Jamie Koslow, AOL
Back in the spring of 2009, a cornerstone of the government?s massive $800 billion stimulus package was a tax credit for millions of American workers. In theory, the extra money would provide a touch of stability for families, plus get more money flowing through the struggling economy.
But in their haste to rush the stimulus package into law, Congress overlooked some very important details. These mistakes mean 10 percent of taxpayers will have to pay back some or all of that ?Making Work Pay? tax credit. Will you be one of them? Personal finance experts Ken and Daria Dolan of Dolans.com are here to help you figure that out.
Good rule of thumb: Never rush when you are working on something that impacts millions of Americans and BILLIONS of dollars!
When Congress passed the American Recovery and Reinvestment Act of 2009, it meant millions of working taxpayers started receiving little bit more money in their paychecks. By year?s end, people who qualified had received $400 for singles and $800 for married couples.
But here?s the rub ? the law contained some serious mistakes that resulted in certain taxpayers receiving money they shouldn?t have received. Now approximately 15 million taxpayers will have to repay Uncle Sam!
If you fall into one of the following categories, you can expect a smaller tax refund or a larger tax payment once all your 2009 paperwork is finalized.
Individuals Who Work Two Jobs
Though there are plenty of folks still looking for just one job in this tough economy, there were many of us out there working multiple jobs in 2009. Despite working two jobs, you are still just one person -- which means you are only eligible for one $400 tax credit. Makes sense, doesn?t it?
Unfortunately, the IRS withholding system did not recognize that minor detail. It simply gave you a $400 tax credit per job. If you worked two jobs and received $800 in tax credit, you owe Uncle Sam $400.
Working Married Couples
If you and your spouse both had jobs in 2009, each of you was eligible for a $400 credit -? a total of $800 if you filed together (this assumes you made more than $13,000 between the two of you). Well, someone didn?t double-check the math and you and your spouse actually received $600 each for a total of $1,200 in tax credit.
Now you and your spouse owe the government $400 because of the glitch. Not that it?s any consolation, but you?re not alone -? 55% of married couples fall into this category.
Any student with a part-time job was eligible for the $400 credit under the stimulus package, which is great news for a young person pinching pennies and preparing for the ?real world.? But if your parents claimed you as a dependent, you are NOT eligible for the credit! Despite your status as a student and part-time worker, you are not eligible if you are a dependent, and you will have to pay back the $400 credit you received in 2009.
Social Security Recipients
The stimulus package did more than just provide a break to the American workforce. It took into account anyone receiving Social Security. But, the IRS provided a $250 check to everyone receiving Social Security without considering the fact that some of those folks are actually still working.
As we just discussed, working individuals received a $400 tax credit through withholding -- they weren?t supposed to get a $250 check to boot ? but they did! That means individuals who were receiving Social Security and a regular paycheck in 2009 have to give that $250 back because they already received their "bonuses" in the form of tax credits.
As we mentioned, the dollars you owe the federal government from the 2009 slip-up will be considered in your tax refund or payment this year when you file your 2009 tax return. If the government owes you money, they will subtract the appropriate amount from your refund check, and if you owe the government money, they will add it to your bill. Of course, there will be those of you who quickly go from receiving money to owing money, based on the other details of your tax return.
Measure Twice, Cut Once
This is what you get when you rush a major bill involving billions of dollars through Congress -- a sloppy bill with mistakes that are giving taxpayers a headache.
Be sure to talk with your tax preparer if you fall into any of these categories.
But just as importantly, you must prepare NOW so this problem doesn?t come back to bite you again next year. That?s right ? the "Making Work Pay" tax credit is in effect for 2010. So, if you don?t make adjustments, you will face this very same dilemma again this time next year!
Check out IRS Notice 1036 to review the 2010 withholding tables and help calculating how to adjust your withholding this year in order to reflect the "Making Work Pay" tax credit.