Stimulus program could mean tax hit

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March 5, 2010

By DANIEL HUMAN The Kokomo Tribune Fri Mar 05, 2010, 11:15 PM EST

A few extra stimulus dollars on paychecks in 2009 could force some taxpayers to pay a much larger amount this year, even if they usually receive money back, some tax experts warn.

President Barack Obama signed the Making Work Pay Tax Credit into effect last year as part of the American Recovery and Reinvestment Act.

The credit lets employers withhold less in taxes on their employees’ paychecks. Taxpayers can then file for the credit on their returns, up to $400 for individuals and $800 for couples filing jointly.

But people with multiple jobs, married couples, pensioners and several other groups, who may be used to receiving money back from their returns, could have to pay out by April 15 because of the stimulus program.

In some cases, employers may reduce withholdings by the maximum $400, not knowing their employees have second jobs. If the second employer also reduces tax withholdings $400, then that means those people received $800 in extra pay. Those employees could have to pay back $400 more or receive $400 less on their return.

Kokomo tax consultant Dale Hogan said he has had a few clients, mainly lower income taxpayers, come in and experience that problem.

“It’s not infrequent,” he said. “Everybody is touched. Some people don’t realize it because maybe they had a new child, and they get deductions because they had a child.”

Couples who file jointly may also have to pay more if their household income is more than $150,000, which is when eligibility to file for the $800 credit for couples phases out.

Eligibility cuts off for individuals with at least $75,000 income. So for people who make $50,000, for example, their employers may reduce tax withholdings $400. But if their spouses make $100,000 and they file jointly, then they lose eligibility for the $400 credit.

Jodie Reynolds, a spokeswoman for the IRS’ Indianapolis office, said the federal agency began warning taxpayers last year about some of the stimulus program’s consequences.

Other factors besides Making Work Pay could cause people to pay out more in taxes, she said, such as getting married, having children or retiring.

She recommended people visit www.irs.gov and use the Web site’s withholding calculator to determine how much in taxes their employers should withhold. It could help avoid an unaffordable payment, she said.

“When you’re filling out those calculators, you have to put in the most accurate information possible,” she said. “Then as people’s situations change — you get married in the middle of the year or you lose your job and take on another position — you should always go back to your withholding calculator.”

But Hogan cautioned the withholding calculator can be confusing or difficult to find on the Web site.

“It’s not a bad idea to get to know your tax guy,” he said. “We have a lot of people that stop in during the year and say ‘Hey, I’ve made this investment’ or ‘I’ve done this’ or ‘I’ve gotten this job. How’s it going to affect me?’ ... I’ve got a tax calculator. I don’t have to find it.”

Reynolds reminded taxpayers that Making Work Pay will continue through 2010. People who want to change their withholdings to avoid a tax hit need to speak with their employers about changing their W-4s, she said.

• Daniel Human is a Kokomo Tribune staff writer. He can be reached at 765-454-8570 or at daniel.human@kokomotribune.com.

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