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Stimulus payout may bite you in the tax

The tax preparer community noticed the situations that are described below, back in the spring.  At several continuing education seminars, I enjoyed discussions regarding how tax payers may find out how much they owe.

The stimulus plan lowered federal income tax withholding rates, which results in more take-home pay but less money going toward taxes. The downside is some taxpayers may end up with not enough taxes being withheld to cover what they owe in 2009.

As a result some taxpayers may need to increase their withholding amount by reducing the number of allowances claimed for the rest of year, which means making changes to a W-4 form available from an employer’s human resources department.

Single taxpayers who are working at more than one job and married couples filing jointly in a situation where both spouses work are the most likely groups of taxpayers to be caught short.

Others that could face this scenario are those who can be claimed as a dependent on someone else’s tax return (for example, a working student claimed as a dependent on a parent’s tax return) and some Social Security recipients who work.

“I don’t think many people realize that (because of the credit) they may not have the correct withholding and could owe at tax time,” said Kelly Batson, a director of the Earn It! Keep It! Save It!, a tax assistance program for low-income taxpayers. “They need to check their withholding now.”

Taxpayers who have concerns about whether withholding amounts may need adjusting can go to the IRS Web site (http://www.irs.gov) and use an online withholding calculator.

For single taxpayers, the American Payroll Association estimates the credit will generally reduce withholding by $400 a year.

For married couples filing jointly the credit will generally decrease total withholding by $600 a year, said the Payroll Association. That means if both spouses work, their combined withholding would be reduced by $1,200 (2 x $600), even though their maximum credit would be $800, which means they could end up owing $400 in taxes or be short that amount in a refund. “If you are a married couple with two incomes, you may be getting too much of the credit,” Steber said. “The withholding tables don’t know the other spouse is working.”

Conversely, a married couple filing jointly with one working spouse will have $600 less in withholding but would be entitled to an $800 credit, which would result in an additional $200.

It is nice to have the amount quantified.  Many Americans are looking at reduced refunds this year.  Unfortunately, many tax payers rely on that money, they see it as a savings account.  However, instead of saving the money, they go out and blow the refund on a luxury good.

If you want to make sure that you are not overpaying give my office a call 1-877-489-8999.  In tough times, you want to make sure that your tax return is as accurate as possible.  Please contact my office 1-877-489-8999, I have a staff of highly trained people ready to make filing your income tax return easier.

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