Millions of Americans hand over extra money to the IRS because they overlook deductions hiding in the complicated U.S. tax code. Image: hackerfriendly/Flickr

It’s easy to overlook tax deductions buried deep within the thicket of the U.S. tax code. Millions of Americans overpay their taxes every year by overlooking tax deductions. But you don’t have to spend hundreds of dollars on an accountant to find tax deductible expenses.

The incredible value of tax deductions

About 46 million U.S. taxpayers who choose to itemize their tax deductions prevent nearly $1 trillion dollars from falling into the hands of the government. About 85 million taxpayers use standard deductions to protect another $700 billion. Most people who use standard deductions are probably cheating themselves out of money that’s there for the taking in the U.S. tax code. Even those who take advantage of tax deductions such as interest paid on mortgages and student loans, real estate property taxes and state sales taxes could be giving the government extra money.

Career-related tax deductions

With the U.S. job market as bad as it has been lately, one of the most commonly overlooked tax deductions is job hunting expenses. For job hunters with total itemized deductions greater than 2 percent of adjusted gross income, job hunting expenses can be deducted. However, the job search must be in the same industry as the taxpayer’s previous position. First-time job hunters can’t deduct job hunting expenses, but if they move more than 50 miles to take that first job, moving expenses can be deducted, including 14.5 cents per mile. For taxpayers going back to school to change careers, $2,500 of college tuition can be claimed as a tax credit. While a tax deduction lowers taxable income, a tax credit lowers the taxes owed. Single taxpayers making $80,000 or less or married couples making $160,000 or less are eligible for the tuition tax credit.

More overlooked tax deductions

Taxpayers often overlook tax deductions related to home and family. As more Americans take care of their elderly parents, they become eligible for a substantial tax deduction. If they provide more than half their parent’s financial support and that assistance costs them more than 7.5 percent of adjusted gross income, they qualify for a dependent parent deduction. U.S. automakers have been offering a lot of incentives, and for those who bought a new vehicle in 2010 and earned $135,000 or less, the sales tax can be deducted, even without itemizing deductions. Green energy tax credits worth up to $1,500 are available for taxpayers who invested in energy-efficient home improvements. Finally, don’t overlook the Making Work Pay tax credit. The 2010 tax year is the last chance to take advantage of the Making Work Pay tax credit. This tax credit is often taken care of by employers who withhold less, but singles can take $400 off their tax bill and married couples can save $800 by completing Schedule M along with the 1040 form.

Sources

MSN Money

U.S. News and World Report

ABC News

The Making Work Pay tax credit is not receiving much attention on Capitol Hill. Image: Flickr / willpalmer / CC-BY

After two years in effect, the Making Work Pay tax credit is due to expire. Unless Congress takes action, most middle-class taxpayers will see a reduction in their paychecks. The Making Work Pay tax credit will likely expire amongst debate over the Bush tax cuts.

The effect of Making Work Pay

The American Recovery and Reinvestment Act of 2009 included the Making Work Pay tax credit. This credit cut payroll taxes, adding about $33 a month to the average single person’s paycheck. This credit takes full effect for anyone making $75,000 or less, with partial credit for those earning more. About 90 percent of U.S. workers received some benefit from the Making Work Pay credit.

The expiration of the Making Work Pay credit

The Making Work Pay credit was designed to expire at the end of 2010. This credit was capped at $400 for anyone filing as a single person and $800 for joint filers. The money came in a slight increase in paychecks, rather than a one-time increase in tax returns. When the tax credit expires, deductions out of paychecks will increase, making a no fax payday loan tougher to get for some workers. There are currently two proposals to extend the Making Work Pay credit in the works, but none have been presented.

The tax cut debate

The debate over extending the Making Work Pay credit is not very loud. During the lame-duck Congress, the Bush tax cuts are most likely to be the center of the discussion. The major debate in Congress will likely be tax cuts for the 5 to 6 percent of Americans making $250,000 per year or more. If the Making Work Pay tax cut is extended, it will cost about $60 billion per year. Critics claim that the incremental nature of Making Work Pay reduces its impact. Proponents say that the extra $33 a month can have a huge impact for low-income families. How about you? Did you notice the Making work Pay credit in your paycheck?

Sources:

News Advance
CNN.com

Sure, you were happy to get extra money back with Making Work Pay, but make sure you fill out Schedule M to receive credit for that tax credit! (Photo: ThinkStock)

Tax day is almost upon us, and many taxpayers are wondering what Schedule M is and whether they need to fill it out on their tax return. It relates to the Making Work Pay tax credit, where qualifying individual filers receive $400 and qualified couples receive $800. So that people could get that money as soon as possible, payroll withholding tables were adjusted to reduce the amount of federal taxes taken out of paychecks, says MSN MoneyCentral. Unfortunately, the few extra dollars per paycheck was small enough (not quite same day loans) to where many workers didn’t notice. Extra spending to stimulate the economy didn’t occur as politicians had hoped, and there also was some confusion regarding Schedule M as it relates to the Making Work Pay stimulus.

