Making Work Pay Credit

I used a tax prep software that told me that  I was entitled to a $400 refund due to the Making Work Pay tax credit using Schedule M.  When I look at it myself I don't think I am eligible because all of my money was earned in the UK and it all is counted under the Foreign Earned Income Exclusion, so my taxable income is reported as $0.00 overall on the form 1040.  Anyone else run into this?  I have tried e-mailing the IRS and haven't heard back.  I know I have until June, but would just like to get it done.

As far as I have found, there is no exclusion for living abroad, so I think you can take it. I got it last year and when I did the calculation this year it seems to give it to me as well. It does take into account the 2555 or 2555-EZ into its calculation, so I don't see why not.

Actually, the IRS directs you to subtract your foreign earned income exclusion when figuring the amount of your wages that are considered as earned income for the making work pay credit. See the Schedule M instructions page: http://www.irs.gov/pub/irs-pdf/i1040sm.pdf.

So if you excluded all of your wages, you would not ordinarily get to take the making work pay credit. You might qualify if there is a part of your wages that is not excluded - i.e. if you use the foreign tax credit instead on all or part of your earned income.

No, it tells you to enter it, and it goes into the calculation. I followed the instructions to the letter and it still let me have the credit.

I followed the instructions, had only UK income and did not get the credit.  It was excluded somehow, but God if I can remember how.

If you calculate the credit yourself by using the worksheet on the third page of the Schedule M instructions (posted earlier), you'll see the credit is based on 6.2% of your earnings, up to $400. When calculating that earnings figure the worksheet directs you to subtract any amount excluded on Form 2555/2555-EZ. I didn't make this up, it is there in the official IRS guidance. If your tax software is not doing this it is getting the calculation wrong.

If your total income including 2555/2555EZ exceeds $75k single/$150k married then your credit is reduced by 2% of the excess amount. So it does come into the calculation of the credit, but it can only hurt you!

I can say when I did my taxes using H&R Block the Form 2555 amount was subtracted from my earnings, as the IRS directs. Perhaps other software is not following the instructions.

Oh wait, I know what happened. I have some non-excludable income that went in but probably shouldn't do.

My confusion came from the Schedule M and instructions.  When I look at the Earned Income Worksheet for line 1a it tells me I should enter zero on line 1a and following that through it does not allow me to claim it, but my tax software was entering my UK earnings on line 1a and not deducting the foreign earned income exclusion. 

I think I will trust my own calculation over the software's.  Darn.  I wouldn't say no to a free $400 right now!

Well it may be less than $400 if you end up paying UK tax on it ... but it is still good.