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Surprise waiting for 13.4 million taxpayers in new bill

By STEPHEN OHLEMACHER
December 17, 2010

About 13.4 million taxpayers may be getting unexpected tax bills because they were awarded too much money under President Barack Obama‘s Making Work Pay tax credit, a government audit said Thursday.

The tax credit, which expires Jan. 1, was designed to increase take-home pay by about $8 a week through new tax withholding tables. The credit was capped at $400 for individuals and $800 for married couples filing jointly.

However, the credit put millions of taxpayers at risk for not having enough taxes withheld from their paychecks, resulting in a tax bill when they file their returns, said the audit by J. Russell George, the Treasury inspector general for tax administration.

Those at risk included people with multiple jobs, married couples who both work, Social Security recipients who also work, and young workers who are also claimed as dependents on their parents’ tax returns.

“The Making Work Pay credit is a key tax credit designed to increase spending and stimulate the economy,” George said. “However, many taxpayers who are accustomed to receiving refunds when they file their tax returns may have owed taxes and incurred penalties in 2009, and may yet again in 2010, because they were advanced more of the credit than they were entitled to claim.”

The Internal Revenue Service reported that the average tax refund was $2,892 in the 2010 filing season, up from $2,663 in 2009. However, the number of refunds dropped by 3.5 percent, to 93.3 million.

The audit says the Making Work Pay credit could have been a factor in the reduced number of refunds.

The credit was Obama’s signature tax break in the massive economic recovery package passed in 2009. The IRS moved quickly to start getting the new tax credit to workers, issuing new tax withholding tables four days after Obama signed the law.

About 122 million families and individuals have benefited from the credit, according to the agency’s written response to the audit.

The IRS says it undertook an aggressive campaign in 2009 and 2010 to warn at-risk taxpayers that they might not be withholding enough money from their pay, including public service announcements and YouTube videos.

The agency regularly advises taxpayers to check their withholding so they don’t get a surprise tax bill when they file their returns.

“This provision was specifically intended to help taxpayers through the severe economic downturn by putting more money into their hands right away, in each paycheck,” wrote Richard Byrd, commissioner of the agency’s wage and investment division.

Copyright © 2010 The Associated Press

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3 Responses to Surprise waiting for 13.4 million taxpayers in new bill

  1. griff

    December 17, 2010 at 11:43 am

    Cutting taxes, reducing government spending leads to economic growth, jobs?

    Whoda thunk it?

    “It proves that when government gets off the backs of businesses and reduces the size of government, business will respond and create those jobs. It is not the job of government to create jobs. It is the job of government to get off out of the way,” Stewart said.

    “We all know that cutting taxes is popular, but cutting spending most people have perceived as being a political liability, but in our experience it has been a plus,” Stewart said. “Even those who have been effected by those cuts have appreciated the fact that their county has bitten the bullet and reduced the size of government.”

  2. Paul

    December 18, 2010 at 9:48 am

    This is a surprise to who? The exact same thing happened with all of the previous “stimulus tax refunds” too.

  3. dprosenthal

    December 19, 2010 at 11:10 am

    Note to IRS: good luck trying to collect this money!