Taxpayers aren’t sure if they need to complete Schedule M

This is very important, says MoneyCentral: If you received the Making Work Pay tax credit, you must fill out Schedule M. Essentially, the Making Work Pay tax credit isn’t credited to you until you claim it on your return. This is something more than 4 million 2009 tax filers so far have gotten wrong, according to the IRS. They are fixing the mistake, which will slow down the overall process of reviewing returns. This in turn means that it will take longer for people to receive their refunds.

Where Schedule M applies on your tax return

Look at page 2 of your 1040 form. In the “payments” section (lines 61 through 71), the Making Work Pay tax credit amount belongs on line 63. It’s in a similar place on the 1040A form. On the 1040-EZ, you figure Schedule M on the back of the form, using the worksheet. Filers calculate the Making Work Pay tax credit amount on Schedule M and transfer the result to line 63, says MoneyCentral. It isn’t anything like payday loans, but it is something that was a welcome sight to millions of employed American taxpayers in need of relief during the recession.

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Making Work Pay will cost millions of American taxpayers anywhere from $250 to $400 this coming tax season. These people may need payday loans. (Photo: flickr.com)

Were you one of those people who were elated to hear about the “Making Work Pay” tax break that President Obama gifted to the American people? Truly, it did benefit many people. Workers were paid back to the tune of 6.2 percent of their earned income, with a max of $400 for individuals and $800 for married couples filing jointly. Those singles making more than $95,000 and couples making more than $190,000 weren’t eligible, but then they didn’t have to be.

With that refund, those eligible didn’t have to resort to short term loan options like payday loans. However, for millions more, perhaps they’ll be wishing they had gotten a payday loan instead of having to pay back hundreds of dollars. And don’t even get me started on the farce that is tax refund loans (aka refund anticipation loans).

15-Million-Plus Owe Uncle Barack $250 Apiece

And that’s just the retirees!

That’s what the Associated Press is reporting as consumers are attempting to dig their way out of the blight of the recession. People are looking forward to some debt relief without the pain of tax refund loans, and in this instance, perhaps even without payday loans. But according to the IRS, many of people are going to be disappointed. What goes around comes around … and bites you in the hindquarters.

Who Will Owe Money Because of Making Work Pay?

We’re talking those with more than one job and married couples where both parties work (that’s a big one). These groups will have to repay $400, which could mean a smaller refund or even a tax bill. Even those in their golden years with rusty old Social Security and taxable wages will not have the lamb’s blood painted on their door. Their Obama giveback will be $250. Pony up, America!

Ah, the Memories of Magic Refunds and High Hopes

Individuals felt up to $400 worth of love for Making Work Pay, while couples doubled their pleasure up to $800. It was all part of the revolutionary stimulus package back in February of 2009. It pumped paychecks full of chicken broth, which most consumers promptly spent. If you spent it and you aren’t sure if you’re having enough withheld from your paycheck, click here for a handy calculator. If you don’t like what you find, file a new W-4… fast, because the 2009 tax year is almost over! The IRS has known about this problem since last spring, and they’ve been urging people to check their withholding amount since then.

Picking Up the Pieces of a Shattered Stimulus Plan

Payday loans may be short-term glue for what ails your budget, but this whole stimulus thing replaced pro-mise with pro-blems. For instance, a single worker with two jobs could get a $400 Obama-boost for each job, even though he’s only eligible for one $400 buff. That will have to be paid back. Similarly, with married couples where both work, if they combine to earn over $13,000, they enter a new tax bracket. There’s a total $1,200 boost instead of the $800 that should have been allowed. That’s $400 to pay back, friends. The Census Bureau says that 55 percent of all married couples in America are in this boat. That’s 33 million couples with 400 reasons to love Making Work Pay.

Wait, Don’t Forget Victimized Students

If they’re single and work part-time, they were eligible for the $400 credit. But, all my payday loans and garters, if their parents claimed them as a dependent, they didn’t qualify! In this case, Making Work Pay means paying back that $400.

Retirees Making Work Pay for Obama

More than 50 million Social Security recipients got $250 lump sum payments each, all thanks to Making Work Pay. But they were already receiving the credit for being employed, so the $250 refund will have to be paid back. It keeps getting better for American citizens.

Don’t Make the Same Mistakes in 2010

The Making Work Pay credit is still available, so tread cautiously. You certainly don’t want to create the same problem for yourself again. The average refund was about $2,800, so this Making Work Pay giveback will not result in a bill for many. However, some won’t be quite so lucky.

Iowa Sen. Chuck “Seppuku” Grassley of Iowa took a break from his more breathless moments to nail Making Work Pay on the head. It was “another unfortunate example of what can happen when Congress and the White House rush through legislation like the stimulus without thinking through the consequences,” he told the AP.

(Insert forehead slap and “I shoulda had a payday loan!” here)

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