Making Work Pay - Schedule M (need direction)

[mekCPA]

I am having difficulty understanding this credit, because what I have read and researched and understand about it is seeming very contradictory to me. I admit I am more of a lurker on this Board, but have been associated with the ATX forums since the first year they started, and have been preparing returns for over 15 years, so even though I do not have a lot of posts, I am a seasoned tax preparer.

I have searched all the posts on this, read the Schedule M instructions, reviewed the Schedule M form, and completed the Earned Income Worksheet. The only thing I have not done is take a CE training course on this. So, if that is what I need, I'd appreciated guidance to one that can get me on the right track if those that respond are NOT able to help. Thanks!

If I just add a Schedule M for a return through ATX, it is calculating a Schedule M credit and carrying it forward to line 63 of the 1040. This is for a Single filer taxpayer whose only income is $58,222 from W-2 wages. I completed the Worksheet in the Schedule M instructions, and the result is that his full $58,222 should go to Schedule M, line 1A. To shorten this a bit, the result of filling out Schedule M is that it shows he is entitled to $400 on line 14 of the Schedule M.

Here's my key confusion on this: I thought that the tax withholding tables were updated to result in less withholding so the taxpayer would receive the credit evenly throughout the year, and thus not be entitled to it in their tax return.

If I allow the Schedule M to flow through to the 1040, he will get a credit of $400, but didn't he already get that $400 and is not entitled to it?

If the answer to that is yes, then that means the ATX programming should recognize that if there is W-2 income, that means the taxpayer already "got" it. But, reading the instructions supports the way the ATX programming is working.

So, that leads me to believe that my understanding that you "got" it during the year and would not get anything else at the end of the year was wrong.

Anyone?

Please help set me straight....but also please be kind! :)

[Janitor Bob]

Due to rate table adjustments, the client had less Federtal tax withheld from his pay throughout the year. The $400.00 credit is to make up for that reduction (Fed government estimated that this reduction in federal withholding would amount to approx. $400.00 for the year). Were it not for the $400.00 credit on the return, the taxpayer would be punished for having less tax withheld...He/she is not receivig the credit twice....They received it once (as an increase in take-home pay throughout the year). The $400.00 credit on the return is so they are not punished for that. What this means to taxpayers is that if the reduction in your Federal tax withholding amounted to $400.00 for the year (all other things equal), you break even...If it was more than $400.00, it will hurt you (increase amount owed/decrease refund)...If that reduction was less than $400.00 for the year, it will help you (increase refund/decrease amount due).

[jainen]

<<I have searched all the posts on this<<

Did you search this post?... My link

[joelgilb]

Jainen,

I had read your post before and you had a good explanation of this credit.

Sometimes I have found the search on this board doesn't always pull all the old threads up though. But it is better since the board has been upgraded.

[mekCPA]

Thank you guys for the help. I guess my problem was me. I thought I remembered when the withholding tables were changed, they said they were giving the workers the money back through withholdings, and that it would reduce the amount of their refunds, or make them owe more come April 15. Anywhoooo, I get it now. Thanks for setting me straight!

[Randall]

To think of it another way, the $400 on line 63 doesn't affect the tax on line 60 (total tax). But rather, it makes up for the lesser amount on line 61 (lesser withholding throughout the year).