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Monday, November 16, 2009

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pam underwood

what a bunch of crap! The IRS states my husband received the $250, we didn't even know it (I didn't receive the credit). Turbo Tax rejected the efile, corrected it and owed $250 more. Very aggravating.

Henry

Yeah basically we are screwed. In our second careers we are now in the other "middle class" - those who earn less than $50k a year total income. When you earn less - less taxes are taken out. It becomes complicated if you both work because your incomes add to a higher number. We we're wacked with a $900 tax bill in '08. So in '09 we adjusted our withholdings up but it now seems this withholding scheme has left us with a $1.5K tax bill.

Katrina Bond

This exact thing he warns of is happening. My husband works for the State of GA and they took out $1000 less in federal taxes last year and now we owe all of it back. Bastards. $#$% Obama.

Rick

@John: Based on real life checks for two married individuals filing jointly, the stimulus amount is $133 per month ($66.66 each) each; I didn't make that number up. The stimulus is received for 10 paychecks as it started in March. The excess over the credit received is going to be $530.

If you didn't notice the extra $133 in your bank account each month, I'm guessing you will notice the $530 reduction in your refund!

John Kelly

The spin from IRS is interesting (today's Wash Post). They downplay the 15.4 million taxpayers claiming TIGTA have double counted. TIGTA admitted they double counted a grand total of 2,681 filers. Then they claim that "the vast majority will only receive a slightly reduced refund." That is because 3/4 (their "vast majority") of filers "receive refunds which averaged more than $2,800."

First, this is not a "slight" reduction. According to the TIGTA report, this applies to groups of taxpayers who are ineligible for the credit in $200 to $1,000 increments. Hardly slight for the middle class taxpayer it was intended to help.

Second, the fact that 3/4 of filers receive a tax refund is a red herring. Whether it's coming out of a paycheck or coming out of a refund check, it's still coming out of the taxpayer's pocket.

Third, yes, the average tax refund check is probably more than $2,800 - including those in the higher income brackets who, if they receive a refund, probably drive up the average. And they never qualified for the credit.

Fourth, they got other credits for buying appliances, and cars and first-time homes (Really? You want to bring that up?) so they probably won't notice a few hundred dollars missing from their refund.

There's more but I'm dizzy.

John Kelly

I strongly suspect this will get a lot of attention in coming weeks. @Rick: Not surprising people didn't notice an extra $12 in their paychecks but they will notice when they owe the IRS $300 in January.

TIGTA's recommendations are silly:

1. Media coverage (announce to the world that 15M middle class taxpayers have to pay back the relief they thought they were getting).

2. IRS withholding calculator (recalculate your withholding, submit new W-4 to payroll, hope paycheck is adjusted in the next 5 weeks).

Rick

During one our 2009 tax updates classes, I was surprised how many people didn't even notice the change in their paycheck when this went into effect last Spring. I did of course ask the question whether everyone was getting paid more than me. But if a group of tax preparers aren't aware of the problem, some of the more complicated situtations you listed above are certainly going over the head of the average worker. The intended stimulus may turn into a May 2010 anti-stimulus. Great post!

Kay @ Don't Mess With Taxes

Thanks, John, for the quick math!

John Kelly

Then it would appear that the Making Work Pay Credit has about a 10% error rate (putting it on par with the homebuyer credit). The report also indicates that the errors $200-400 range and will result in a $4 billion hit on filers next year. All back of the envelope.

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  • Sept. 1: Happy Labor Day! This celebration of workers' social and economic contributions to the country is a federal holiday.

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    In most employment situations, the workers are employees. Sometimes though folks are hired as contractors. The difference between a contractor and an employee matters not only to businesses that hire the workers, but also to the worker. There are different tax considerations as an independent contractor.

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    Sept. 26: Classes are finally back in session across the whole country this month. Among the tax code provisions to help with schooling costs is the Coverdell Education Savings Account. This money can be used tax-free to pay for school expenses at the kindergarten through grade 12 levels. If your kids are in college, check out the educational tax breaks that are still available for post-high school classes.

    Sept. 30: September is usually the busiest month of the Atlantic hurricane season, which runs through Nov. 30.



    If you haven't prepared for the possibility yet, the ol' blog's special Natural Disasters Resources blog page can help.

    Small Business Tax Calendar: Important filing, deposit and record keeping dates throughout the year that your company needs to know. You also can view the full year's important business tax dates in IRS Pub. 509.

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