Why Is This Even Being Called a Tax Credit?

This is just withholding less right now but you will still owe the same amount - this isn’t a tax reduction, just not withholding some that you normally would have withheld. It's an adjustment, a lowering, a REDUCTION of the withholding rates. The amount you will owe in taxes in 2010 on 2009 earnings does not change.

i know ... it will be understood on April 15th in the year 2010!

 

MARRIED AND FILING JOINTLY? DUE AN OBAMA “TAX CUT?” YOU’RE ABOUT TO GET UNDERTAXED

Posted by Andrew Roman on March 5, 2009

You thought the analogue-to-digital conversion box fiasco had people confused?

Just wait.

This is something I can guarantee the overwhelming vast majority of Americans are not aware of – and come next April 15th, there are going to be a whole lot of irate people frantically screaming at their payroll departments demanding to know what the hell happened.

And meanwhile, not one official from the Obama Administration – the folks who care so much about America’s working families – is bothering to inform anyone about it.

If you are married, and both you and your spouse are entitled to President Obama’s economy-saving blockbuster “tax cuts” – which would yield approximately $13 a week in your paycheck through the end of the year, followed by approximately $8 a week until the $800 total is reached – you had better pay your payroll department a little visit and change your status to “married, filing separately” (if you haven’t already) or adjust your withholding allowances, because it is entirely possible you’re going to owe the government money by next April 15th.

Why?  How?

First, let’s go back to a press release from IRS commissioner Doug Shulman, issued at the end of February, regarding the implementation of Obama’s “tax cuts”:

For most taxpayers, the additional credit will automatically start showing up in their paychecks this spring. Since employers and payroll companies will handle this change, people typically won’t need to take any additional action.

That is, unless you are married and filing jointly.

As most Americans understand the Obama plan, if your payroll department lists your status as “married, filing jointly,” and you fall within the income guidelines, you qualify for the Obamarific $800 “tax cut” and your paychecks will be adjusted accordingly. But if your spouse files the same way at his or her job, he or she will also qualify for the same “tax cut.” Thus, by the time tax time rolls around next year, your “cut” could be twice and big as it was supposed to be, and you will owe that money back.

There is no cross-checking here between employers.

In a story that hasn’t gotten much play, Andrea Coombes, from Fox Business News writes:

But if you file a joint return with your spouse, and you both work, you should carefully review your withholding, because it’s highly likely both employers, without knowledge of what the other is doing, will adjust withholding such that both spouses receive up to $800, for a total credit of $1,600.

“It’s conceivable that if both are married-filing-joint and their income is not otherwise going to cause a phase-out [of the credit], they could get the double benefit,” said Frank Keith, chief of communications for the IRS. “When they file their return, the actual credit they’re entitled to is $800.”

That means paying back up to $800 with your return, though Keith said the money paid out this year, and thus any tax bill later, likely would be slightly lower — since the withholding adjustment starts close to midyear, the full credit won’t be paid out in paychecks.

For some, what’s effectively a loan from the government might be welcome. But others will find the big bill next year unwelcome. One way to prevent it: Adjust your withholding this year.

Note, too, that taxpayers who normally get a refund might simply see a reduced refund, rather than a bill, come April 2010. “A lot of people get refunds. If you’re in that situation, it likely would just mean that your refund is lower,” said Bob Scharin, senior tax analyst at Thomson Reuters’ tax and accounting business. “But if you normally do not get a refund, you could find you owe more tax than you anticipated.”

My wife is the controller of a large entity here in New York and knows the tax code in and out. Over the past week or so the finer details of the Obama plan are slowly becoming understood and the reality of married couples potentially being undertaxed by doing precisely what IRS commissioner Shulman suggested – that is, nothing - is hitting home, not only in my wife’s office, but in payroll departments everywhere.

At an APA (American Payroll Association) discussion group my wife has aceess to, moderated by CPP certified payroll professionals, one confused visitor posted:

“I am trying to figure out how the new tables work for a Married Couple, both working. In my little mind, if the new Percentage Method Withholding tables reduce the amount of tax withheld from someone claiming Married up to $800.00, then is it reasonable to think that if both spouses are claiming Married the amount of tax their withholding could be reduced as much as $1600.00? … So if both of the spouses fall into that bracket, they could in fact have a reduction of approx. $1,600.00. Which means that they might in fact have a tax liability at the end of the year. I called the IRS about this and after 5 transfers, all I got was, “well if they are both working then maybe they need to have additional tax withheld on their checks each pay period to make up for the short fall”. WOW, give us a stimulus then make us have extra tax withheld each pay period. I am probably just not seeing the big picture and I hope someone can show me where my error is.”

The response:

You are correct. If both spouses work, their total withholding will be reduced by more than they are entitled to at the end of the year and they will owe the difference. The IRS has published the new Publication 15-T. In that publication, they have included a “Notice to Employees”. This notice doesn’t really state that married employees in lower brackets will be underwithheld, but I think this is the IRS’s attempt at addressing the withholding issue.

I’m sure someone was going to get around to filling the American people in on it eventually.

http://romanaround.net/2009/03/05/married-and-filing-jointly-due-an-obama-tax-cut-youre-about-to-get-undertaxed/

Josie06 Josie06
56-60, F
1 Response Mar 5, 2009

thanks for the info!