Making Work Pay tax credit, Schedule M are missing from 2011 taxes

"Is there a 1040 Schedule M form for 2011? I can't find it anywhere. All the Schedule Ms are for 2010 or before," writes blog reader Jeanie.

She's not alone in asking this question. I've gotten the same inquiry from a lot of readers. So Today's Tax Tip looks at what happened to Schedule M and the Making Work Pay tax credit for which it was created.

The Making Work Pay tax credit is no longer around. That means the Schedule M also is gone.

Making Work Pay was replaced in 2011 by the 2 percentage point cut in the employee payroll withholding tax.

That payroll tax break, after much Congressional angst, was continued through 2012.

History of the expired credit: You might recall that the Marking Work Pay tax credit provided up to $400 per individual worker and up to $800 for a married couple filing a joint return during the 2009 and 2010 tax years.

The credit showed up automatically in most workers' paychecks thanks to changes in the income tax withholding tables. Even better, Making Work Pay was a refundable tax credit, meaning as the name indicates that claiming it could net a refund from the IRS.

The one downside was that although the credit was administered via payroll withholding, taxpayers still had to file Schedule M to make sure that the credit amount was accounted for. That led to a lot of confusion, frustration and messed up tax returns.

Replaced in 2011 by payroll tax holiday: So the president and Congress agreed to replace the Making Work Pay tax credit in 2011 with the temporary payroll tax rate reduction.

This 2 percent cut in the amount withheld from workers' paychecks -- making the employee contribution to Social Security 4.2 percent of pay rather than 6.2 percent (employers still put in their per employee portion at the higher rate) -- was welcomed by many because, in part, it doesn't require extra filing duty by taxpayers. Hence no Schedule M or similar form for 2011 tax returns.

And who among us will look at a tax rate cut and complain?

Well, a few will. Depending on personal financial situations, some folks, generally lower income workers, got a better tax deal with the Making Work Pay credit than the payroll tax rate reduction.

C'est la Congress and the tax code.

The only consolation for those who aren't faring as well with the payroll tax cut is that the only constant when it comes to taxes is change. Who knows what tax laws will be on the books in coming tax years?

You also might find these items of interest:

• Put your payroll tax cut to work
• New 2011 payroll tax tables mean bigger paychecks,
  but the question is 'when?'

Comments

[Michelle West]

This sucks. I was really counting on schedule M this year. Since I'm self employed it cut my taxes in half last year. The payroll tax rate reduction does nothing to help me. Thanks a lot Obama Administration.

[bonesiii]

My taxes just doubled thanks to this, and I'm nowhere near rich. Wonderful how the liberals like Obama always claim to want to raise taxes just on the rich but end up doing the opposite. And in this economy no less, when we're struggling to pay our bills as it is.

At least he makes me hope for change, lol.

And this information was really hard to find. Search and FAQ turned up nothing on the IRS website. Guess they aren't eager to admit it.

[Kay]

Yep, sometimes it takes a search party to find stuff in IRS docs.

[Tommy]

Oops - I take that back.

The 1040 Instructions for 2011 announce the discontinuation of Schedule M. It should have included a bold header "Schedule M" (as they did for Schedule L).

But it was there.

Wonders never cease ...

[Tommy]

Nice explanatory piece on the mysterious disappearance of the 1040 Schedule M (which I used last year). This is the only explanation of its kind I was able to find via Google.

Interestingly, had the IRS wonks been engaged and tuned in, they would have included an abbreviated version of this under "What's New" on page 6 of their whopping 100-page Instruction document for the 1040. As it is, it only mentions that Schedule L is no longer is use. I guess with at least 526 official forms, the IRS can't keep track and inform the tax payers on every change.