Taxpayers need to know about Schedule M

Making Work Pay credit complicates returns

March 21, 2010|By Eileen Ambrose | eileen.ambrose@baltsun.com

Donald Dobrow of Baltimore is a government accountant who has always prepared his own paper tax return.

"I don't enjoy doing it, but I'm able to do it," the 63-year-old says. "Plus, it's not that complicated."

But Dobrow was thrown for a loop when he read that taxpayers must fill out a new form, Schedule M, if they had received the Making Work Pay credit last year.

He wasn't exactly sure what the credit was and whether Schedule M would become an annual chore.

It's not so surprising that Dobrow wasn't familiar with the Making Work Pay credit. It was part of President Barack Obama's economic stimulus package that was signed into law more than a year ago. The credit basically put up to $400 extra into a worker's paychecks - $800 for joint filers - by lowering the amount the employer withheld for taxes. For some, it meant $10 or so more each paycheck - something easily overlooked and spent.

The full credit starts to phase out once income exceeds $75,000 for singles and $150,000 for joint filers.

Enter Schedule M. Even if you got the use of the money in paychecks last year, you still need to fill out Schedule M if filing Form 1040 or 1040A to formally claim the credit. The 1040EZ has a work sheet on the back to figure the credit. (Taxpayers who use software to file electronically will be automatically directed to fill out Schedule M.)

But Schedule M isn't just for the Making Work Pay credit. Certain retirees will have to fill it out, too. Here's where it gets complicated.

To make up for the fact that retirees wouldn't get the Making Work Pay credit because they don't get a paycheck, the stimulus package created a one-time $250 payment. This Economic Recovery Payment was disbursed through various agencies to those who receive Social Security, Supplemental Security Income, veterans' or railroad retirement benefits. If you received the $250 and don't have income from a job, you don't have to fill out Schedule M, says IRS spokesman Eric Smith.

But some people work and also collect Social Security benefits, so they received both the $250 and $400. They must fill out Schedule M to make sure they get the proper amount, Smith said.

Additionally, some retirees who worked for the government don't get Social Security benefits, so they never received their $250. They can claim that money by filling out Schedule M, Smith says.

"We are getting quite a few errors" on Schedule M, Smith says. The IRS is trying to catch them so filers get the money they deserve.

But mistakes can delay the processing of a return, or even lead to its rejection.

Some older workers have had returns rejected, for example, when they filed returns that said they didn't receive the $250 while government records showed that they did. The confusion could be because Social Security might have directly deposited the $250 in workers' bank accounts and they didn't notice, says Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants.

Older workers not sure if they got the Economy Recovery Payment can check with the IRS at 866-234-2942.

And for Dobrow's other question about whether Schedule M will be an annual event? The Making Work Pay credit continues through this year. So you can count on filling it out at least one more time.

An earlier version of this story misstated the income limits at which the credit begins to phase out. The Baltimore Sun regrets the error.

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