breaks depends on your adjusted gross income.
By Ella Vincent Published
-
Ways to File Your Taxes for Free
Free Filing Tax season is in full swing, and if you’re looking to save money, there are several ways to file your taxes for free.
By Kelley R. Taylor Last updated
-
IRS Issues Another Tax Warning for Wealthy, High Earners
Tax Enforcement Wealthy non-filers could pay more tax than they owe if the IRS files for them.
By Katelyn Washington Last updated
-
Types of Income the IRS Doesn't Tax
Income Tax It may feel like the IRS taxes most of your hard-earned money, but some types of income are nontaxable.
By Kelley R. Taylor Last updated
-
Why You’ll Still Pay Oklahoma Grocery Tax
State Tax Oklahoma is eliminating state grocery taxes, but that doesn’t mean groceries will be tax-free.
By Katelyn Washington Last updated
-
Last-Minute Tax Savings Guide for 2023
Tax Savings April 15 is weeks away, so it's not too late to save your 2023 taxes.
By Sandra Block Published
-
Why You Should Care About Your 2026 Taxes Now
Tax Planning It's not to early to prepare for the possibility that your taxes will go up in 2026.
By Sandra Block Published