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 Barack Obama’s stimulus package, could mean refunds or lower tax bills for millions filing 2010 returns.

Yet many taxpayers are unaware of it.

Eileen Walsh, 54, of Livermore, works as a security officer and squarely meets the refund criteria. 

But Schedule M?

"I never heard of it," 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 Livermore's two H&R Block offices. “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.

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

“The credit was pre-paid 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 entirely 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. 

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

Making Work Pay credits apply to the self-employed, as well, if they 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.

Local resident Walsh relied on a tax service to prepare her returns this year. Flipping through her records, she was relieved to discover her accountant included Schedule M.

"I mentioned Schedule M to my co-worker, who does her own taxes," Walsh said. "She didn't know about it either. I suspect most people doing their own taxes don't." 

Gonderman-Lind offers additional advice for 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 owed to the IRS, she said.
• Taxpayers who are unable to pay should still file returns.

“The failure-to-file penalty is 10 times that of the failure-to-pay penalty,“ she explained.  

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

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