Potential problems/concerns with newly adopted tax benefits:

Newly elected President Barack Obama’s newest tax credit may lead to surprises for many people come tax season. The new tax credit is supposed to provide up to $400 to individuals and   $800 to married couples which was put into action during the economic recovery package issued in February. However, with the new federal tax withholding tables issued by the IRS, taxpayers may be receiving hundreds of dollars through the credit unknowingly. The problem is some of these people may have to repay their tax credits come tax season, resulting in higher tax costs come April 15^th. With these new federal tax tables, it will lead to smaller tax refunds this upcoming year. The IRS has noticed these potential problems, but has yet to warn many of the potential taxpayers it may affect.

The credit pays workers 6.2% of their earned income, up to $400 to individuals and $800 to married couples. Individual who are making over $95,000 and married couples with a combined salary over $190,000 are deemed ineligible for the tax credit. This tax credit put into action to boost the economy by providing more money to the consumers on each paycheck. However, these tax tables do not take into account for several common categories of taxpayers.

Examples of potential problem categories of taxpayers:

·        A Single worker with two jobs, with a combined salary under $90,000 would receive $800 of a tax credit, compared to the $400 one should receive. This results in having to pay back the additional $400 come tax time.

·        A Single college student with a part-time job making $10,000 would get a $400 boost in pay due to the tax credit. However, if one is claimed as a dependent on their parent’s tax return, the student wouldn’t be qualified for the tax-credit, making one have to pay the tax credit back.                   

·        Retirees, whom are currently receiving Social Security, will receive a tax benefit of $250. If retirees have already received income they would have already received their tax benefit, resulting in a tax break larger than $400. Every dollar one receives after $400 they would owe back to the government.

If you are concerned about your current standing regarding the tax credit issue, one may want to talk to their employer and fill out a new W-4. This form can be found at www.irs.gov. If you have any further questions, feel free to call us at (509) 922-1412.

Sincerely,

Patrick McDonald, CPA