dcsimg
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May 2nd, 2009

Uncle Sam will want your tax cut back

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Or some of it, at least. An Associated Press article warns that the extra $40 or so that you’re now seeing in your paycheck under President Obama’s “Making Work Pay” tax credit may boost the amount of money you owe Uncle Sam:

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.

Why is this happening? According to the RedState blog:

As it happens the tax tables that the IRS use to compute tax bills does not take Obama’s gift into account. And the result is confusion as well as shock for untold numbers of Americans that will owe taxes at the end of the year when they didn’t think they would. This bill will come due if you aren’t careful calculating your withholdings.

How do you know whether you’ll be affected next April 15? Use this handy withholding calculator at the IRS website to find out. You may find it desireable to change the amount being withheld from your paycheck(s), or the difference might not be enough to worry about.

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4 Responses to “Uncle Sam will want your tax cut back”

  1. Lucia Says: May 4th, 2009 at 2:15 pm

    I thought the tax “cut” was touted as a tax “credit” in the first place. If the proper symantics were tagged to it, more people wouldn’t think they are getting something for nothing. It might be prudent to use the extra $400 to hire an accountant for next year’s tax filing.

  2. Tim Manni Says: May 4th, 2009 at 4:11 pm

    Lucia,

    You brought up an interesting topic when you commented on “$250 Stimulus Checks for Retirees In May.” You said, “What if you don’t want the money?” At least with a stimulus check you can just not cash it. With these tax credits, they’re added right on top of your paycheck. If these credits end up costing us come next tax season, what can we do about it?

  3. Lucia Says: May 4th, 2009 at 10:45 pm

    Personally, I’m self-employed and will do my darndest to avoid them when I file my taxes. The aforementioned article suggested wage earners adjust their withholding to make sure they retain some measure of control over this so-called boon. I plan to educate myself as to how to avoid getting stuck in the behind by this blessing from on high.

  4. Tim Manni Says: May 5th, 2009 at 1:01 pm

    Lucia,

    Be sure to let us know if you figure it out.

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