It's a nice credit if you qualify, and even more-so if you can keep it. You see, the problem is that this credit is being applied to each job that an individual has, so people with more than one job, or married couples where both husband and wife work, could receive more than the maximum allowed credit. If you receive more than the maximum, you'll need to pay that back in next year's income tax return.
Here are some examples from an AP article about this problem:
My wife and I have a situation similar to married couple example above. Since I set-up our withholding to have as little as possible withheld (low or no refund, but we keep our money and can at least earn a little something on it), I will need to start planning on either increasing our withholding to offset this problem, or I will need to make sure that I have the extra $400 or so to pay back to the government.
- A single worker with two jobs making $20,000 a year at each job will get a $400 boost in take-home pay at each of them, for a total of $800. That worker, however, is eligible for a maximum credit of $400, so the remaining $400 will have to be paid back at tax time -- either through a smaller refund or a payment to the IRS.
- A married couple with a combined income of $50,000 is eligible for an $800 credit. However, if both spouses work and make more than $13,000, the new withholding tables give them each a $600 boost -- for a total of $1,200.
There were 33 million married couples in 2008 in which both spouses worked. That's 55 percent of all married couples, according to the Census Bureau.
- A single college student with a part-time job making $10,000 would get a $400 boost in pay. However, if that student is claimed as a dependent on a parent's tax return, she doesn't qualify for the credit and would have to repay it when she files next year.
- The Social Security Administration is sending out $250 payments to more than 50 million retirees in May as part of the economic stimulus package. The payments will go to people who receive Social Security, Supplemental Security Income, railroad retirement benefits or veteran's disability benefits.
The payments are meant to provide a boost for people who don't qualify for the tax credit. However, they will go to retirees even if they have earned income and receive the credit. Those retirees will have the $250 payment deducted from their tax credit -- but not until they file their tax returns next year, long after the money may have been spent.
- Retirees who have federal income taxes withheld from pension benefits also are getting an income boost as a result of the new withholding tables. However, pension benefits are not earned income, so they don't qualify for the tax credit. That money will have to paid back next year when tax returns are filed.
How much of that heralded 95% will get hurt next year by Obama's "generosity" this year?
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