Disclaimer: This is NOT tax advice. It's merely explaining the mechanics in case anyone is confused. There was a lengthy discussion on this in the thread about the deductibility of seat license fees, so I thought I would clarify here. Seeking out a professional tax adviser is highly recommended if you have more pointed questions.
So must of us received a Making Work Pay Credit of $400 ($800 if married) through less withholding in our paychecks throughout the year. The government altered the withholding tax tables so you'd receive this "credit" evenly thoughout the year, but the IRS did not alter the tax brackets. What this generally means is you did not have enough tax withheld throughout the year based on your level of taxable income. So what the government has done to correct this is to artificially increase your taxes withheld by having you complete Sch M of the form 1040, which then flows to page 2 of the 1040 and corrects this problem. In other words, you are not benefitting twice.
There are income limits, so not everyone gets this credit.
Individual A expects to make $10,000 during the year.
An indivdual who makes $10,000 pays tax at 4%.
Generally, $400 would be withheld evenly from each paycheck throughout the year.
The Making Work Pay Credit reduces the amount withheld to $0.
Individual A completes for 1040, shows he made $10,000 for the year, and because the tax brackets weren't changed, now owes $400 because he had nothing withheld from his paycheck.
However, individual A completes Sch. M which shows he was eleigible for the Making Work Pay credit and that liability is reduced to $0.