It looks like there are going to be quite a few angry people out there once they fill out their tax forms next April.
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.
Don’t you just love that phrasing? “more than they are entitled to” It’s the American taxpayers’ money, yet they aren’t entitled to it when they are “accidentally” given back more than was planned.
This will cause problems for a lot of Americans, particularly these folks:
–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.
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 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.
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.
— 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 face even bigger headaches.
The Social Security Administration is sending out $250 payments to more than 50 million retirees in May as part of the economic stimulus package. The payments will go to people who receive Social Security, Supplemental Security Income, railroad retirement benefits or veteran’s disability benefits.
The payments are meant to provide a boost for people who don’t qualify for the tax credit. However, they will go to retirees even if they have earned income and receive 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.
Oops! I guess Barack Obama and Tax Cheat Timothy Geithner will have some explaining to do. So far, though, Geithner has not responded to concerns committee members in the House have raised about this problem.
Update: JWF writes about the “broad swath” of Americans affected:
That basically is known as the American people, also known as suckers.