File 'M' For Money: Schedule M Not Widely Known, But Tops List for Tax Advice

Schedule M, an IRS tax credit in its second year as part of President Obama’s stimulus package, could mean refunds or lower tax bills for millions filing 2010 returns that are due April 18.

Yet many taxpayers are unaware of it.

As a loan broker, Carrie Eileen of Pleasanton is no stranger to taxes.

But Schedule M? She'd never heard of it.

"I'm going to have to call my tax guy," she said. 

“The Making Work Pay credit was one of the most overlooked credits and deductions last year,” said Tina Gonderman-Lind, district manager for the two H&R Block  offices in Pleasanton. “The credit impacted close to 95 percent of all taxpayers.”

Authorized in the American Recovery and Reinvestment Act of 2009, the Making Work Pay Tax Credit offers up to $400 for individuals or $800 for couples filing jointly.

"I would think something that affected that high of a percentage (of taxpayers) would have had more advertising or coverage on it," Eileen said.

Making Work Pay is “employer-related,” which added to taxpayers' confusion, Gonderman-Lind said. Workers may have received money from it without knowing it.

“The credit was prepaid to most people through a decrease in withholding,” she said.

Employers nationwide were to reduce amounts withheld from employees’ wages, per the 2009 federal stimulus guidelines. Lawmakers hoped boosting the public's paychecks would boost the economy.

But filing Schedule M is crucial to taxpayers regardless if their employers adjusted their withholding, Gonderman-Lind added.

If employers did not pass along the refund, eligible taxpayers collect through Schedule M filings.

For workers who did see the extra cash in their paychecks, Schedule M filings are key to clarifying that with the IRS.

“You don’t want to overpay,” Gonderman-Lind said.   

Couples filing jointly whose earned income is $12,903 or more qualify for the $800 maximum credit, even if the income is earned by one spouse, according to the IRS. Individual taxpayers qualify for the $400 maximum if their earned income is more than $6,450.

Eligibility and income limits for the refund do apply, however. Joint filers with taxable income of $190,000 or more, and individuals with $95,000 or more, are not eligible, according to the IRS. Individuals who are declared dependents also do not qualify.

Eileen learned from her accountant that she is ineligible for the credit because her 2010 income was too high.

And her 19-year-old daughter, who earned $7,000 at part-time jobs as a college student, is not a refund candidate either, because she is a dependent. 

"While it did not fit my situation, I had never heard of it,"  Eileen said.

"Many people that may file their own taxes would never even know about it."

Schedule M is used with Form 1040 and Form 1040A.

Making Work Pay credits may apply to the self-employed, as well, if they qualify and report operating gains for 2010, Gonderman-Lind said.

For taxpayers who submitted 2010 returns and neglected the Schedule M, it is not too late. Gonderman-Lind recommends filing an amended return.

Gonderman-Lind offers additional advice to taxpayers.

* An extension to file is not an extension to pay. Taxpayers are often unaware that filing tax extensions may result  in additional interest and fines, she said.

* Taxpayers who are unable to pay still should file returns. "The failure-to-file penalty is 10 times that of the failure-to-pay penalty."

“File the return and pay what you can,” Gonderman-Lind said. “Then set up an installment agreement with the IRS."

Tax preparers can assist filers with that, or taxpayers can contact the IRS at its web site.