What Is a Schedule M IRS form?
If you earn money from working during the year, you may be eligible to claim the making work pay tax credit. For the 2010 tax year, the credit allows taxpayers to reduce their tax bill up to $400, or $800 for those filing joint returns. Before you can take the credit, the IRS requires you to prepare a Schedule M and attach it to your federal return.
To qualify to the making work pay tax credit, you must have earnings from work-related activities during the year, such as employment. If you are self-employed or only receive investment income such as interest and dividends, you will not qualify. Additionally, your Adjusted Gross Income (AGI), which is your gross wages minus specific IRS adjustments to income such as student loan interest and the IRA contribution deduction, must not be $95,000 or more, or $190,000 or more if filing a joint return.
If you satisfy these requirements, the credit is only available if another taxpayer cannot claim you as a dependent on their own tax return.
During 2010, the federal government provided some taxpayers with a $250 economic recovery payment. If you receive this payment during the year, you must reduce your allowable credit amount by $250. When you prepare the Schedule M, there is a line item where you can reduce your credit for this payment.
If you file a joint return and only one spouse receives the economic payment, you still must reduce your joint credit by $250. For expatriates who take advantage of the foreign earned income exclusion on either Form 2555 or 2555EZ, for purposes of the credit, you must increase your AGI by the exclusion you claim. This can effectively reduce your credit amount or make you ineligible to claim it.
The Schedule M is a one-page form that requires you to prepare a simple calculation. In 2010, if your gross wages are more than $6,451, or $12,903 when filing a joint return, then you first subtract $75,000 from your AGI. If your AGI exceeds $75,000, then you multiply the difference by 2 percent and subtract the result from the relevant maximum credit amount of $400 or $800. The result is the credit you can claim on Schedule M; however, if it’s zero or less, you will not qualify for a credit. Furthermore, you reduce your credit by any economic recovery payment you receive during the year after performing this calculation.
After calculating your credit amount on Schedule M, you must transfer the credit to your personal tax return. Since this credit offers a dollar-for-dollar reduction of your tax bill, subtract it directly from the amount of income tax you calculate at the end of the return. Before you e-file or mail your return, make sure you’ve attached the Schedule M to it; otherwise, the IRS may disallow your credit or delay sending your refund.
If you use TurboTax, it can automatically calculate the making work pay credit and make sure you’ve received everything you’re entitled to, based on your W-2 and other tax information.