What is the Making Work Pay Credit?

The Making Work Pay tax Credit was a fully refundable tax credit built into President Obama’s stimulus package for 2009 and 2010. The Making Work Pay Credit was actually “earned” by you in the form of lower tax withholding through your employer throughout last year. In other words, even though the credit is computed on your tax return, the savings were seen in higher take home pay instead of a bigger tax refund. While the mechanics of the credit can be confusing, you can rest assured that TurboTax asks you the proper questions and then calculates the maximum credit based on your responses.

How Much Is the Making Work Pay Credit?

Originally, the credit was a 6.2% credit on an individual’s earned income with a maximum $400 credit for individuals and $800 for married taxpayers. The credit is reduced by $250 for Social Security recipients, retired railroad workers, and disabled veterans who received a $250 Economic Recovery Payment in 2010. So if you receive Social Security and are working, the maximum you’d get from the Making Work Pay Credit is $150 ($400 minus $250).

In addition to the reduction based on other benefits, there is an earned income limit as well. If you are a single filer making more than $75,000 (modified adjusted gross income), your benefit is reduced by 2% of the amount over $75,000. The married filing jointly limit is $150,000. So if you’re single and earned $80,000, your Making Work Pay Credit is reduced by $100. The credit is fully phased out if you earned more than $95,000 for single filers and $190,000 for married filing jointly.

There are a few other rules for the Making Work Pay Credit – you need to be a US citizen or resident alien with a valid Social Security number and you cannot be claimed as a dependent. If you’re a college student and you are claimed by your parents, you will need to make some adjustments.

Finally, remember that you’ve already received the credit in your paycheck each month. If a tax preparer starts telling you that you are getting a bigger refund because of the credit or they are trying to get you to sign up for a refund loan – walk away. You’ve already received the credit and nothing changes because you’ve filed, it’s just a marketing tactic.

Claiming The Credit

You claim the Making Work Pay Credit on Schedule M, specifically created to help you claim this credit. The Schedule M form is pretty straightforward and TurboTax makes entering the required information easy. Even though you have already received the money in the form of reduced payroll tax withholding, it’s important that you fill out this schedule to determine if you received the full benefit of the credit through paycheck withholdings and to determine if you have a refund or balance due.  Filing Schedule M also requires you to enter your Economic Recovery Payment received, which reduces the Making Work Pay Credit by $250.  The IRS has record of these payments and if this information is not entered correctly, your tax return will not match IRS records.  If this occurs, electronically filed taxes may be  rejected and paper filed returns may be corrected by the IRS.

For 2011, which would apply to your 2010 (next year’s) tax return, the Making Work Pay Credit was phased out and replaced with the 2% payroll tax holiday. This new payroll tax holiday reduces Social Security contributions by 2 percent, which can be as much as $2,136 if you make more than $106,800.

Comments (9) Leave your comment

  1. I am using Turbo tax filing to file my income tax this year can you please advise how can I link the Schedule M form into to my Turbo filing…for “Make work pay tax” .

    • Hi Dara,
      Making Work Pay expired December 31,2010, which is why TurboTax or any program will not handle it. It was replaced by the payroll tax holiday, which does not impact your tax return. You received more money on your paycheck as a result of the payroll tax holiday since social security taxes taken out of your paycheck was reduced to 4.2%.
      There is no need to worry about this form.
      Thank you,
      Lisa Greene-Lewis

      • The quiestion is very simple.
        Can I claim ‘‘making work pay credit” for 2011 (just for 2011) as I’m filing my return in the begining of 2012?

      • Hi Dmitry,
        Making Work Pay expired in 2010. There is no Making Work Pay for 2011. You received a higher pay check beginning 2011 as a part of the Payroll Tax Holiday in place of Making Work Pay. There is nothing to file.
        Thank you,
        Lisa Greene-Lewis

  2. It’s a credit folks, not a return. You already saw the benefit of this, but $400 over 12 months is nothing you would have noticed unless you’re dirt poor. The explanation is fine. I’m in IT and know squat about tax code but this is not hard to decipher.

  3. Ditto!! This is too confusing! I am hesitating submitting the return until I talk to a tax accountant. This is the first time I am not able to rely on Turbo Tax.

  4. I agree with William Watson. Since Turbo Tax is an excellent tax software, one would think the explanation provided for this topic would be easier to understand. Thus far, I’ve spent 3 hours trying to determine if my Turbo Tax e-filed Fed return is correct because of confusion on this topic.

  5. This is the most confusing article I have ever read about this suibject. I assume it is that way because of the way the law is written.

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