Millions will have to repay part of tax credit

WASHINGTON – More than 15 million taxpayers could unexpectedly owe taxes when they file their federal returns next spring because the government was too generous with their new Making Work Pay tax credit.

Taxpayers are at risk if they have more than one job, are married and both spouses work, or receive Social Security benefits while also earning taxable wages, according to a report Monday by the Treasury Department's inspector general for tax administration.

The tax credit, which is supposed to pay individuals up to $400 and couples up to $800, was President Barack Obama's signature tax break in the massive stimulus package enacted in February.

Most workers started receiving the credit through small increases in their paychecks in April. The tax credit was made available through new withholding tables issued by the Internal Revenue Service.

The withholding tables, however do not take into account taxpayers with multiple jobs or married couples in which both people work. They also don't take into account Social Security recipients with jobs that provided taxable income.

The Social Security Administration sent out $250 payments to more than 50 million retirees in the spring as part of the economic stimulus package. The payments were meant to provide a boost for people who didn't' qualify for the tax credit.

However, they went to many retirees who also received the 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.

"While implementing a credit through reduced withholding is an effective way to provide economic stimulus evenly throughout the year, it is difficult to account for everyone's circumstances," said J. Russell George, the Treasury inspector general for tax administration. "More than 10 percent of all taxpayers who file individual tax returns for 2009 could owe additional taxes."

The tax credit is also available for 2010. Russell said the problems will continue in 2010 if they are not resolved.

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.

"Making Work Pay was designed to deliver much needed boosts to the paychecks of 95 percent of all working Americans," said Nayyera Haq, a Treasury Department spokeswoman. "Since enactment, more than 110 million families have benefited from as much as $60 in additional take home pay each month to put toward their family budgets, serving as a steady boost to spending and consumption."

For many, the new tax tables will simply mean smaller-than-expected tax refunds next year. The average tax refund this year was about $2,800.

The IRS, in a response to the audit, advised taxpayers to check their withholding throughout the year to make sure they don't get hit with an unexpected tax bill.

"The withholding system must approximate the tax liability of tens of millions of Americans, and therefore, cannot be tailored precisely to fit every individual situation," Richard Byrd Jr., commissioner of the IRS' wage and investments division, wrote in the agency's response to the report.

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So now you have to give back part of those small increases in your pay check that you have probably already spent because the withholding tables did not take into account that:

"Taxpayers are at risk if they have more than one job, are married and both spouses work, or receive Social Security benefits while also earning taxable wages, according to a report Monday by the Treasury Department's inspector general for tax administration."

That sounds like most folks to me.
Can't our government ever enact anything without a hitch?

No. This is explained in full by the Austrian School of economists, like Mises, Rothbard, and their modern adherents-Ron Paul, Peter Schiff, et. al.

laissez-faire capitalism FTW!

Well, when I was working, I didn't see any change in my paychecks... so oh well.

It was more important at the time to get the money out there.

What kind of logic is that....tricking people that they have more in their paychecks to spend than they really have.

God I just LOVE Liberal Logic.

Nothing funnier on the planet.

Hey. They screwed up a small tax credit.

How's their ability to run something as huge as Health Care looking now???

Hussein will make his money off the interest of those who can't afford to pay it right off.

Let me beat 'er to it.

Hussein has only been King for a year now.

He needs time to get his head out of other leaders a$$es before he can consider protecting our troops,(NOT!), or securing our borders from Terrorists and Illegal Immigrants, (NEVER HAPPEN!)

Bush made him do it!

They were trying to move too fast to get extra money into the economy that mistakes were bound to happen.

It is a small mistake anyway that will not effect most of the people who got it.

Not even close!

Doesn't show anything about their ability for healthcare. Not even comparable.

Considering that this was a small tax break ( a few hundred million at best ) for a relatively few Americans...the comparison is extremely valid.

If the government can't manage to not screw up something that cost a few million....how can they POSSIBLY NOT screw up something that affects EVERY American and costs hundreds of BILLIONS of dollars???

Do you think you could expand on this a bit?

I find this view rather intriguing as i don't see how taxing the poor, and giving to the rich helps "stimulate" the economy short term. I also don't see how artificially expanding credit, and temporarily spending huge amounts of money will even have an affect on the economy in the long run...

I know we were told that "flooding the market with money" is what we needed to do, but this doesn't seem to make sense to me, as the production of capital hasn't changed.