Good News! You Got A Tax Cut! Bad News! You Might Want To Adjust Your Withholding!

CNN points out that while it’s wonderful to be getting the “Making Work Paytax credit right away through your employer adjusting your withholding — some people might end up getting more credit than they really are entitled to — meaning they may end up owing money at the end of the year.

CNN says:

Those most likely to be overpaid are:

Anyone who holds more than one job. You will get paid the Making Work Pay Credit twice, up to $400 ($800 for a joint filer) from your first employer and up to $400 ($800 for a joint filer) from your second employer.

Joint filers whose spouses work. Each spouse will end up being paid the credit for married couples by each of their employers.

There’s a twist, too. Because of the way the withholding tables were set up, each working spouse may be paid up to $600 this year — instead of up to the $800, Mezistrano said.

In other words, the husband would receive $600 at his job and the wife $600 at her job, for a total of $1,200. Since they’re only entitled to $800 total as a couple, that means they would have to pay $400 back to the IRS — or see their refund reduced by that amount.

Anyone who receives income from a rental property or investment, such as interest and dividends.
Your employer only knows about the income you earn at the company. If you receive other income that increases your modified adjusted gross income — or even pushes you past the income limits for the credit — you may end up owing the IRS some or all of the credit you received in your paycheck.

Anyone who started receiving their credit at the end of Febuary or anytime in March. The withholding tables are structured so that payments starting in April will add up to $400 for single filers and $800 for joint filers by year end. If payments start sooner than that a tax filer may actually receive a bit more than he’s due by Dec. 31.

Conversely, if your employer doesn’t start your payments until the end of April or in May — there’s no penalty if an employer doesn’t meet the April 1 deadline — you may end up getting a little less of a credit than you’re entitled to, in which case you can claim the rest when you file your 2009 tax return.

Wondering if you’ve got your withholding right? Use this IRS calculator to find out. The CNN article has more information about the credit, who is eligible, and who isn’t.

Here comes your stimulus bonus [CNN]

Comments

Edit Your Comment

  1. mobilehavoc says:

    Sounds good to me…I always prefer to owe the IRS money (not too much of course) every year. At least I can invest the money I will eventually owe the IRS and make some interest on it. I don’t understand why people think getting a refund is such a good thing, you’ve essentially given the US gov’t an interest free loan.

    • Canino says:

      @mobilehavoc: Exactly! I used to work with a bunch of morans who just loved loved loved getting their big tax refunds while I paid around $400 every year. I never could make them understand they were getting their own money back that they had overpaid, and that they had given the government a free loan while I was getting a free loan.

      • winshape says:

        @Canino: Here in NC, the state refunds are delayed because they can’t afford it. That’s another advantage to not withholding too much – you may not get it back.

      • I_am_Awesome says:

        @Canino:

        You have to consider the psychological factor. If you just look at the math, you’re better off owing than getting a refund. But for someone who spends based on the amount of money in their pocket, that extra little bit in their paycheck would be wasted on crap; they’d have nothing to show for their money at the end of the year. Getting a refund from the IRS is the only way some people are able to force themselves to save. I’m not one of those people, but I know many who are like that.

        That is why Obama’s stimulus is in the form of small payments in every paycheck. Bush gave us big lump sums that many people either saved or used to pay off debt (though some did use it to make a large purchase). The point of the stimulus is to get you to spend, and giving people insignificant amounts of money will make them spend it rather than save it.

        • milk says:

          @I_am_Awesome: Guilty as charged. I’m an idiot.

        • kd420 says:

          @I_am_Awesome: Exactly why I opt for a refund. Especially since the most I’d be getting is the petty interest from my savings account, I would probably be frivolously spending more than whatever interest I lost.

        • mobilehavoc says:

          @I_am_Awesome: It took me a few years to get comfortable with the idea of having to pay the IRS every year on top of withholding. Like most Americans, we’re trained somehow that it’s a bad thing although I can’t figure out how/when that happened.

          Granted these days the interest you’d get saving is miniscule but I’ve been doing this for years now and during the up market I was making 5-10% interest on money I owed the government. At the end of the year, the US gov’t got their money and I got to take a little off the top. Everyone’s happy :)

        • sebadoh128 says:

          @I_am_Awesome:

          I would see it the other way, do you really think people are going to budget or spend an extra 40-80 dollars per month just because there paycheck has been increased? I don’t, I think the belt tightening continues.

          People see a $400-800 check in the mail, they think, Gee, I must have won the lottery I never played, to Home Depot/Wal Mart/Target/Bevmo we go. Now, they see (more likely they don’t see) an extra $15-20 bucks a pay period (26 of them like me) and they go about their business and let direct deposit or check into cash do it’s thing.

