The ever-growing tax code
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Schedule M errors cropping up

This happens every time there's a new form. Taxpayers and tax preparers make an innocent mistake and the tax return gets sent to the IRS' Error Resolution System, or ERS. 

ERS is a computer program used to correct errors and inconsistencies detected by the IRS computer system during processing of tax return information. It's automatic when there are such things as omissions of data the IRS needs to substantiate an item on a return. In the most simple application, the program is looking to make sure that taxpayer info is entered where it should be on a form, either by the filer, his or her tax professional or in some cases when data is input by the IRS.

Once in ERS, return processing gets delayed. And when you're waiting for a refund, that means that money you're expecting back from the IRS is delayed, too.

We're just a month into the 2010 filing season and I'm hearing from some folks that ERS is becoming the home for some Schedule M filings, pushing back processing of the associated tax returns by two to three weeks.

Schedule M is the new form that taxpayers must file to account for the Making Work Pay credit. It's also used by retirees who got a $250 stimulus check last year.

Economic Stimulus Package Tax Rebate Checks Printed

This initial problem apparently is in connection with the retiree payments. On lines 10 and 11, where you're asked to answer "yes" or "no" regarding receipt of those checks, some filers are not following the form's instructions.

For example, if you answer "no" on either line, then don't put any dollar amount on the corresponding line. That's sends the IRS a mixed message that will get your filing automatically kicked to ERS.

And when you do check "yes," make sure you enter the correct amount you received.

Questions about amounts: If you, or a client if you're a tax preparer, doesn't remember whether he or she got the payment, it's relatively easy to double check the payment source.

These checks were sent to retirees by either the Social Security Administration, the Railroad Retirement Board or the Veterans Administration. 

Inquiries to the Social Security Administration can be made by calling the agency toll-free at 1-800-772-1213. The SSA also has a general economic recovery payment Web site.

Veterans Administration questions about stimulus payments can be made toll-free at 1-800-827-1000. The VA also has a general economic recovery payment Web site.

And if your $250 was issued by the Railroad Retirement Board, check out that agency's Web site for more details.

Once you call the appropriate agency, if you discover that there is a discrepancy in the amount you received, the agency then must provide you with a letter confirming the difference.

The bottom line: Read the directions carefully and follow them. If you use tax software, that should help.

And while lines 10 and 11 are the main sticking points right now, there's plenty of room for other errors, especially on a new form.

Schedule M has 14 lines. That's 14 places for mistakes.

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ej keen

I tried to e-file 5 times and each time it was rejected with 0103 error as a reason.
I can't remember if I got the $250. I am on SS disability. So today I tried again by not claiming the $800 and 2010 schedule M. It was accepted. So my plan is to file an amended return later.
I have read several articles which talk about lines 10 & 11 and also some say the form has 14 lines. I followed the instructions (other than the $250 part - which I don't think I got the check) and I did not see but 11 lines not 14.
Last year the IRS corrected my 1040A and added a additional amount to my refund and stated that I would have to file a Schedule M to make a claim next year (which IRS kicks back)
Good Luck!

Pat Nguyen

i dont know what the heck you are talking about!?!? last year I was 6 1/2 mos unemployed, and gainfully employed for 5 mos only (thru diff temporary agencies) , never recieved the $250 stimulus pay from last year. i filed my return at the end of March 2010 owing Uncle Sam some $1400 in total. I paid $500 which is the most i can pay and NOW out of the blue Uncle Sam said i am eligible for $400 Make Work Pay credit Schedule M (never heard of!!) reducing my tax owed of $400.... I Love Uncle Sam and the IRS!!!!! God Bless America!!!!


The writers warning about not entering a dollar amount on Line 10 if you checked "No" makes no sense...if you check "NO", the form TELLS you to
"enter -0- on line 10"...


