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Some consumers may have to repay Uncle Sam for tax breakby Cara Restelli, KY3 News
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SPRINGFIELD -- More than 15 million taxpayers may owe Uncle Sam $250 or more because of how the IRS set up last spring's tax break. The tax break was designed to give consumers more money in their paychecks to encourage them to spend the U.S. economy out of a recession. Now they're learning many will have to pay some of that money back. Most workers started receiving the tax credit through small increases in their paychecks in April. The IRS adjusted its withholding tables to account for the changes but there's a problem.
The tax credit was President Obama's first big push to get the U.S. economy out of the worst recession decades. It is supposed to pay individuals up to $400 and couples up to $800 through tax breaks spread throughout the year.
“They just took less money out of your paycheck,” said Sandra Byrd, a professor of accountancy at Missouri State University.
The hope was to give you the cash to help boost consumer spending. But the IRS' s withholding tables used to help determine how much taxes should be taken out of each paycheck do not take into account several common categories of taxpayers.
“So people got it twice,” said Byrd.
That could force some people to repay what the government gave them.
“It's not a lot of money, just $400 or $800, but to some people that was entire refund,” said Byrd.
The problem affects three major groups, including married couples who are eligible for an $800 credit. The new withholding tables give them a $1,200 boost. This means they could owe $400.
“It's very frustrating. It's like another set of taxes to pay,” said one woman.
Students with a part-time job could also be impacted. They got a $400 boost in pay but they don't qualify for the tax credit if they're claimed as dependents on their parents' tax returns. So they too will have to pay the money back.
"Four hundred dollars is a lot money I definitely don't have right now," said one MSU student.
Finally, Social Security recipients who received $250 payments as part of the economic stimulus package and work part-time they will also have to repay Uncle Sam.
“They have received part of money already from Social Security and, when they were working, their employer didn't know they received it, so they received more money in paycheck because they had less deducted,” said Byrd.
A worker with two jobs will also have to repay $400 because chances are good that he received the tax credit in both paychecks.
If you're worried whether your employer is withholding enough taxes, you can use a calculator at www.IRS.gov to find the appropriate amount. With only a month and a half left in this tax year, however, it will be difficult to make up the difference.
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