Will you have to pay back your tax credit?
- This tax break was the cornerstone of the stimulus package.
- More than 15.4 million taxpayers could unexpectedly owe taxes.
- Technically, you can make your W-4 changes as often as you like.
Did you take a second job this year? What about your spouse; do both of you bring home paychecks? Are you retired, but picking up some part-time work to supplement your Social Security benefits? If so, you might have to pay back some of the Making Work Pay tax credit you received.
This tax break was the cornerstone of the stimulus package that became law in February. Thanks to the Making Work Pay credit, by the time 2009 is over workers will have up to $400 if they're single or up to $800 if they're married and file a joint tax return. Based on revised withholding calculations, the money has been doled out since April as a few extra dollars in each paycheck.
Now, however, some folks might find they'll have to give some or all of that money back when they submit their 1040s next filing season.
But don't panic. The credit won't cost every filer money. And even if you are affected, you still have time to take steps to stave off a larger-than-expected IRS bill.
Credit complicationsThe possible Making Work Pay credit payback has been a concern since the law took effect. But just how many people it might affect was not known until the Treasury Inspector General for Tax Administration, or TIGTA, issued a formal report on the matter.
That tax watchdog group says more than 15.4 million taxpayers could unexpectedly owe taxes on their 2009 returns because of the credit. Basically, these folks were given more of the credit than they were entitled to receive.
There are some specific taxpayers who are more likely to face this problem:
- Dependents who receive wages.
- Single taxpayers with multiple jobs.
- Joint filers where one or both spouses have more than one job or both spouses work.
- Individuals who file a return using an Individual Taxpayer Identification Number, or ITIN, instead of a Social Security number.
- Taxpayers who receive pension payments or Social Security recipients who receive wages.
In each of these cases, there are limits on the Making Work Pay credit.
Correcting the underpaymentIf you're in one of these at-risk groups, you could end up having to pay back the Making Work Pay credit money you got this year unless you act quickly.