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  • © Holly Craw and Home-School-Community, 2009. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Holly Craw and Home-School-Community with appropriate and specific direction to the original content.

Extra tax credit money on your paycheck? Some will have to repay part of it

From an article on Yahoo! Finance:

INSIDE WASHINGTON: Taxpayers to get rude surprise

INSIDE WASHINGTON: Millions of couples, retirees may have to repay some of Obama tax credit

  • On Thursday April 30, 2009, 6:55 pm EDT

WASHINGTON (AP) — 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.

Those who will have to repay some of their bonuses, directly with a payment to IRS or with a smaller return:

  • –A single worker with two jobs making $20,000 a year at each job will get a $400 boost in take-home pay at each of them, for a total of $800. That worker, however, 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.
  • — A married couple with a combined income of $50,000 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.  (this accounts for 33 million married couples or 55% of all married couples)
  • — A single college student with a part-time job making $10,000 would get a $400 boost in pay. However, if that student is claimed as a dependent on a parent’s tax return, she doesn’t qualify for the credit and would have to repay it when she files next year.
  • Some retirees who will get a $250 stimulus payment in May: people who receive Social Security, Supplemental Security Income, railroad retirement benefits or veteran’s disability benefits.Retirees who have federal income taxes withheld from pension benefits also are getting an income boost as a result of the new withholding tables. However, pension benefits are not earned income, so they don’t qualify for the tax credit. That money will have to paid back next year when tax returns are filed.
  • More than 20 million retirees and survivors receive payments from defined benefit pension plans, according to the Employee Benefit Research Institute. However, it is unclear how many have federal taxes withheld from their payments.
  • The American Federation of State, County and Municipal Employees union raised concerns about the effect of the tax credit on pension payments in a letter to Treasury Secretary Timothy Geithner in March.
  • 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.

What should you do?

  • 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.
  • IRS withholding calculator:

http://www.irs.gov/individuals/article/0,,id96196,00.html

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