Q: What is the “Making Work Pay Credit”?

A: This tax credit offers millions of taxpayers the opportunity to lower their tax bills or increase refunds on their 2010 federal tax returns. The Making Work Pay Credit provision provides a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing a joint return. This credit is available whether you use Form 1040 or Form 1040A, but you must use Schedule M to claim the Making Work Pay Credit.

Q: Who is eligible for the Making Work Pay Credit?

A: Generally, individual taxpayers qualify for the $400 maximum if their earned income is $6,451 or more. Married couples filing a joint return qualify for the $800 maximum credit if their earned income is $12,903 or more, even if the income is earned entirely by one spouse.

Taxpayers who are not eligible for the Making Work Pay Credit include:

• joint filers whose modified adjusted gross income (MAGI) is $190,000 or more;

• individual taxpayers whose MAGI is $95,000 or more;

• anyone who can be claimed as a dependent on someone else’s return;

• a taxpayer who does not have a valid Social Security number;

• joint filers, if neither spouse has a valid Social Security number;

• nonresident aliens.

Other taxpayers qualify for the credit, but must reduce the amount of credit they claim. These include:

• joint filers whose MAGI is more than $150,000 but less than $190,000;

• individual taxpayers whose MAGI is more than $75,000 but less than $95,000.

Q: If I’m self-employed, can I still qualify for the credit?

A: Yes, assuming you are otherwise eligible.

Q: If I don’t owe any taxes, can I still get the credit?

A: Yes. The credit is refundable, meaning that you can get credit even if you owe no tax.

Q: Does everyone have to file a Schedule M to claim the credit?

A: Yes, although many employers have arranged for their employees to get the benefit of the credit through larger paychecks, reflecting a reduced federal income tax withholding during 2010.

Q: What income figures are used to calculate the Making Work Pay Credit?

A: For most workers, the credit is based on the taxable wages reported to them on Forms W-2.

Self-employed individuals figure the credit using the net profit or loss they receive from a business or farm. Additional calculations are necessary for some taxpayers, including those who have net business losses or foreign earned income.

More information, including a worksheet, can be found in the instructions for Schedule M. Go to http://www.irs.gov and type “Schedule M instructions” in the search box at the top right of the page.

“Law You Can Use” is prepared by the Ohio State Bar Association (OSBA). It was provided by the Internal Revenue Service.