Some taxpayers may owe money to IRS from stimulus cash
It was intended to be a short-term stream of cash added to paychecks, but now that tax season is here, the Making Work Pay tax credit has left some people with two jobs surprised at their smaller-than-expected refunds.
The Making Work Pay program, part of the federal stimulus package, began to dole out up to $400 for working individuals and $800 for working married couples in April. The credit appeared in paychecks over the remainder of 2009. Meanwhile, employers balanced that in the amount of income withheld.
But if a taxpayer works two jobs, both employers might have changed the amount withheld.
"So, when you file your return this year and you calculate your Making Work Pay credit, some people end up with a little bit less of a refund -- and a very small portion of the population might be owing a tax when they are used to getting a refund," said Carrie Resch, Internal Revenue spokeswoman.
Because this is a new program and tax filing is ongoing, the IRS hasn't been able to track the scope of the impact from Making Work Pay, Resch said.
Tom Fitzpatrick, tax site coordinator at Community Action Duluth, said taxpayers should be aware of this possibility.
"It's very possible that if you had multiple jobs, you had to be very careful to not come out negative," said Fitzpatrick, whose organization has helped file about 450 returns this year. "The number of people that are running into that, I don't know. There have been a few people that have been surprised, but not that many."
A married couple filing jointly is another group that the IRS is advising to be aware of the impact of Making Work Pay.
"Every situation is different, but it could affect them," Resch said. "It depends on a number of factors -- their amount of income and what they had their allowances set at when Making Work Pay went into effect. ... Those are people we are encouraging to look back at their withholding last year. There are two employers involved and each [spouse's] employer isn't necessarily going to know what the other one is doing with regard to that credit."
If you question your refund, Fitzpatrick advises workers to contact their employer because the program will continue through next tax season.
"Talk to your employers and make sure your withholding goes back to a level before they put it in place," Fitzpatrick said. "If it's one job, it's not that big of a deal. If it's two or three jobs, it can be very harmful."
Anne Scherer of the Tax Lady LLC said effects of Making Work Pay have not been as severe as predicted.
"I've seen some nice and very substantial refunds," Scherer said. "We were all very doubtful of how this Making Work Pay credit would work, but so far it has been as directed. If you have two jobs and you get the equalizer credit, pretty much you are within a few hundred dollars of your normal refund. So it isn't the albatross we thought it was going to be."
If a tax burden is your outcome from Making Work Pay, the IRS is waiving the standard penalty on payment and is providing a "withholding calculator" on its Web site -- IRS.gov -- to help taxpayers better understand the program and prepare for next tax season.