Taxing Times: The Make Work Pay credit continues in 2010

January 20th, 2010 | by Admin |

Don’t miss these top stories:

Your guide to the top online tax-prep sites
New rules for Haiti donations
12 traps to avoid on Roth conversions

The small dollar amounts make it easy to forget that the Making Work Pay tax credit has been showing up in U.S. workers’ paychecks since about April 2009. On Friday, the IRS came out with a reminder of things to keep in mind about the tax break, which provides a refundable credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns.

The credit continues in 2010, but “you may notice that your paychecks are slightly lower than in 2009,” the IRS said. “Most of the credit for wage earners is distributed through reduced withholding. The credit — which was spread out over nine months last year — is being spread over 12 months this year. A little less credit in each paycheck means slightly higher withholding.”

If you didn’t get the full amount to which you’re entitled, the IRS said you can claim any remaining credit when you file your return.

“The amount of the credit actually received during 2009 in the form of reduced withholding will be reported on your 2009 tax return,” the IRS said. “Taxpayers who do not have taxes withheld by an employer during the year can claim the credit on their 2009 tax return filed in 2010.” (Most taxpayers will use Schedule M to figure out if they’re owed any more on the credit.)

Keep in mind that some people may get an unexpected tax bill from the credit. See my TaxWatch story from April 2009.

Are you ready for another tax season? Don’t miss Eva Rosenberg’s TaxWatch today for a comparison of five of the top online tax-prep sites. You’ll want to choose one soon, if you’re not hiring a tax preparer. Unless, of course, you’re a pencil-and-paper type?

— Andrea Coombes, assistant personal finance editor

Your guide to five top online tax-prep sites

You’re better off filing your tax return electronically rather than on paper in almost all instances. You’ll make fewer math and input errors, your taxpayer identification numbers are verified, and refunds come faster. The trick is to find the right software or online service to prepare your tax return. TaxMama is here to help with a comparison of five of the most popular sites.
See TaxWatch.

New rules for Haiti donations

Did you give to a Haiti relief effort or plan to? Then don’t file your taxes yet. You soon might be able to deduct that 2010 donation on your 2009 tax return. The top Democrat and Republican on the House tax-writing Ways and Means Committee have worked out a bill that will let you claim on 2009 taxes any contributions to Haiti earthquake recovery efforts that are made between Jan. 12, the day of the disaster, and Feb. 28.
See full story.

12 traps to avoid when converting to a Roth

If the high number of phone calls to mutual-fund firms and the comments posted to articles on the subject are any sign, savers are showing a lot of interest in converting their traditional IRAs into Roth IRAs, but they should be wary about acting on that desire too hastily because some expensive traps are waiting for the ill-informed.
See Robert Powell.

Financial News Headlines