The $787 billion stimulus package had a little provision called the "Make Work Pay" tax credit. This how President Obama gave a "tax cut" to 95% of Americans. It wasn't a cut in marginal rates, as tax cuts are commonly understood. It was a tax credit, but not as tax credits are commonly understood, either. Usually, if you get a tax credit, it doesn't come until you file your tax return, and then it is deducted from the amount you owe, or is added to the amount of your refund. That's not how this one worked.
This tax credit was given to tax payers in advance by a decrease in the amount of federal withholdings. For individuals, it amounted to about $400; for joint filers, about $800 over the course of a year.
But wait...
What if a person had more than one job? Or was drawing a pension or Social Security while still working? OOPS! In these cases, both paychecks had reduced withholdings. There was a double-dip when the worker was entitled to only one scoop of tax credit. What now?
They'll have to pay it back. It's like getting a loan that you didn't ask for, and didn't know you had received. But on April 15, the loan is due in full. Millions of taxpayers don't know what's in store for them.
That's the bad news. The good news is that the IRS expects that most taxpayers who will have to pay back their tax credit will not have to send in additional money with the amount they would ordinarily owe to pay their taxes. They will simply get a smaller refund than they were expecting.
Maybe that's bad news, too.
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