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About Those Tax Credits

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.

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Comments (9)

These are the same people t... (Below threshold)
Matt:

These are the same people that want to run our health care. The future is looking brighter every day.

This is why we need a two ... (Below threshold)
hcddbz:

This is why we need a two tier tax system. Everyone who makes more than 25K pays 20% tax rate.
That is it no AMT, no deductions not exemptions.
Simple.
Then we can cut the IRS in half just think of all the trees that would be saved.

Why should people that make... (Below threshold)
Matt:

Why should people that make less than 25K pay less than 20% taxes, or not pay at all? If 20% is a fair rate, then everyone should pay it. If it is burdensome for a person making 25K ($5000) it is just as burdensome for somebody making 26K ($5200) or 100K ($20K).

What Lord Obama gives, Lord... (Below threshold)
GarandFan:

What Lord Obama gives, Lord Obama can take away. Be still peasants! It's all for the common good. Lord Obama believes in 'sharing the wealth'. Just wait and see how he 'shares' his $9 million income from last year.


Hahahahahahahahaha!!!!!!!!

"Why should people that mak... (Below threshold)
bryanD:

"Why should people that make less than 25K pay less than 20% taxes, or not pay at all?"-matt

Because of the Earned Income Tax Credit implemented during the Reagan administration.

Because of the Earned In... (Below threshold)
Matt:

Because of the Earned Income Tax Credit implemented during the Reagan administration.

The EIC is wrong regardless of who implemented it.

If we were changing to a two-tier system instead of the mess we have now, then the EIC doesn't have to be kept.

With or without EIC, why should anyone not have to pay income taxes, especially in a reformed, "fair" system?

Because if you don't give '... (Below threshold)
JLawson:

Because if you don't give 'em money, they might not vote for you next election...

Because if you don't giv... (Below threshold)
Matt:

Because if you don't give 'em money, they might not vote for you next election...

That's the problem with democracy, oncethe people realize they can vote themselves money from the treasury the republic is lost...

Let me explain this to you.... (Below threshold)
Barack Obama, TOTUS:

Let me explain this to you...

F--k you, I won.




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