          Bush’s didn’t work, this one won’t either.

          • yagisencho says:

            @mobilehavoc:

            I continue to have them grossly overwithhold my taxes so that I can count on receiving (what I trick myself into perceiving as) a tax-free bonus once a year. Yes, I forego the $25 in interest I could have made by saving that money outright. But it’s worked well for my family over the years.

            And you know what? My government can desparately use interest-free loans from its citizens. You’re welcome.

        • KenJason says:

          @I_am_Awesome:

          I don’t think $13 a week is going to make me feel like going out with it and stimulating the economy. Give me the lump sum. I can use it on a down payment for something.

          Paying down a credit card isn’t a bad thing to do with it either. The less I owe on it, the more I can spend, right? =)

    • Joewithay says:

      @mobilehavoc: Yeah exactly why I don’t overpay on my estimated taxes.

    • TVGenius says:

      @mobilehavoc: I look at is as mandatory savings if I have them deduct too much. Then I get a fatty refund I can spend on something frivolous. :)

      • captadam says:

        @TVGenius: Just set up your pay to redirect that extra money automatically into another account, and you won’t even know it’s missing!

      • Illiterati says:

        @TVGenius: Yeah, a no-interest saving account. And a no-interest loan to the government. Would they give you the same? Don’t think so. Get a real savings account this year and make the government steal that money from some other sucker.

    • Etoiles says:

      @mobilehavoc: I’d rather get a small refund than have to make sure I don’t spend a huge chunk of money just so that I can send it to the government. Juggling everything is tight enough as-is.

      Now, if I were getting thousands of dollars in refunds sure, something would be wrong, but I’d rather gain $400 than have to write a $400 check.

    • Shrew2u says:

      @mobilehavoc: I see a lot of the “big refund = good” mentality at work; they wonder why they’re living from hand to mouth from April to February, then they imitate drunken sailors as soon as they get that big check in hand. There will probably be a lot of ticked-off hand-to-mouthers next tax season, if Uncle Sam starts looking for cash back or lowers expected refunds to adjust for overpayments.

    • Anonymous says:

      @mobilehavoc: I’m lucky enough that I can afford to have extra money deducted from my paycheck so I can have the peace of mind of knowing I have a cushion in case my taxes are more than I expect. Besides, I’m just going to put most of it in the bank anyway when I get the refund back. I use it as an opportunity to be thankful/grateful to God that I’m not in desperate need of the money.

  2. noone1569 says:

    I like that calculator. . .good stuff

  3. Etoiles says:

    Our employer (my fiancé and I work for the same company) started changing the rate on the March 6th paycheck. My trusty pocket calculator says that I pay 0.7% less federal income tax now than I did in February.

    I’m annoyed that it means they overcalculated but I suppose for the whopping $30 it might be by year’s end that I can afford to lose that from my refund.

    Besides, January 2010 will be our first year filing jointly. Who knows what that’ll do to it all.

  4. Matt Saracen says:

    I can confirm the extra $600 to each spouse. I am glad to know this is happening to everyone. How can the government screw that up?

  5. StutiCebriones says:

    Consumerist mavens, mobilehavoc is right. Let’s spend some time pointing out how it’s better to owe a little than to get back a lot.

    • arl84 says:

      @StutiCebriones: You have to be good at accounting, and patient, for that to work. You have to pay the taxes regardless, so I’d rather just let the government manage the money for me, and let them keep the interest. For lots of people, the amount of interest earned is so little that it’s not really worth the trouble. I tried it one year, did the math, and it was only like $30 or so. Sure, my paychecks were bigger, but it’s nice getting a big return every year (mine usually equals out to an extra paycheck) instead of paying a bill. ‘Cause I sure as hell wasn’t saving the money that I was getting back.

  6. CoffeeChewer says:

    Already had to increase my withholding due to a Trad IRA->Roth conversion earlier this year. Might have to increase more now.

  7. theblackdog says:

    Oh I know I should adjust my withholding, but after how many times I had to scrape up cash to pay my damn taxes while in college, I’d rather take the hit now in my paycheck and get a refund later.

  8. krispykrink says:

    What the heck you talking about? CA just raised all of our taxes from employment to sales tax. It completely reverses whatever “stimulus” er, smoke and mirror circlejerk, the cult in Washington has done.

    Anyways, I have no withholding’s. I send the Government money each year when it’s due, not give them an interest free loan. And I’m leaning heavily on not paying any Federal Tax this year because these bailouts are nothing more than taxation without representation.

    • Yossarian says:

      @krispykrink: That decision may pay off by decreasing your housing cost for 10-20 years.

