1040 Sch M when Sch F losses exceed W-2 income

It looks like there is a bug in the Schedule M-1 instructions. If you have earned income of 12903 the box 1a is checked and you get the full $800.

Line 1a

If you are filing Form 1040NR or can be claimed as someone else's dependent, skip lines 1a through 8, enter -0- on line 9, and go to line 10. You are not eligible for the making work pay credit, but you may be eligible for the government retiree credit. Wages. The amount of your wages is generally the amount reported on line 7 of Form 1040A or 1040.

Earned income. If you checked the ?No? box on line 1a, complete the worksheet on page M-2 and enter on line 1a the amount you figured using the worksheet.

So per the instructions you would never fill out the worksheet.

You would only fill out the worksheet if you only had earned income. But question 1 of the worksheet says to enter your wages, so anyone who follows the instructions and fills out the worksheet would have zero in line 1 of the worksheet.

Your interpretation is correct. The law states that earned income includes net earnings from SE less the 1/2 of SE tax deduction and it defines SE as including any farm income or loss. The instructions for Sched M are correct. They tell you to check the Box on 1a as "No" if you have a loss from the business and see the instructions. A Farm loss is a loss from the business. You then go to the M Worksheet and instructions. Upon completing the worksheet you will see that wages and the farm loss are added together. If zero or less, you do not qualify.

The IRS is wrong.

Allan,

Thanks for your confirmation.

Charlie