Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

Making Work Pay and Government Retiree Credits

There is a new credit on the Form 1040 this year – computed on the new Schedule M (see prior post on Schedule L and Schedule M).  This credit is named the Making Work Pay and Government Retiree Credit and will be located on your 2009 Form 1040 on line 63.  This credit came about in the American Recovery and Reinvestment Act (ARRA) of 2009.

The gist of the credit is that you were to get a reduced amount of withholding during 2009, which put the credit in your pocket right away during the year.  The percentage of the credit coincides with the social security tax percentage of 6.2%.  The maximum amount of the credit is $400 ($800 married filing jointly).

New tax law, similar to many other new and shiny things, is not always as it seems.  First, there is an adjusted gross income limitation on this credit ($75,000 single, $150,000 married filing joint).  That means that not every working family will actually be able to receive the credit.  However, the withholding tables do not take your adjusted gross income into consideration when the amount withheld as federal income tax from your gross pay is calculated.

This can best be shown with an example.  If you have a married couple and the husband has an annual salary of $70,000, then his federal withholding was reduced by the 6.2%, in accordance with the law.  However, his wife has an annual salary of $125,000.  Her salary is not reduced with the new withholding tables, and, as a couple filing joint, they are not entitled to the $800 credit. So – his withholding was reduced, putting more money in his pocket.  But there is a potential for an underpayment, since the husband had less money withheld from his pay.

Now that we have worked through the new law for those individuals that receive a paycheck, let’s tackle the individuals that receive social security.  Since there would not be a regular paycheck, ARRA gave each retiree a one time $250 payment.  This payment would have been sent earlier in 2009.

Finally, if you are working and receiving social security benefits, you are not entitled to both of these credits.  The Making Work Pay Credit will be reduced by the amount of the Government Retiree Credit received.

And that, tax filer, is the reason that you will need to prepare a Schedule M for 2009.  And 2010.  The credit is set to expire after December 31, 2010.

By Donna H. Laubscher, CPA


  1. Julie says:

    I’m a little confused as to what figure I use on line 63 of Form 1040. I am single. Do I use the $ figure of federal income tax withheld from 2010 on line 63?… to be added to the $ figure of federal income tax withheld from 2011? making the total larger to offset the amount to apply against the total tax amount owed?

    • admin says:

      The amount that should appear on Line 63 of your 2011 Form 1040 is only the amount of estimated tax payments that you made for the 2011 tax year. These are payments that would have been made using Form 1040-ES and were due on April 15, 2011, June 15, 2011, September 15, 2011 and January 17, 2012. The amount on line 62 that was withheld from any Forms W-2 or 1099 is only added into the total on Line 72.

      Donna Laubscher, CPA

  2. admin says:

    No, the credit amount that you received on your 2009 income tax return is not taxable income to you in 2010. Line 10 of Form 1040 is to report taxable refunds of state and local income taxes, not federal.

    Donna Laubscher, CPA

  3. Farmer Tiger says:

    Is “Work Pay Credit” taxable?
    I mean: should I report the “Work Pay Credit” of 2009 as taxable credit on Line 10 of 2010?
    Thanks a lot.

  4. My wife made $7243 this past year, so normally she would qualify for the making work pay credit of $400 on schedule M. Since we are married filing jointly, we are able to claim a credit of $449 (6.2% x $7243), the lesser of that amount or $800 if filing jointly. I am a retired civil servant with no other earned income and therefore am entitled to a $250 retiree credit on schedule M. Why is my $250 credit subtracted from the $449 leaving her basically a making work pay credit of only $199, and a total credit of $449 for the two of us? Shouldn’t she receive a maximum credit on her income of $400 and I receive a $250 credit for a total of $650 between us? Am I missing something here? If we were to file married seperate returns, she would get a $400 credit and I would get A $250 credit. Please explain if I’m missing something. Thanks

    • admin says:

      Unfortunately, the way that the Schedule M is calculated makes it appear that you are indeed only receiving the $199. However, because of the way that the law was written, the additional amount of the credit should have been received during the 2009 calendar year in the form of a lesser amount of withholding from each paycheck your wife received, resulting in a higher net paycheck.

      Another way to look at it is that your wife was entitled to a $400 credit, part of which was received in the amount of higher paychecks through 2009, and you are only eligible for a $250 credit, which you already received.

      As far as the difference between married filing separate and married filing jointly, without looking at all of your information, it is not really possible for me to accurately comment. It is indeed possible that the credits may be higher under married filing separately. It is also possible that the tax liability is also higher, resulting in a net overall situation that may or may not be beneficial. There are various instances where one filing status is more beneficial than another, but all the information needs to be accumulated to make the comparison between them.

      Donna Laubscher, CPA