 Taxpayers are at risk if they have more than one job, are married
and both spouses work, or receive Social Security benefits while
also earning taxable wages, according to a report Monday by the
Treasury Department's inspector general for tax administration.
The tax credit, which is supposed to pay individuals up to $400 and
couples up to $800, was President Barack Obama's signature tax break
in the massive stimulus package enacted in February.
Most workers started receiving the credit through small increases
in their paychecks in April. The tax credit was made available
through new withholding tables issued by the Internal Revenue
Service.
The withholding tables, however, do not take into account
taxpayers with multiple jobs or married couples in which both people
work. They also don't take into account Social Security recipients
with jobs that provide taxable income.
The Social Security Administration sent out $250 payments to more
than 50 million retirees in the spring as part of the economic
stimulus package. The payments were meant to provide a boost for
people who didn't qualify for the tax credit.
However, they went to many retirees who also received the credit.
Those retirees will have the $250 payment deducted from their tax
credit -- but not until they file their tax returns next year, long
after the money may have been spent.
"While implementing a credit through reduced withholding is an
effective way to provide economic stimulus evenly throughout the
year, it is difficult to account for everyone's circumstances," said
J. Russell George, the Treasury inspector general for tax
administration. "More than 10 percent of all taxpayers who file
individual tax returns for 2009 could owe additional taxes."
Separately, the IRS estimated that about 65,000 taxpayers could
face penalties for not withholding enough taxes in 2009 because of
the overly generous tax credits. However, those taxpayers will be
eligible to have the penalty waived, IRS spokeswoman Michelle
Eldridge said.
The tax credit is also available for 2010. Russell said the
problems will continue in 2010 if they are not resolved.
The credit pays workers 6.2 percent of their earned income, up to
a maximum of $400 for individuals and $800 for married couples who
file jointly. Individuals making more than $95,000 and couples
making more than $190,000 are ineligible.
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"Making Work Pay was designed to deliver much-needed boosts to the
paychecks of 95 percent of all working Americans," said Nayyera Haq,
a Treasury Department spokeswoman. "Since enactment, more than 110
million families have benefited from as much as $60 in additional
take-home pay each month to put toward their family budgets, serving
as a steady boost to spending and consumption."
For many, the new tax tables will simply mean
smaller-than-expected tax refunds next year. The average tax refund
this year was about $2,800. A little more than three-quarters of the
143 million taxpayers filing a return last spring received refunds,
according to the IRS.
The IRS, in a response to the audit, advised taxpayers to check
their withholding throughout the year to make sure they don't get
hit with an unexpected tax bill.
"The withholding system must approximate the tax liability of
tens of millions of Americans, and therefore, cannot be tailored
precisely to fit every individual situation," Richard Byrd Jr.,
commissioner of the IRS' wage and investments division, wrote in the
agency's response to the report.
The IRS has a calculator on its Web site so taxpayers can check
whether they are withholding an appropriate amount of taxes from
their pay. But with only a month and a half remaining in the year,
it's getting late for taxpayers to make adjustments.
[Associated Press;
By STEPHEN OHLEMACHER]
Copyright 2009 The Associated Press. All rights reserved. This
material may not be published, broadcast, rewritten or
redistributed.
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