Tax credit backfires for some taxpayers

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Under the Making Work Pay credit from Internal Revenue Service, taxpayers get a tax credit for 2009 and 2010 returns of up to $400 for working individuals and up to $800 for married taxpayers who file jointly. The credit was intended to reduce the amount of federal withholdings to increase workers’ paychecks. If your paycheck was subject to withholding, your employer likely will have applied automated withholding changes. Pay particular attention to your withholdings if you and your spouse both work or if you have two jobs. You might have received too much take-home pay.

Those workers who received too much money in 2009 will owe taxes, notes tax adviser Eva Rosenberg. She adds that taxpayers can avoid this problem next year simply by increasing their withholdings.

Meanwhile, taxpayers must fill out the new Schedule M tax form to get the credit, warns tax adviser Roni Deutch.