Everybody loves getting a little extra money, and the new Making Work Pay stimulus package is designed to give everybody a refundable tax credit spread out over every paycheck. The amount for 2009 and 2010 is up to $400 a year for individual taxpayers and up to $800 for married couples filing a joint return. Sounds great right? Well for some it is, but for seniors whose only income is a pension it may actually create a tax bill for them at the end of the year.
Seniors whose sole income is a private pension or annuity are not eligible for the credit. However, since the new tax tables change the amount being withheld for everyone regardless of their individual situations, many seniors may end up having to pay the credit back! This could mean a reduced tax refund come April 2010 or even a tax debt. Yikes!
So how do you know if you are at risk? All taxpayers should review and adjust their W4 each year to ensure that they have the correct amount withheld and adjusted for the credit. If you have not already done so, take ten minutes and check your withholdings. Additional at-risk taxpayers who are no eligible for the credit include: younger wage earners who are claimed as dependents by their parents, workers with multiple jobs, and Social Security recipients who also have other sources of income.
In addition, the IRS website, www.IRS.gov, provides a withholding calculator you can access on-line to ensure that enough tax is being withheld. You can also request Publication 919 for guidance on tax withholding. Doing so now will ensure that you nip this problem in the bud before it becomes a tax headache next April.