Even more Schedule M: NYT says filers confused

Via Yahoo Finance.

I’ve been blogging about the aspect of this if you are an overseas filer. But apparently back home the thing is enough of mess because people aren’t used to claiming a tax credit that works on the 1040 like you paid this money in. I think that’s what confuses people.

You fill out Schedule M. You put your (usually) $400 or $800 amount in Line 63, and you add that with your withholding or other payments.

Algebraically, it’s the same as if the Treasury told you your total tax, and then let you knock $400 (or $800 for couples) off. But most people are not thinking C minus B equals A is the same as A plus B equals C.

With:

A what you really have as a tax (tax figure after the credit)
B the Making Work Pay Credit (Schedule M)
C what your bill is before considering the credit

They should have set it up the usual way: C – B = A.

2 thoughts on “Even more Schedule M: NYT says filers confused

  1. While that might make more sense at first, it wouldn’t work because the credit is refundable. That is, it can bring your total due below zero. Refundable credits are always handled in this manner, because trying to carry negative numbers around on a 1040 would be even worse.

    See how the Earned Income Tax Credit, Additional Child Care Credit, First Time Homebuyer Credit, and other refundable credits are handled in the exact same way.

  2. Fredct, I see your point. It doesn’t fit in with the rest of the back of the 1040 to have one line subtracting a credit, and then the others where people add together all the others.

    In that case, the Service needed to do a lot more education about Making Work Pay. Because the credits you mention are ones that not everybody would be familiar with (except the Southerners who almost always get Earned Income Tax Credit even if they have middle class jobs.)

    People aren’t used to putting down any numbers except their withholding and estimated tax (money that they paid out). If they use the other credits, then, yes, I suppose.

    The problem was then the simple fact that not everyone understood that they were being credited money to make up for the first $6450 of their old-age portion of social security tax (6.2% times $6450 = about $400).

    President Obama cut taxes for something like 95% or 98% of Americans, and the reason few people know this is because the biggest cut got lost in bureaucratic administering.

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