“Make Work Pay” is being touted as a tax cut. The IRS is calling it a tax credit. But there is no “check in the mail”, as some seem to think. I do wonder if we have some weasel words here since nothing is mentioned changing the rates in the tax tables used at the end of the year to figure how much tax we owe. BUT…there IS a change in the withholding tables used by our employers to calculate how much they take out of our paychecks during the year.
This from the IRS: “It is not necessary to submit a Form W-4 to get the automatic withholding change.”
So there you have it. It is a withholding change, something any one of us could do ourselves – IF WE WANTED – to keep more of our money during the year. Which we do, right? Personally, I’ve never thought using the IRS as a saving account was a good idea, and with quite a few states not having the money to refund overpayment of state taxes, when, I wonder, with all the money being spent by the Feds, just when will the IRS have the same problem? But I digress. So depending how you have your withholding set up, you might get less back than before and if you have the very minimum taken out, say, a 2 person household that claims 2 on their W-4, you could owe money at the end of the year, even though up until now you broke about even.
Being rather nontrusting of government types, I have to say, what a perfect way to claim MORE tax revenue came in at the end of the year than before! Simply because people would get less back than in prior years, or now they’ll have to pay to make up the difference.
We also have this little caveat: “These changes may result in an increase in take-home pay. The amount of the credit must be reported on the employee’s 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.”
And then this one: “However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his or her combined income. Publication 919 provides additional guidance for tax withholding.”
And here are more weasel words that folks might not see or not quite understand: no matter your income, if you BOTH work and file jointly they will be taking less out of both your paychecks. That could be a problem so we need to go in and change our w-4s. I think the “higher” tax bracket is a bit disengenious – are we sure just exactly they define “higher”? $250K and up is now rich, $249K isn’t, and this tax credit phases out at $75K for singles, but not someone making $74,999.00, and $150K for married couples file jointly, not $149,999.00. I won’t even go into the stupidity of these lines in the sand that separate the hardworking from the alleged “rich”.
The tax folks with whom I’ve spoken see this as only a withholding change, not a tax RATE change, but the truth is that it can make quite a difference.
All in all, even though how this is actually being done and how it will affect us at the end of the year is still quite murky, be warned.