Thursday, April 30, 2009

Tax Disaster May Await You

The "Making Work Pay" tax credit will result in tax savings of up to $400 for individuals and up to $800 for couples, depending upon your earned income. The credit is 6.2% of your earned income up to the maximum credit amounts. (Individuals making more than $95,000 and couples making more than $190,000 are ineligible to receive any of this credit.

To implement this tax credit, the IRS adjusted the withholding taxtables, effective April 1, 2009. So employees have started receiving more money in their paychecks. Unfortunately, the withholding tables do not withhold enough money for several groups of taxpayers.

Those at greatest risk are workers with more than one job, retirees who have federal income taxes withheld from their pension payments, college students who are claimed as dependents on their parents' tax returns, and couples who file joint returns and both work.

This problem has been brought to the IRS' attention, but so far, the IRS has yet to figure out a way to fix the problem.

Some examples:

A. A single taxpayer who has two jobs making at least $20,000 at each job. The withholding tables will give her an extra $800, but she will only get a $400 tax credit. This means she'll have her tax refund reduced by that extra $400, or she will have to repay Uncle Sam the extra withholding she has already spent.

B. A married couple with a combined income of at least $50,000 will get the full $800 tax credit. But if they both work and each earns at least $13,000, they will have $400 too little withheld from their paychecks.

C. A college student claimed as a dependent by his parents and making at least $10,000 will have $400 too little withheld from his paychecks. He'll have to repay the whole $400 to the IRS by April 15, 2010.

D. Pension benefits are not earned income. Those taxpayers who have taxes withheld from these benefits will likely have to repay the $250 payment social security is sending them this month (May). If they do qualify for the tax credit, they will have to deduct this $250 from their credit.

What can you do to try to protect yourself? The IRS, recognizing that there is a problem has created a "Withholding Calculator" on its web site,

Go to the IRS web site and in the Search box on its home page, type in "IRS Withholding Calculator." The first result will likely be a link to the calculator. You will need to have your most recent pay stubs and your most recent tax return. Follow the directions carefully and fill in the information requested. You may find that you will have to fill out a new withholding form, Form W-4, to give to your employer(s), or you may need to get Publication 919, "How Do I Adjust My Tax Withholding?"

This may turn out to save you from possible financial disaster next Spring.

Tuesday, April 21, 2009

Special Needs Trust

Check out this SlideShare Presentation:

Monday, April 20, 2009

New Sales Tax Deduction for Vehicle Purchases in 2009

The Stimulus package passed in early 2009 created a special sales tax deduction for new vehicles purchased between February 16 and December 31, 2009.  Here's a brief article about the deduction:

Thursday, April 2, 2009

Bill Introduced in the Senate to Eliminate 2-Year Medicare Waiting Period

Here is some information about a bill introduced in the Senate on March 25th.

Title: A bill to amend title II of the Social Security Act to phase out the 24-month waiting period for disabled individuals to become eligible for Medicare benefits, to eliminate the waiting period for individuals with life-threatening conditions, and for other purposes.

Sponsor: Sen Bingaman, Jeff [NM] (introduced 3/25/2009) Cosponsors (3)
Latest Major Action: 3/25/2009 Referred to Senate committee. Status: Read twice and referred to the Committee on Finance.
COSPONSORS(3), ALPHABETICAL [followed by Cosponsors withdrawn]: (Sort: by date)

Wednesday, April 1, 2009

How to Find Your 2008 Stimulus Payment Amount

Everyone who files a 2008 federal income tax return needs to know what he/she/they received as their 2008 Stimulus Payment. If you're like me, you have no idea. Here is an article I wrote that explains how you can obtain this information. How to Find Your 2008 Stimulus Payment Amount.