If you participate in a business as a sole proprietor, shareholder in an S corporation, partner in a Partnership, or member of an LLC, you may qualify for a new Income Tax Credit on your 2009 income tax return even if you did not have W-2 income.

This special tax credit, the "Making Work Pay Credit",  offers taxpayers an opportunity to lower their tax bill or increase their refunds this filing season. The credit is claimed on new Schedule M, "Making Work Pay and Government Retiree Credits."

Note that this article does not include a discussion of the Government Retiree Credit, but if you are a government retiree and want further information you can find details on the IRS website.

This credit is refundable –– meaning that those eligible can get them even if they owe no tax.

Making Work Pay Credit

Most eligible taxpayers qualify for the maximum making work pay credit of $800 for a married couple filing a joint return or $400 for other taxpayers. The credit equals 6.2 percent of earned income up to the maximum amount. Thus, any eligible couple whose earned income is $12,903 or more qualifies for the $800 maximum credit. Other taxpayers qualify for the $400 maximum if their earned income is $6,451 or more.

For most workers, the credit is based on the taxable wages reported to them on Forms W-2. Self-employed individuals figure the credit using the net profit or loss they receive from a business or farm. This includes income from Schedule C (sole proprietorships) and Schedule K (S Corporations, partnerships and LLC's.)  More information for special situations, such as if your entity has net business loss,  can be found in the instructions for Schedule M.

Some taxpayers, including joint filers whose modified adjusted gross income is $190,00 or more,  are not eligible for the making work pay credit. The credit is reduced for joint filers with modified adjusted gross incomes between $150,000 and $190,000.

All eligible taxpayers must file Schedule M to claim the making work pay credit.

To see the complete IRS news release see “ FS-2010-07, January 2010”  and  on the IRS website       www.irs.gov