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Taxpayers will be in for a surprise when filing their 2009 income tax returns if they don’t plan ahead. The Making Work Pay tax credit of up to $400 for working individuals and $800 for working families was a good idea to help stimulate the economy. However, the way the government administered it creates a problem for taxpayers.
If taxpayers rely solely upon their employer utilizing the IRS income tax withholding tables to calculate their income tax, they may be in a position of having to pay back money they were not entitled to under the credit. At-risk taxpayers include a large segment 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 IRS acknowledges problems with the withholding tax tables, but has done little to warn average taxpayers they may receive more of a credit than they are entitled to. It is true that for many taxpayers, they will simply receive smaller than expected tax refunds for 2009.
We recommend you do some calculating to find out what your expected 2009 tax liability is going to amount to. If you are married and both spouses work, you should consider having Federal income taxes withheld at the higher rate of single filers. If you have multiple jobs, consider having extra Federal income taxes withheld by one of your employers. To change your Federal income tax withholding rate, request a 2009 Form W-4 from your employer.
A tool to assist you in determining your 2009 Federal income withholding tax is the IRS Withholding Calculator available at: : www.irs.gov/individuals/article/0,,id=96196,00.html
Please do hesitate to call us if you need our help in estimating your 2009 Federal income tax liability. We really like to plan ahead to avoid tax surprises in the Spring!
Sources: Associated Press – Washington (WOODTV.com)
IRS withholding calculator
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