Making work pay credit

[RLymanC]

The new tax withholding tables reduce federal taxes withheld.

My concern is are taxpayers going to owe taxes due to insufficient withholding at the end if the year, effectively having to pay back the addition take home pay? They did this twice in the past causing many taxpayers to have insufficient taxes withheld.

Not sure how this "credit" works, any help on what to suggest to clients would help.

Just talked to payroll software vender and he stated there is no choice but to reduce taxes withheld or fill out new W-4. He new nothing about the choice of lump sum at the end of the year.

[bruehaus]

There is no "choice" at the end of the year. Most likely there will be a 29-line worksheet similar to the stimulus rebate w/s. If the taxpayer qualifies for the credit, they will have already received it through withholding. If they do not, they will owe an extra $400/800. Also, if they have two jobs, they will be under-withheld. And if they are working and receiving social security, they will get the $250 economic recovery payment, which will reduce the Making Work Pay credit. I foresee a real mess next tax season. I suggest you do some W-4 planning for clients that may be affected.

[JenMO]

I've talked to several of my w-2 clients, and they don't seem to think the extra $40 in their paycheck every month is worth the worry of possibly owing tax next year. I suggested to some that they request extra money withheld to compensate for the lower tax tables. (Having to change their w-4, I guess) Lot of extra work for so little money.

[S T]

Diminished Refunds

Unless this is going to being handled differently than in the past, all I see is diminished refunds for the taxpayer and we as tax preparers will have to explain.

Glad I have a W-4 Calculator from CFS to assist with this mess!

Sandy

[MariaR08]

Hi Sandy,

Is that a spreadsheet you have for the W-4 calculator? Mind sharing it?

Thanks!

~Maria

[S T]

Wish I could Share

Sorry Maria, I subscribe to CFS W-4 Calculator, which over the years has been a great tool for me and calculating t/p withholding changes, gross to net, net to gross, and any projection changes. Actually pretty inexpensive cost, after the initial cost the first year. I have used it for years and more than made up the cost of the program in just a few projections.

I also in conjunction use the Tax Tools program and projection.

I am already utilizing it for the 2009 tax year, and paystubs are arriving weekly!

Keep in mind I am not "plugging" this software or vendor, however, I have utilized their software for a lot of years and has assisted me in preparing projections for many of my clients and their income/deduction changes.

go to taxtools.com

Sandy

[Jesse]

Diminished refunds and upset clients for sure, I'm already NOT looking forward to 2010!

People with more than one job in my opinion are the taxpayers that will be unsuspectingly hit with not enough withholding, therefore less of a refund or a balance due for 2009.