Monday, February 21, 2011

You could owe the IRS this year

Taxpayers could have a surprise when they file their taxes this year. It's the result of the Making Work Pay credit.

The credit began in 2009 and is also available to taxpayers in 2010 as part of the American Recovery and Reinvestment Act (ARRA). It consists of two components:
  1. the new form Schedule M which includes a $400 credit for most taxpayers ($800 for married couples filing together) and
  2. a change in employer withholding.
Starting April 1, 2009 employers began withholding less federal income tax so most workers may have noticed an increase in their take-home pay. The idea is this decrease in withholding will be offset by the Making Work Pay Credit when taxpayers include the Schedule M as part of their income tax return.

Unfortunately, the new withholding could negatively impact of a number of taxpayers this year including:
  • Dependents who can not claim their own exemption
  • Single taxpayers with more than one job
  • Joint filers where both spouses work or one of them have multiple jobs
  • Retired taxpayers who receives a monthly pension
  • Workers without valid Social Security numbers
Having too little tax withheld could result in potentially smaller refunds or – in limited instances –small balance due rather than an expected refund.

Taxpayers can adjust their withholding for 2011 by filing a revised Form W-4 and submit to their employer. You can use IRS Pub. 919 for additional assistance in calculating your tax withholding.

For more information on the Making Work Pay Credit, please refer to the Schedule M instructions.

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