Eren Tataragasi

Richmond County Daily Journal

A tax credit designed to boost the economy early this year may leave some taxpayers feeling the pinch in 2010.

One of the biggest tax changes this year was the Making Work Pay tax credit employees received. This year, all employees received a few additional dollars per paycheck because they had less money deducted from their pay.

But because some may not have withheld enough from their paychecks, two things could occur. Most people will just receive a smaller refund than normal because they paid less in during the year. However those with more than one job, or married with both spouses working, or receiving Social Security benefits while also earning taxable wages , could end up having to pay Uncle Sam some cash.

Many company payrolls adjusted for the new tax tables which gauge how much should be withheld each paycheck, but for those in the aforementioned categories, it was important to have extra money withheld in order to cover themselves come tax time.

Bobby Singletary, a Certified Public Accountant in Hamlet, said the Making Work Pay is a complicated credit.

The tax credit was designed to pay individuals up to $400 and couples up to $800 — this sum was received by most employees through small increases in their paychecks, beginning in April.

At the same time, the Social Security Administration sent out payments of $250 to more than 50 million retirees as part of the economic stimulus package. The payments were meant to provide a boost for people who didn’t qualify for the tax credit.

Many of those who received the $250 also received the credit because they were working and earning taxable wages. Those retirees who were working when they received the $250 stimulus will have $250 deducted from their tax credit, but not until they file their tax returns.

“So many things can happen,” Singletary said. “My wife for example will get the $400 credit and got the $250 through Social Security, so she’ll be $250 underpaid. There’s a lot of possibilities to go on, a lot of things can go wrong or change.”

“I think a better idea would be to try and get across that you’re talking about $400 maximum per individual and $800 on a joint return, and that you should just be aware that because of this law you might end up owing a little more or getting back a little less and just be prepared for that,” he said.

Cohen Cox, CPA and co-owner of Cox-Hamilton CPA in Rockingham said he doesn’t think it will have a huge impact on people because most will just receive smaller refund checks.

“You won’t go from getting a refund to having to pay because the program wasn’t designed like that,” Cox said. “But it will have some impact.”

He said anyone who, for next year, wants to adjust their withholdings should file a form NC-4 or a W-4 to adjust the amount withheld or number of allowances.

Cox said this year there were also tax credits for first-time home buyers, people who purchased energy efficient doors and windows for home upgrades and for those who purchased electric cars.

There’s also an Earned Income Tax Credit which, depending on a person’s age and number of dependents, could result in a bigger refund check.

Cox said all CPAs and online tax prep software should be programmed to account for these credits this year, but that the IRA is usually good about adjusting for the Earned Income Tax Credit even if the taxpayer didn’t file for it.

The IRS has also estimated this year that about 65,000 taxpayers could face penalties for not withholding enough taxes in 2009 because of the tax credits, but some may be able to have that penalty waived.

The Making Work Pay credit will be available for 2010 as well, so if you have questions regarding the amount being withheld from your check, be sure to check with your employer. The tax credit does not apply to individuals making more than $95,000 or couples making more than $190,000 annually.

The IRS has a calculator on its Web site so taxpayers can check whether they are withholding the appropriate amount of taxes from their pay at www.irs.gov.

n Staff writer Eren Tataragasi can be reached at (910) 997-3111 ext. 19 or at etataragasi@yourdailyjournal.com.