    • ZukeZuke says:

      @krispykrink: Seriously? Let us know how that works out for you. Hopefully not from a Federal penitentiary.

      • Brunette Bookworm says:

        @ZukeZuke: Yeah, because they may not come after him this year, but eventually they will garnish your check OR they can even send a letter to the employer forcing them to withhold taxes, and you can’t change it. I work in payroll so I have gotten these for some of our employees.

  9. JmoneyGangsta says:

    I understand the logic of giving back little bits instead of lump sums, but I really hate this credit. My wife and I both work and we are being overpaid.

    I know it’s technically better to owe in April, but I really like getting that bonus refund money. We’re pretty much month to month as it is and owing $400 in April is not cool. If we can make it when Uncle Sam is taking out too much, the refund means we can buy something we’ve been too cheap to buy for the past few months.

    I also don’t mind giving the government an interest free loan as long as they give me back what I’m due. I’m pretty sure they could use it right about now…

  10. forgottenpassword says:

    Um…. I LOVE this! I LIKE paying at the end of the year. That means I basically got a tax free loan from the feds/state & earned interest on it. Paying it back at the end of the year is ok with me… since I am a voracious saver.

  11. UnicornMaster says:

    I’ve always heard it’s better to have a higher withholding and pay money at the end of the year. Otherwise, it’s just money you’re giving to the government interest free. At least you can put the money away and make some more money with it, even if it’s just 1.5%.

  12. Dillenger69 says:

    Bush the first got me that way back in the day. They changed people’s withholding but left the amount owed alone. I ended up owing money at tax time and hadn’t saved up because I didn’t know it was coming.

    • humphrmi says:

      @Dillenger69: I remember that too! Old George senior was under pressure to pull us out of the recession, and this was Bush’s hairbrain idea – increase people’s paychecks, then hightail it back to Texas before they get their tax bills. Brilliant!

  13. rexmus1 says:

    I guess what I don’t understand is, if you’re a DINK (duel-income, no kids, filing jointly, no home-loan interest to deduct) and already claming “0″ what do you do? Claim -1? I already got screwed once when I had to enter last-year’s refund into turbo tax and it knocked down my refund considerably. How screwed will I be now?

    • Brunette Bookworm says:

      @rexmus1: You can add an extra dollar amount per pay period to be withheld if you don’t think claiming 0 is enough out of your check. E.g., claim 9 deductions and an extra $5 per paycheck withheld.

  14. rexmus1 says:

    sorry, meant “last year’s STIMULUS” knocked down ’08 refund…

  15. AstraBabble says:

    I have two jobs, but I usually get about a $1500 return so maybe this year I will just break even. That’s fine with me.

  16. HogwartsAlum says:

    Oh crap, mine started last week. I got an extra $10 in my paycheck.

    Does that mean I’ll owe $10 at the end of the year?

  17. trujunglist says:

    This year I came in exactly even, which is exactly what I wanted. That, or owe just a tiny bit.

  18. glitterpig says:

    “Joint filers whose spouses work.”

    Oh, you’re f’n kidding me. Seriously, what percentage of joint filers does that include? And it didn’t occur to them that it might pose a problem?

    I already got screwed over this year for my husband’s job not withholding enough. (Remember kids, the US has a pay-as-you-go system! You may be charged penalties if you owe too much at the end of the year!) Now that I’ve tried to fix that by withholding more from my paycheck, they’re breaking it again? GAH.

  19. costanza007 says:

    super-complicated tax code is super complicated

  20. plutonyum says:

    Wow, the “you’re giving the government an interest-free loan!!!1″ crowd is in full effect. This nugget is starting to rank up there with the tired “think about all the money you’re wasting on your daily latte” advice.

    Some probably don’t realize this, but for many readers of this site, we know. We don’t care. We’d rather know that we’re getting a big check every spring than getting a couple extra bucks each paycheck throughout the year.

    Yeah, yeah, we’re wasting $dozens in interest. Many of us have weighed the options and made the decision to not worry about writing checks to the government, and just let Uncle Sam swim around in our interest coinage like Scrooge McDuck for 11 months.

    • arl84 says:

      @plutonyum: I know, right? My refunds are usually $1000-$1200. Would 12 months of interest on that amount really be worth all the extra hassle of checking my deductions, calculating how much to withhold, moving it to my savings, and then moving it back at tax time to pay uncle sam? No. Uncle Sam can gladly keep my interest for the trouble, he needs it anyway, and I’m happy to get a big check every year that I can use to buy stuff I normally can’t afford, like car repairs or a new computer.

  21. FrankenPC says:

    Jokes on you IRS…The massive amount of interest my vampiric home loan generates MORE than offsets anything I could owe. HA HA HA! I win??