Making Work Pay Credit FAQ ?

[HV Ken]

Just a few returns into tax season, we are already having to explain the wonderful Making Work Pay Tax Credit to clients. Before I reinvent the wheel (i.e. write my own), has anyone already found or created a USEFUL FAQ that explains in plain English the problem areas in terms a client can understand ?

[chuck]

Purpose of the credit was to encourage spending last spring. By giving everyone an additional 400 over several weeks. Now so that your refund will not be affected the government is giving you the credit. However, if you worked more than one job and both employers were giving you 400 extra each and your spouse 400 extra each from her two jobs you got 1600 but only should have gotten 800.

Dependent children might owe the IRS as they got the extra dough but do not qualify to keep it.

[ILLMAS]

Here is something from the IRS:

Q1. What is the Making Work Pay Credit?

A. In tax years 2009 and 2010, the Making Work Pay provision will provide a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns.

Q2. How will taxpayers get this credit?

A. For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes to be made in early spring 2009. These changes may result in an increase in the amount of take-home pay. The amount of the credit will be reported on the 2009 income tax return. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return filed in 2010.

Q3. How will the self-employed (those who do not receive Social Security, Veterans Affairs or Railroad Retirement Board income) claim this credit?

A. Self-employed taxpayers can claim the Making Work Pay credit on their 2009 return filed in 2010. Self-employed individuals should evaluate their expected income tax liability and determine whether they want to make any adjustments in their estimated tax payments.

Q4. Can private pensioners (those who do not receive Social Security, Veterans Affairs or Railroad Retirement Board income) claim this credit?

A. Private pension recipients are not eligible for the Making Work Pay credit unless they have earned income. However, because the new withholding tables reduce the taxes withheld from all taxpayers, pension recipients may not have enough tax withheld from their pension benefits to cover their tax liability on those payments. The IRS recommends that pension recipients evaluate their expected tax liability for the year and consider whether they need to make estimated tax payments or adjust their withholding on Form W-4P, Withholding Certificate for Pension or Annuity Payments.

Q5. Are employees required to have a valid Social Security number (SSN) to be eligible for the Making Work Pay tax credit?

A. Yes, eligibility for this credit is conditioned upon providing a valid SSN.

Q6. If a taxpayer is eligible for more of a credit, how can it be claimed?

A. The modified tables take the anticipated credit into account through reduced withholding. However, the Making Work Pay credit will be reported on all filed 2009 income tax returns, along with the taxpayer’s withheld income tax. Taxpayers receiving less than the full amount of the anticipated credit through reduced withholding will still be entitled to the full credit on their return.

[jainen]

>>both employers were giving you 400 extra each and your spouse 400 extra each from her two jobs you got 1600 but only should have gotten 800<<

Suppose it was a couple of pensions each, totalling $1600 when the actual credit is zero? We have to learn to use Form 2210 in a new way to avoid a penalty for underpayment of estimated tax. It means calculating what part of the penalty is attributed to the change in withholding tables, and requesting a waiver. Some sort of ratio, I suppose--the IRS didn't issue instructions on how to do that.

Oh well, at least in 2009 there was only one rate the whole year!

[HV Ken]

Thanks - I am aware of the FAQs on the IRS site. What I am seeking (and going to create if an existing one cannot already be located) is a USEFUL list of questions/answers on common problems that are going to require an explanation to clients.

For example:

College students who are dependents

Multiple W-2s

MFJ and both has W-2s

etc.

Scenarios that are resulting in a lower refund this year than last year and requiring an explanation for the average uninformed TP and SP who are now wondering "what happened??"

[Janitor Bob]

I just explain that "because of this credit, you had less taxes taken from each paycheck and,thus, more take-home pay each week. However, in some situations, the extra money you received is more than the amount the IRS allowed for, If so, you will owe or receive less of a refund".

[HV Ken]

Thanks JB, but that is not very satisfying to the client sitting across from you with the old "what the *^$%happened to my refund" look (or even worse "what the #@&* do you mean I owe").... LOL

Maybe it's my personality - I would want to explain what happened.... And it appears there are a few scenarios where the what happened explanation can be replicated. Thus a FAQ....

[Janitor Bob]

The problem is that if you try to explain in a concise manner, the client generally gets a glazed look in their eyes. The main problem is that these clients are finding out after the fact when it is too late to do anything about it. I advised many clients last year to increase their withholdings...and I (and they) are thankful for that now.

[kcjenkins]

Well, the easiest way to do that, IME, is to print out the Last Year Comparison pages, and then take a highlighter, and highlight the Total Income, Total withholding, and Refund lines. If they made about the same thing, but had $1000 less withheld, and their refund is $900 less than last year, that is pretty easy to see.

[Jack from Ohio]

"Your Our Congress passed legislation intended to 'stimulate' the economy by giving a tax break to all working citizens. In their haste to pass legislation to be able to say 'We gave you a tax cut' they created a new law that was not clearly explained to the American public, and was not 'proportionally the same' for all working citizens. Therefore, your paychecks have been a bit larger for most of the year (Did you notice that?) and sometimes the credit does not completely replace the paycheck reductions."

"Oh, by the way, BE SURE TO VOTE IN NOVEMBER 2010!"

I do also like KC's suggestion. Shows reality instead of perception.

[HV Ken]

Thanks all - I do like the wording suggestions offered. We always use the comparison pages - this will indeed help explain the mess (er, I mean credit).

[HV Ken]

Finally found a good article on this!

Making Work Pay article