[SeMissourian.com] A Few Clouds ~ 38°F  
River stage: 14.42 ft. Falling
Thursday, Nov. 27, 2014

Millions will have to repay part of tax credit enacted in February

Tuesday, November 17, 2009

WASHINGTON -- More than 15 million taxpayers may owe the government $250 or more because of how the IRS last spring set up President Barack Obama's tax break that was designed to help consumers spend the U.S. economy out of recession.

Individuals with more than one job and married couples in which both spouses work may have to repay the government $400, either through a smaller tax refund or a larger tax bill, according to a report released Monday by the Treasury Department's inspector general for tax administration. Social Security recipients who also earn taxable wages may have to repay $250.

The tax credit, which is supposed to pay individuals up to $400 and couples up to $800, was part of in the stimulus package enacted in February.

Workers concerned about whether they are withholding enough taxes can use a calculator on the IRS website to find the appropriate amount.

The tax credit was made available through new tax withholding tables issued by the Internal Revenue Service. The withholding tables, however, do not take into account several common categories of taxpayers.

And that could force some people to repay what the government gave them.

For example, a worker with two jobs gets a $400 boost in pay at each job, for a total of $800. That worker, however, only is eligible for a maximum credit of $400, so the remaining $400 will have to be paid back at tax time -- either through a smaller refund or a payment to the IRS.

The IRS recognized there could be a similar problem for married couples if both spouses work, so it adjusted the withholding tables. The fix, however, was imperfect.

A married couple is eligible for an $800 credit. However, if both spouses work and make more than $13,000, the new withholding tables give them each a $600 boost -- for a total of $1,200.

There were 33 million married couples in 2008 in which both spouses worked. That's 55 percent of all married couples, according to the Census Bureau.

Also, a single student with a part-time job gets a $400 boost in pay. However, if students are claimed as dependents on their parents' tax returns, they don't qualify for the credit and would have to repay it when they file their returns.

Some retirees face even bigger headaches.

More than 50 million Social Security recipients received $250 payments in the spring as part of the economic stimulus package. Those lump sum payments were intended to provide a boost for people who didn't qualify for the tax credit.

However, the payments were sent to many retirees who also received the tax credit. Those retirees will have the $250 payment deducted from their tax credit -- but not until they file their tax returns next year, long after the money may have been spent.

"More than 10 percent of all taxpayers who file individual tax returns for 2009 could owe additional taxes," said J. Russell George, the Treasury inspector general for tax administration.

Sen. Chuck Grassley of Iowa, the senior Republican on the Senate Finance Committee, called problems with the tax credit "another unfortunate example of what can happen when Congress and the White House rush through legislation like the stimulus without thinking through the consequences."

The tax credit is also available for 2010. George said the problems will continue if workers don't adjust their withholding for next year.

For many, the new tax tables will simply mean smaller-than-expected tax refunds. The average tax refund this year was about $2,800. A little more than three-fourths of the 143 million taxpayers filing a return last spring received refunds, according to the IRS.

But for 15.4 million taxpayers, the new tax tables will mean an unexpected tax bill, according the IG report.

The IRS was aware of the issues when the withholding tables were released last spring and waged a public awareness campaign to get people to check their tax withholding, said Michael Mundaca, acting assistant treasury secretary.

"It's just technically how withholding works," Mundaca said. "It's an approximation and therefore for some people there will be overwithholding and for some people there will be underwithholding."

Separately, the IRS estimated that about 65,000 taxpayers could face penalties for not withholding enough taxes in 2009 because of the Making Work Pay tax credit. However, those taxpayers will be eligible to have the penalty waived, IRS spokeswoman Michelle Eldridge said.

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


On the Web:

IRS Making Work Pay tax credit: http://tiny.cc/g7d83

IRS withholding calculator: http://tiny.cc/AtuhO


Fact Check
See inaccurate information in this story?


Comments
Note: The nature of the Internet makes it impractical for our staff to review every comment. If you feel that a comment is offensive, please Login or Create an account first, and then you will be able to flag a comment as objectionable. Please also note that those who post comments on semissourian.com may do so using a screen name, which may or may not reflect a website user's actual name. Readers should be careful not to assign comments to real people who may have names similar to screen names. Refrain from obscenity in your comments, and to keep discussions civil, don't say anything in a way your grandmother would be ashamed to read.

Hey Uncle Sam you can get the @$%! car companies to pay back the millions you gave them before you come after my measly $400 bucks. How long are we going to put up with this @!$%*( from the government. I say vote em all out of office and maybe THEY can get in on the new health insurance plan they want to force down our throats.

-- Posted by Observer1 on Tue, Nov 17, 2009, at 8:40 AM


Respond to this story

Posting a comment requires free registration. If you already have an account on seMissourian.com or semoball.com, enter your username and password below. Otherwise, click here to register.

Username:

Password:  (Forgot your password?)

Your comments:
Please be respectful of others and try to stay on topic.


Related subjects