The good ole IRS is messing up again like they did back when the Earned Income Credit first came out a few years ago. I have several Amish clients who are exempt from Self-Employment taxes. Any Schedule C or Schedule F income is NOT considered Earned Income. I use CCH software, one of the best (if not the best) around. It should be because I pay over $6000 per year for renewal of Federal and State of Indiana updates.
My software figures the returns correctly by putting EXEMPT-FORM 4029 on line 56 of Form 1040. On line 1 of Schedule M, it marks No and puts -0- on line 1a. No amount is entered on line 63 of Form 1040 because these people are NOT entitled to the $400 credit.
I efile all returns.
Apparently the IRS has inferior software because my returns are getting changed once they get to the IRS offices. The IRS has mailed $800 checks to 3 of my clients already. 2 clients got their $800 checks today. More will be getting them in the next few weeks. They are NOT entitled to them.
Is there anyway to stop this madness by the IRS. Since my name is on each return, I am looking bad in the eyes of the IRS. They think that I am messing up. I am NOT.
I do not have the time to call the IRS office everytime this occurs. If the client sends back the $800, they probably will end up getting it back (I have seen this happen in past years).
I have called CCH to see if anyone else has been having this problem. They are not aware of it yet. And there is nothing they can do as CCH is correctly figuring Schedule M. The IRS instructions clearing state "Do not include any other amounts exempt from self-employment tax."
Any advice? I hate to see the IRS continue to throw away money to taxpayers that are not entitled to it but I don't have the time to be on the phone with them to straighten it out or write letters. Why can't the IRS accept my return as filed electronically?


As difficult as it may be, you should just wait. I take it you didn't efile, as your software shouldn't have let you complete your filing without filling out a Schedule M. If it didn't, or you sent in your 1040A on paper, word is that the IRS will fix this oversight for you. It's already getting a lot of errors on this form so it's trying to smooth the way for those that are easy to fix by doing so itself. It's sort of like when you forget to report interest and the IRS gets a 1099 from your bank and just includes it in your income. In that case, you'll get a notice that the IRS "fixed" this for you. If you don't agree with what the IRS did, you can proceed from there. But if it betters your tax result and gets the same figure that you would have if you'd filled out the form, then you won't have to do anything. Worst case scenario: you might have to send in an amended return if your filing makes it through the system without the Schedule M. But for now, it's best to just wait and see what shakes out.


My question is regarding schedule M. I forgot to send a schedule M with my 1040A form. What I need to do?
Thank you



How about this one?

I think foreign earned income is earned income. But the Schedule M instructions force anyone who takes the Foreign Earned Inocme Exclusion (FEIE) to back the amounts out.

The Making Work Pay Credit section of the code (Section 36A) adopts the same definition as Section 32 (Earned Income Credit or EIC), only that it adjusts how the self-employment earnings are treated.

Section 32 says this about earned income:

(A) The term “earned income” means—

(i) wages, salaries, tips, and other employee compensation, but only if such amounts are includible in gross income for the taxable year, plus

(ii) the amount of the taxpayer’s net earnings from self-employment for the taxable year (within the meaning of section 1402 (a)), but such net earnings shall be determined with regard to the deduction allowed to the taxpayer by section 164 (f).

FEIE users cannot take the EIC because it's expressly prohibited in another area of Section 32--not because foreign earned income isn't earned income.

Making Work Pay modifies only the self-employment language:

"EARNED INCOME.—The term ‘earned income’ has the meaning given such term by section 32(c)(2), except that such term shall not include net earnings from self-employment which are not taken into account in computing taxable income."

Even if one quibbles about whether foreign earned income is or isn't "includible" in earned income because it's subsequently excluded, both the Section 32 and Section 36A definitions do not say that SELF-employment income must be disregarded.

Section 36A only says that self-employment income, where it does not factor into taxable income, is disregarded.

Self-employment tax cannot be avoided by filing a Form 2555 and taking FEIE. It's due on any amounts $400 and above unless there's a treaty exempting it. So even by the LEAST favorable reading about foreign earned income, (which would be that Section 32 doesn't include it), the people who have an SE tax liability on overseas self-employment have taxable income on the 1040.

So they should be able to use that earned income to support the credit. But nowhere in the Schedule M material does it allow these taxpayers to include their self-employment earnings that generated taxable income.


Hi Kay,
My question is regarding schedule M, it's so confusing. I have 2009 wages. When I was laid off my 401K was roll over to IRA, I’ve not put any cent from the pension money into my pocket. I think I am eligible for $400 credit. But tax preparer said I can receive only $250 credit. The distribution code on Form 1099-R is G. Can you please advise.
Thank you!!!

jonathan hickman

I wish so much that retirees were given official notice of how much they received, because I'm finding that almost no one knows about this credit at all, and almost no one remembers whether they received the $250. That's a lot of calls to the SSA.

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