Monday, March 22, 2010

Tax Refunds May be Up, but How are Your Withholdings?

Tax credits launched under the Obama administration's economic recovery bill have boosted the average 2009 refund by nearly 10% from the previous year according to White House representatives.

The average tax refund for 2009 has reached $3,036, according to early data from the Internal Revenue Service.

The Obama administration officials said the increase reflects a growing number of taxpayers taking advantage of the benefits available under the $787 billion American Recovery and Reinvestment Act.

Under the Recovery Act, which was implemented last year to combat the economic crisis, taxpayers can take advantage of over a dozen tax benefits such as the making work pay credit, worth up to $800 for married couples filing jointly, the $8,000 first-time home buyer credit, and sales tax deductions on new car purchases.

The benefits are aimed at helping middle class families recover from one of the worst recessions on record, administration officials said.

The administration states that the nearly $300 billion in tax benefits will help jumpstart the overall economy by encouraging Americans to spend, which ultimately stimulates job growth.
However, some critics argue that the bigger tax refunds could be due to factors other than the Recovery Act credits, including a larger number of Americans withholding more last year due to unemployment or other economic hardships.

Individuals who work into the year and get laid off typically over-withheld while they are working, said J.D. Foster, a senior fellow specializing in fiscal policy at the Heritage Foundation, a conservative research group. That over-withholding can lead to larger refunds.

While, the new tax credits are great, please be sure your deductions are correct so as not to pay the IRS too much during the year. See my tax help blog entry regarding adjusting your withholdings.

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