In 2009 President Obama signed a making work pay credit. It was designed to give every taxpayer a $400 credit. Instead of making the taxpayer wait until they filed their tax return, new withholding tables were designed. At the time it seemed like a pretty good idea give each taxpayer a little more to spend of his take home pay instead of making him wait until he filed his tax return. The idea was to stimulate the economy by giving the taxpayer a little more to spend each month. But there is a flaw and several taxpayers are about to discover it.
Take the college student who is still claimed as a dependent on their parents return. The withholding on their paycheck has been calculated with the new table, unfortunately they do not qualify for the credit since they are a dependent on their parents return. When they go to file their tax return chances are they will find that they owe money, it might even be $400.
Next let’s look at a hard working single person who has two jobs. His withholding is calculated to give him an extra $400 over the course of the year, which means $800 since he has two jobs. When he goes to file his tax return chances are he will find he owes money. He might even owe the extra $400 from the second job.
Now let’s take a look at a married couple and let’s say both of them have two jobs. Together they qualify for an $800 credit. The withholding tables for a married couple have the $800 credit all ready built into them; therefore each individual at each job has an $800 reduction in their withholding. So if they both have two jobs, each of them has had their withholding reduced by $1,600 for a total of an extra $3,200 to spend this year. When they go to file their tax return chances are they will find they owe money. They might even owe the extra $2,400 from their second jobs.
I am not sure about you but if I were to find myself in one of these categories I wouldn’t be too happy. The small amount of extra money I found in my paycheck each month over the course of the year would not make up for having to find a large chunk of it to file my tax return.