| |
Will the "Making Work Pay" tax credit hurt you next April?
The new “Making Work Pay" tax credit is being paid to
taxpayers in advance through reduced payroll withholding. The reduction
was accomplished by tweaking the payroll withholding tables, which does
not consider all specific tax circumstances. You may not have even noticed
the difference, especially when spread over weekly, bi-weekly, or
semi-monthly payroll checks. However, the amounts add up over time and could
cause you to owe more federal income tax when your 2009 tax return is filed.
This could be especially troubling for married individuals who both work
and have their withholding adjusted.
Since the adjustment is based upon each
individual’s earned income from a particular employer,
it does not make allowances for multiple job incomes,
spousal income, or other forms of income.
The result could cause a taxpayer’s withholding
to be reduced inappropriately, which may substantially reduce his
or her refund at the end of the year or, worse yet, cause an
unexpected tax due. You are cautioned to check your federal tax
withholding on your paystub before and after the change.
Determine the amount of the withholding reduction for each paycheck,
and then based on the number of paychecks for the year with the
reduced withholding amount, determine the amount of the reduction for the year.
A larger unintended consequence are those with more
than one employer. If you hold multiple jobs or have a spouse who
also works, determine the total reduction for all of the paychecks.
It is feasible that if you held two or more part time jobs throughout
the year, you could have too little withheld and owe the IRS when you
complete next year's tax return.
Another problem area is the fact the credit phases out
for higher-income taxpayers, so you may not even be entitled to the maximum
credit. The phase-out is 2% of the taxpayer’s modified adjusted
gross income in excess of $75,000 ($150,000 for joint filers) and is
totally phased out at $95,000 ($190,000 for joint filers). So, if
your withholding adjustment exceeds the credit, that excess will reduce
the refund amount or add to the tax due when the 2009 tax
return is prepared.
If you feel the withholding adjustment is excessive
for your circumstances and would like to run
an analysis or obtain help on whether you should make an adjustment,
you should
contact your tax preparer for further information.
For a free quote on payroll services
click here or call us at
815-788-2932
|
Simple.
Convenient. Smart.
Complete Payroll, Inc.
380 N. Terra Cotta Rd
Suite D
Crystal Lake, IL 60012
815.788.2932
|
