The form uses “earned income” (to be described in the instructions), which apparently includes nontaxable combat pay, to calculate the Making Work Pay Credit. The credit is based on 6.2% of “earned income” up to a maximum of $400 or $800 if married filing jointly.
The form also calculates any “phase-out” of the credit based on excess AGI.
If taxpayer(s) received an “Economic Recovery Payment” (ERP) check of $250 (each) in 2009 this payment is subtracted from the Making Work Pay Credit.
The new Schedule M is also used to report the $250 “Economic Recovery Payment” (ERP) to which a person who receives “a pension of annuity in 2009 for services performed as an employee of the US Government or any US state or local government from work not covered by social security” is entitled.
The total allowable credit is carried forward to Line 63 on the 2009 Form 1040, Line 40 of the 2009 Form 1040A, or Line 60 of the 2009 Form 1040NR.
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