President Obama was praised by the Old Media as the savior of the American taxpayer when he announced in his magnanimity that he was going to give a tax break to “95 percent” of America’s taxpayers. He was hailed as the hero of the working man when he said that a “tax credit” would be given to taxpayers and that this much needed “extra” money would soon be seen in their weekly paychecks. But now comes word that Obama’s IRS is going to want some of that “tax credit” back from an unknown number of taxpayers next year.
It will come as a shock to two income families, some federal workers, retirees, and young people with more than one low paying job that they will be expected to give back some portion of that “extra” money that Obama claimed he was giving them come April 15, 2010.
The Associated Press is now reporting something that insiders knew all along but it was a story that wasn’t getting any traction during the debate about the Obammessiah’s loving gift to his people. Turns out it ain’t free. At lest it won’t be for many Americans.
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.
Where was this warning when the media was hailing Obama as the most caring father to ever hit the nation’s capitol?
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.
–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.
Retirees who have federal income taxes withheld from pension benefits also are getting an income boost as a result of the new withholding tables. However, pension benefits are not earned income, so they don’t qualify for the tax credit. That money will have to paid back next year when tax returns are filed.
More than 20 million retirees and survivors receive payments from defined benefit pension plans, according to the Employee Benefit Research Institute. However, it is unclear how many have federal taxes withheld from their payments.
If you are curious what effect this might have on your taxes, you can use the IRS withholding calculator to work it out. (http://www.irs.gov/individuals/article/0,,id96196,00.html)