Christian Financial Forums

[carodoo]

A question came up at work today about the reduction in federal withholding that began in March due the economic stimulus package that was signed on Feb. 17th. I found a good article that answers the most common misconceptions about the package - here's the link http://finance.yahoo.com/banking-budget ... e-Stimulus.

Depending how your W4 is filed, you may have too much credit given that will need to be returned at tax time. Read below for more information.

U.S. gives too much, but IRS will get it back
Taxpayers who got too much of a windfall will be required to give some of it back
By STEPHEN OHLEMACHER
ASSOCIATED PRESS
May 4, 2009, 2:21PM

WASHINGTON — Millions of Americans enjoying their small windfall from President Barack Obama’s “Making Work Pay” tax credit are in for an unpleasant surprise next spring.

The government is going to want some of that money back.

The tax credit is supposed to provide up to $400 to individuals and $800 to married couples as part of the massive economic recovery package enacted in February. Most workers started receiving the credit through small increases in their paychecks in the past month.

But new tax withholding tables issued by the IRS could cause millions of taxpayers to get hundreds of dollars more than they are entitled to under the credit, money that will have to be repaid at tax time.

At-risk taxpayers include a broad swath of the public: married couples in which both spouses work; workers with more than one job; retirees who have federal income taxes withheld from their pension payments and Social Security recipients with jobs that provide taxable income.

The Internal Revenue Service acknowledges problems with the withholding tables but has done little to warn average taxpayers.

“They need to get the Goodyear blimp out there on this,” said Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants.

For many, the new tax tables will simply mean smaller-than-expected tax refunds next year, IRS spokesman Terry Lemons said. The average refund was nearly $2,700 this year.

But taxpayers who calculate their withholding so they get only small refunds could face an unwelcome tax bill next April, said Jackie Perlman, an analyst with the Tax Institute at H&R Block.

Perlman’s advice: Check your federal withholding to make sure sufficient taxes are being taken out of your pay.

If you are married and both spouses work, you might consider having taxes withheld at the higher rate for single filers.

If you have multiple jobs, you might consider having extra taxes withheld by one of your employers. You can make that request with a Form W-4.

The IRS has a calculator on its Web site to help taxpayers figure withholding. So do many private tax preparers.

Obama has promoted the tax credit as one of the big achievements of his first 100 days in office, boasting that 95 percent of working families will qualify in 2009 and 2010.

The credit pays workers 6.2 percent of their earned income, up to a maximum of $400 for individuals and $800 for married couples who file jointly.

Individuals making more $95,000 and couples making more than $190,000 are ineligible.

The tax credit was designed to help boost the economy by getting more money to consumers in their regular paychecks.

Employers were required to start using the new withholding tables by April 1.

[TheWealthSquad]

Excellent article. It brings out many points that are going to impact people when they file their taxes. If you use a professional to prepare your taxes, I always suggest you get a review done around September. You still have time to correct things if you need too and won't be shocked at tax time if you get a big hit from this.

The sad thing is that the news stations aren't running education programs to discuss this. They wait until tax time to take the hit hoping things will be better by then.

[Clarinda Della]

The dollar amount of the Making Work Pay credit is reduced by any economic recovery payments. This is a one-time-only tax credit of $250 for Social Security recipients, retired railroad workers, and disabled veterans. Thus a Social Security recipient who is also working would be eligible for a Making Work Pay credit of only $150 (that's $400 minus the $250 economic recovery payment).The dollar amount of the credit is also reduced any credit received by government retirees who are eligible for a new, one-time-only tax credit of $250. This credit is similar to the economic recovery payment.

[clydewolf]

The revised withholding tables had to be in place and used by April 1, 2009. One of the unfortunate unintended consequensces was the same withholding tables were used for people receiving pensions. The MWP tax credit is for tax payers with earned income. The tax credit is available for tax years 2009 and 2010.

Because pensions are not considered earned income, Pensioners were not eligible for the tax credit. and were having too little withheld from their pension. To correct this, recently the IRS issued new withholding tables that will correct for the "windfall" pensioners were enjoying. This should put the pensioner"s withholding back to where it would have been had the MWP tax credit never been in place.

If a pensioner wants to adjust their withholding, they can submit a new W-4P to their employer or pension administrator. http://www.irs.gov/pub/irs-pdf/fw4.pdf

When you complete your 2009 tax return, you will find a new Schedule M, to calculate your MWP tax credit.