Part of President Obama’s economic stimulus package included a tax credit called “Making Work Pay.” Great in concept. But, but, but, it could lead to over 15 million taxpayers owing additional taxes. This was spelled out in a recent government report by the Inspector General for Tax Administration.
The Making Work Pay Tax Credit, which was part of the American Recovery and Reinvestment Act of 2009, applies to most taxpayers with earned income in 2009 and 2010. Currently, the credit is passed on to taxpayers by their employers through reduced Federal tax withholding. This results in an increase in take-home pay.
The Treasury Department has acknowledged that implementation of the tax credit creates the possibility that millions of taxpayers may be advanced more of the credit through reduced withholding than they are entitled to receive. When filing their tax returns for 2009 and 2010, some taxpayers may owe additional taxes, wiping out some of the program benefit. Some also may be subject to estimated tax penalties.
How did it happen? The tax credit was implemented using new income tax withholding tables. However, the changes to the withholding tables did not take into consideration: (1) the dependents who receive wages; (2) single taxpayers with more than one job; and (3) joint filers where one or both spouses have more than one job or both spouses work. Other groups potentially affected include: (1) individuals who file a return with an Individual Taxpayer Identification Number; (2) those who receive pension payments; and (3) Social Security recipients who receive wages.
The IRS tried to fix the withholding problems in May after concerns arose about such a problem developing. But concerns still exist that the fixes did not fully addressed the problem.
What can you do if you think you might be affected? Not much you can do. Stay tuned next year when you file. Taxpayers will have to pay the full tax bill due.
Aaargh – Can’t they get things right?
More than 10 percent of all taxpayers who file individual tax returns for 2009 could owe additional taxes. If corrective actions are not taken, this problem will continue to plague taxpayers in 2010.”
TIGTA recommended that the IRS increase media coverage, consider ways of advertising other than the media already being used, and target communications to taxpayers who may be adversely affected as a result of the MWPC. TIGTA also recommended that the IRS use the withholding tables that were in effect before the enactment of the Recovery Act for pension payments in order to prevent pensioners from being negatively affected by the MWPC.
The IRS agreed with TIGTA’s first recommendation and plans to take corrective action. However, the IRS did not agree with the second recommendation, claiming that it would be burdensome and costly.
Good intentions, but inadequate implementation of the program.
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