Taxpayers to Get Rude Surprise

[Mike Mac]

You might find the following link to an Associated Press article interesting. It discusses a wide variety of situations where the latest stimulus package will likely have many of our clients wondering if we really prepared their 2009 returns correctly.

Mike

http://www.military.com/news/article/taxpayers-to-get-rude-surprise.html?ESRC=retirees.nl

[ChEAr$]

example

You might find the following link to an Associated Press article interesting. It discusses a wide variety of situations where the latest stimulus package will likely have many of our clients wondering if we really prepared their 2009 returns correctly.

Mike

http://www.military.com/news/article...RC=retirees.nl

I just posted on another board how a joint filing couple, both receiving Social security,
and both civil service retirees, and both still working will wind up $900 to the bad come
next tax day.

[Jiggers]

Next year's tax surprise

And I would say that most of my clients have no clue that they could owe. After I finish some projects, I plan on going back through my files to see who this will effect and send out a notice advising them of the potential problem.

That way I avoid the "why didn't you tell me" comments next year.

[JohnH]

Good article.
Thanks for posting it.

One thing I learned from the article was the situation facing Social Security recipients who also have earned income. They will be eligible for the $400 per person credit due to the earned income, but the $250 they receive from SSA will have to be deducted from the $400 in calculating the credit on their 2009 return.

[DTS]

Mike

Thank you for posting this. I've been wondering about this for some time.

So, assuming the gov't does not provide a fix for this, is there anything we can advise our clients to do? The article mentions changing the W-4 so the t/p will have more withheld. Will this take care of it?

D

[Gretel]

Thank you so much, Mike. Until now I was confused if retirees qualify for a credit above $250 and now it is pretty clear that they don't.

I cannot believe that nothing will be done by the government to fix this problem. It is one thing not to think through the consequences, quite another not to do anything about it once it becomes transparent that this will effect an awful lot of taxpayers.

[JohnH]

I think they will do nothing to fix the problem and gladly leave it up to tax preparers to explain it to taxpayers.

After all, a government that will tax you and me to bail other people out of their dumb decisions would think nothing of leaving us holding the bag when it comes time to explain its own mistakes.

[PIGLEE]

The problem I see is that retirees withholding is being reduced, becuase of the 400.00 workers credit. They do not qualify for the credit. Also if both working couples are claiming married, they have having way to much given to them, big pay back. I need to write letters to my people, but I have tried several times, and every sitution is different, I have given up several times. JUST HAD AN IDEA, COULD "THE TAX BOOK", GIVE US SOMETHING THAT WOULD EXPLAIN IT, AND WARN PEOPLE, WE COULD EMAIL IT OR MAIL IT TO OUR CLIENTS. We went thru this several years ago, when they lowered the withholding, but did not lower the tax. It was one big mess. That one happened during tax season, and I told people to change their withholding, some did, some did it the wrong way, I had several that were mad at me, becuase the government was giving them that money, and I was telling them to give it back. That one was simple, this one is a nightmare.

[Bees Knees]

JUST HAD AN IDEA, COULD "THE TAX BOOK", GIVE US SOMETHING THAT WOULD EXPLAIN IT, AND WARN PEOPLE, WE COULD EMAIL IT OR MAIL IT TO OUR CLIENTS.

TTB already did provide an explanation of the problem.

For the 2/18/2009 update http://www.thetaxbook.com/view_update.asp?1=127 on the American Recovery and Reinvestment Act of 2009, the following information and example are given:

Eligible workers in general do not need to fill out a new Form W-4, nor take any other action for the automatic withholding changes to take affect. Individuals and couples with multiple jobs may want to submit a revised Form W-4 to ensure enough withholding is held to cover the tax for the combined income.

Example: Tina has a part time job with federal income tax withholding that generally is around $1,000 per year. She is married to Louie who has federal income tax withholding from his job of around $30,000 per year. Louie and Tina’s combined income is too high for the Making Work Pay credit. Since Louie’s income is above the AGI phase-out range, the withholding tables do not change for Louie. However, Tina’s federal withholding is reduced by $400 since her income on its own appears to qualify for the credit. Tina receives more take-home pay during 2009 as a result of having less withheld. However, when Louie and Tina file a joint return for tax year 2009, they do not qualify to claim the credit. Thus, their combined federal withholding decreases by $400 during 2009, but their combined federal tax liability stays the same.

Author’s Comment: Employers are mandated to use these new tables. If employees want their take-home pay to stay as is, they must fill out a new Form W-4 decreasing the number of withholding allowances that they claim. Married couples, taxpayers with multiple jobs, and taxpayers with investment income may be at risk for underpaying their tax as a result of these new tables if they do not adjust their withholding accordingly.

[AJsTax]

A letter

I have just finished a letter to send to my clients. It is too long to post here in its entirety. I have tried to cover most of my clients with at least one example.
I would be happy to share it with anyone that would be so inclined to send me a pm email to the email listed under my profile. (at least I think you can see it!)

I want to thank all you have posted ideas and references to learn more about this subject.

[mblatour]

I sent a letter out as well...

about a month ago to all of my clients. I had a lot of time into drafting it, printing it, folding it, stuffing envelopes, typing, printing and applying address labels and stamps; and of course sealing the envelopes. It was well worth the time and money it took me to do it because I wanted to help head off the questions that were coming my way.

The response from my clients has been very grateful. I gave many scenario's so that they could see which would apply to them. I even had my hubby proof read it for me so that the "average Joe" could understand what I was saying.

I even got interviewed by our city's newspaper because someone caught wind of what I was doing and wanted to share it abroad.

I'm sure I'm still going to have quite a headache next tax season, but at least now I can say "don't say I didn't warn you".

Becky

[Lion]

Share?

Becky and others, are you willing to share? I'd gladly pay a token sum to use an appropriate letter instead of reinventing the wheel. If many of us on this board also chip in if they use your letter, you might cover the expense of your own mailing!

If any of you have a letter/postcard/email/web posting that you're using and are willing to share, please PM me. Thanx.

[tpnl]

What About Minors . . .

WIll minors qualify for the credit? How many 16 - 23 year olds will owe tax because not enough was withheld. Parents will be upset they had to pay for a tax return and pay their minor childs tax liability.

[Gretel]

Why would they want to pay for their child's tax liability? If enough taxes were withheld the child would have received less net pay. But you are right, lots of taxpayers will be very upset next tax season.

[OtisMozzetti]

Dependents don't get (up to) $400 Making Work Pay Credit.

WIll minors qualify for the credit? How many 16 - 23 year olds will owe tax because not enough was withheld. Parents will be upset they had to pay for a tax return and pay their minor childs tax liability.

Wage earners who can be claimed by someone else as a dependent aren't entitled to the up to $400/$800 Making Work Pay credit. I looked that up in the text of PL 111-5 at thomas.loc.gov.

EA in California

The text of PL 111-5 reads as follows:

Sec. 1001
(insert a new section 36A')
eligible individual means any individual other than
...
(ii) any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual's taxable year begins...