TAX FORWARD: Re-Evaluating Your Withholdings Under New Tax Credit
There may be a little extra money in your pocket every month, thanks to the Making Work Pay Tax Credit.
The new program is part of the Recovery Act passed earlier this year.
“It’s a tax credit,” according to Raphael Tulino with the Internal Revenue Service. “Up to $400 for singles, and 800 joint in 2009 and 2010 that’s being administered through your paycheck, through reduced withholdings.”
The new credit is similar to the federal stimulus check many people received last year.
But, instead of one lump sum showing up your mailbox, you’re getting it spread out every month in your paycheck.
Things could get tricky, though, come tax time next year.
The new tax tables the IRS uses to figure out how much you should be receiving through Making Work Pay could cause millions of taxpayers to get hundreds of dollars more than they are actually entitled to under the credit.
And, you’ll have to repay that money at tax time.
“Adjustments given through your paycheck pretty much consider you as one person with one income,” Tulino said. “Let’s say you are a couple, you work, your spouse works, and maybe one of you does something on the side. So you have all this extra stuff going on with your withholdings you may have too much that’s being withheld.”
What that means come next April 15th, you may actually get less of a refund or you may owe the IRS.
At-risk taxpayers include married couples where both spouses work and people with more than one job.
In 2008, 80% of taxpayers got a refund, 13% higher than last year.
Taking that in consideration, plus the tax credit, it might be a good time to make some adjustments on your withholdings.
“Some withholding adjustments now can save you some problems so to speak down the road,” Tulino said. “It can also save you the hassle of not having to make those adjustments next year when you’re surprised your refund isn’t as much or you have a balance due.”
The IRS offers an easy to use withholding calculator on its website that takes into consideration the new tax credit.
Go to http://www.irs.gov/individuals/article/0,,id=96196,00.htmlfor a tax withholding calculator.
