UPDATE: Millions To Owe IRS Due To Stimulus Credit - Treasury
(Updates with IRS, Treasury response, beginning in eighth paragraph.)
By Martin Vaughan
Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- More than 15 million households might owe more to the
Internal Revenue Service next year because a tax credit in stimulus legislation
meant that not enough taxes were withheld from paychecks, according to a
Treasury Department report.
The $400 tax credit was proposed by President Barack Obama during his campaign
for the White House and was a centerpiece of this year's stimulus bill. The tax
credit was delivered by reduced withholding, leading to an increase in take-home
pay aimed at jolting consumer spending.
But 15.4 million taxpayers may have had too little withheld and will have to
pay some of the tax credit back to the IRS when they file in 2010, according to
the Treasury Department audit released Monday.
In addition, more than 1 million taxpayers might face new underpayment
penalties or see penalties increased as a result of the under-withholding, the
report said.
"More than 10% of all taxpayers who file individual tax returns for 2009 could
owe additional taxes because their withholdings were reduced by more than the
Making Work Pay Credit," said J. Russell George, the Treasury Inspector General
for Tax Administration. "If corrective actions are not taken, this problem will
continue to plague taxpayers in 2010."
The problem comes because certain groups of taxpayers were advanced more than
they were entitled to receive under the credit. That includes working teenagers
who are claimed by their parents as dependents; single taxpayers with more than
one job; or married couples where both spouses work.
The IRS strongly contested the findings in its official response to the
report, saying that TIGTA's estimate of those who will owe the IRS is "
overstated." The IRS said TIGTA did not take into account that some taxpayers
adjusted their withholding on their own in anticipation of having too little
withheld.
The IRS also noted that many taxpayers will see larger refunds because of the
stimulus tax credits - particularly low- to middle-income households who already
have little taxes withheld from their paychecks.
"There is always some difficulty that comes into play when you are dealing
with withholding," said Eric Smith, an IRS spokesman. "It's a balancing act, and
we try to capture it as best we can."
"Making Work Pay was designed to deliver much-needed boosts to the paychecks
of 95% of all working Americans," said Nayyera Haq, a Treasury Department
spokeswoman. "The IRS has worked quickly and effectively to ensure that
taxpayers received the benefit of this credit as soon as possible, and will
continue to do so going forward."
Also on Monday, the IRS released withholding tables for the 2010 tax year. The
major difference from 2009 is that while the $400 credit was spread over nine
months, because the stimulus bill was enacted in the first quarter of 2009, the
credit in 2010 will be spread over the entire year.
Treasury didn't make any changes to specifically address the widespread under-
withholding identified in the TIGTA report - meaning the problems could continue
in 2010.
The IRS said it will continue outreach efforts to inform taxpayers that they
may need to adjust withholding as a result of the stimulus credit.
Estimated tax penalties may apply if a taxpayer's year-end tax bill exceeds $
1,000. But many taxpayers may qualify for a penalty waiver if withholding
changes due to the stimulus credit played a role, the IRS said.
- By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@
dowjones.com
(END) Dow Jones Newswires
11-16-091251ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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