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.
The Internal Revenue Service acknowledges problems with the withholding tables but has done little to warn average taxpayers.
So when they called it the “Making Work Pay” tax credit, what they really meant was they were going to tell you they were giving you extra money, then make you pay some of it back after it’s already spent. Good to know.
UPDATE – a reader makes the following point:
Since this looks pretty complicated, and the IRS admits that it hasn’t even bothered warning “regular tax payers”, these people are going to get stuck paying a tax professional to handle this issue. Some will have to pay their existing professional more, and some will have to hire a professional they didn’t use this year. So, I’d be willing to bet that this b.s./p.r. excuse for a tax cut, will now be more accurately described as “Making you pay to work”.
UPDATE II — a reader says this may not be the case:
The most recent development with the “make work pay credit” will not cause any increased tax compliance costs. No matter how many jobs you have, etc., you enter your W-2 wages and Fed Tax withheld, calculate your tax owed, then you enter the $400 credit (if you get it), the net answer is what you are due/owe. The compliance process will not be any different because of this discovery.