I have been getting a number of hits this weekend on the Making Work Pay Credit. I am writing as an overseas American who used TurboTax to calculate my tax and provide me with a 1040 and the related forms.
As you may know, TurboTax does not enable you to file electronically if you live overseas. You have to mail the forms in “the old way”, but you do get until June 15 to do it.
I cannot give you legal or tax advice over the internet, and of course nothing I write here should be construed as such. My own view is that the Schedule M is messed up. I think the IRS misinterpreted the statute creating the Making Work Pay Credit.
So if you are an overseas American, what do you do? I don’t know about you, but I for one filled out what I thought should be the numbers in Schedule M, with a note on the form saying so, and asked for the credit. The least the IRS can do is tell me “no”—I don’t owe otherwise. I specifically refer to the Section 32(c) definition that I had mentioned earlier.
Call me a tax protestor? Hey, I’m very straight-laced. If I read the section wrong, it means Commerce Clearing House, in their tax analysis, also read it wrong. And that the Bush Administration gave out tens of thousands of checks to wage-earning overseas Americans in 2008–using the same definition in the statute from Congress. Is the IRS going to ask for those checks back now, as a “mistake”?
Between the people who have jobs in government and don’t work hard at them (a select few by all means), and the big players (like IBM Japan) making up tax law as they go along, it’s really hard for the ordinary person to get a fair shake. Especially the overseas American who everyone thinks has these sweet deals.
If you are stateside and you are having trouble with the Schedule M form, the general talk on the internet is that the IRS will calculate the credit for you if you send them a note with it. If you made at least $6451 on wages or salary (twice that if you are a couple), you should get the full $400 per earner. You are only supposed to be cut out of the money for rare reasons, including if your “MAGI” (modified adjusted gross income) is a high figure like $75,000 (single) or $150,000 (couple).
If you had your withholding reduced last year, that has nothing to do with the credit.
The administration of this thing is just a nightmare. It’s a shame, because it is everyone’s Stimulus Money and one of the nicer things about having Obama in there.
[Footnote: if your “foreign earned income” is not “includible” in your gross income, why have people list it on Line 7 of the 1040? Wouldn’t you just not file a tax form like so many overseas Americans don’t do anyway? They think the $91,400 exemption is the same as the kind of exemption you get for employer-provided benefits like health care. You never see what your health insurance policy costs your employer, because it’s “not gross income”. But foreign earned income is gross income. You simply get to take the exclusion on Line 21. It is includible in gross income, and it is excludible in gross income. Both.]