Making Work Pay Tax Credit Leads to Confusion

The tax credit scheme Making Work Pay is a part of the American Recovery and Reinvestment Act of 2009, signed into law by President Obama in February last year.

This scheme affects 95% of the American population and has been undertaken by the Obama government in an effort to credit a few extra dollars in to the accounts of Americans to increase their disposable income. This will lead to a multiplier effect, which is expected to infuse as much as $65 billion in the economy and act as yet another stimulus for economic recovery.

The tax credit was announced as a part of the February 2009 stimulus package, which stated that the working taxpayers would get a tax credit in 2009 and 2010 up to a maximum of $400 and married couples up to $800. The benefits are to be disbursed in the paychecks, which will increase the take home salary slightly.

However, the Schedule M form needs to be filed for claiming the ‘Making Work Pay’ credit. This additional step in filing returns has caused a lot of confusion among taxpayers recently. It is important to remember that only those people who work and receive paychecks are eligible for this credit. Since retirees do not receive paychecks, so they are entitled to only the onetime stimulus payment of social security benefits up to $250. However, no tax credit will be given to people who do not work and therefore do not pay tax.

They will also not qualify as a retiree or disabled person to get any credit. To ensure compliance to these policies for tax credit disbursement and avoid instances of wrongly paid credits to ineligible people, filing the Schedule M has been made mandatory. The retirees who have not received the social security benefits can now fill the Schedule M and claim their $250 credit.

I.R.S officials have reported a rise in refunds this year compared to last year in spite of the confusions claimed by taxpayers relating to payout of a variety of other tax credits. The unfamiliarity with the process has led to large amount of errors, excessive paperwork and delayed returns. Many tax payers have not even filed the Schedule M.

The best way to avoid errors such as these while filing returns is by opting for electronic filing. The e-filing process can throw up any errors that you may be making during the filing process.

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