Smart TaxesSmart Taxes

Millions may get surprise tax bills

Taxpayers who didn't have enough withheld because of the Making Work Pay credit will have to pay up when they file.

By Teresa Mears Dec 16, 2010 7:05PM

This post is by Stephen Ohlemacher of the Associated Press.


About 13.4 million taxpayers may be getting unexpected tax bills because they were awarded too much money under President Barack Obama's Making Work Pay tax credit, a government audit said Thursday.


The tax credit, which expires Jan. 1, was designed to increase take-home pay by about $8 a week through new tax withholding tables. The credit was capped at $400 for individuals and $800 for married couples filing jointly.


However, the credit put millions of taxpayers at risk for not having enough taxes withheld from their paychecks, resulting in a tax bill when they file their returns, said the audit by J. Russell George, the Treasury inspector general for tax administration.


Those at risk included people with multiple jobs, married couples who both work, Social Security recipients who also work, and young workers who are also claimed as dependents on their parents' tax returns.


"The Making Work Pay credit is a key tax credit designed to increase spending and stimulate the economy," George said. "However, many taxpayers who are accustomed to receiving refunds when they file their tax returns may have owed taxes and incurred penalties in 2009, and may yet again in 2010, because they were advanced more of the credit than they were entitled to claim."


The Internal Revenue Service reported that the average tax refund was $2,892 in the 2010 filing season, up from $2,663 in 2009. However, the number of refunds dropped by 3.5 percent, to 93.3 million.


The audit says the Making Work Pay credit could have been a factor in the reduced number of refunds.


The credit was Obama's signature tax break in the massive economic recovery package passed in 2009. The IRS moved quickly to start getting the new tax credit to workers, issuing new tax withholding tables four days after Obama signed the law.


About 122 million families and individuals have benefited from the credit, according to the agency's written response to the audit.


The IRS says it undertook an aggressive campaign in 2009 and 2010 to warn at-risk taxpayers that they might not be withholding enough money from their pay, including public service announcements and YouTube videos.


The agency regularly advises taxpayers to check their withholding so they don't get a surprise tax bill when they file their returns.


"This provision was specifically intended to help taxpayers through the severe economic downturn by putting more money into their hands right away, in each paycheck," wrote Richard Byrd, commissioner of the agency's wage and investment division.


Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


More from MSN Money:




Jan 4, 2011 10:31AM

This is crazy! This is not the first time they have done this with the Tax credit tax break garbage. Then the next year you have to pay back how is that a tax break tax credit ect.. Now we might even have to incurred penalties in 2009, and may yet again in 2010.

Dont give it to us if we have to pay it back. If I want a loan I will ask for it!!!!

Feb 9, 2011 11:32PM
Can't we just have a flat tax already?  This year less that 53% of working Americans will be paying any income tax to the federal government.  This has got to stop!  All people living in America should pay for programs they benefit from and the defense of the country not to mention the pay checks of those who look after their interests which are the politicians themselves.  A national sales tax will capture this revenue, not income taxes with deduction after deduction after deduction.  It is an unfair burden on single working people and couples without children.  Let's make the support of our country and the programs used by all funded by all.  As things stand now, people paying income taxes to fund public programs for the poor will never use these programs for themselves or their families.  Please fix this problem, IT'S JUST NOT FAIR!
Jan 4, 2011 8:55AM
We giveth to the IRS and the IRS taketh away over and over and over...
Jan 4, 2011 11:18AM
Though a shocking move, this is neither new nor surprising. Governments were formed with lofty ideals, the Constitution was a well thought out document, admirable. Later the robber barons and bankers took over from government and instituted reforms which benefit only them. We are now lead by a cadre of sly criminals who have an army of despicable bureaucrats whose sole intent is to leach away any gains made by those who toil and try to save. The lamentable thing is that this state of affairs is inescapable anywhere in the world. How to change? It will be a monumental task but not impossible. The people must retake the reins of their own destiny. May we succeed through unrelentingly pushing our representatives to do the right thing. Let's all vote conscientiously.  
Feb 11, 2011 9:17AM

I agree with most everyone, a flat tax would be the way to go. No deductions everyone pays a sales tax on everything they buy except food. Granted, this will not happen. Our politicians are owned by the wealthy and the corporations. Who all are winning with the tax loopholes. The corporate tax rate is 35 percent but few large corporations pay anywhere close to 10 percent much less 35 percent.

Medicare is underfunded by 76 trillion dollars over the next 75 years. No one is doing anything about this huge shortfall. We are an instant gratification society. When the bills come due for all of this debt spending for so many years it will be interesting. And keep dreaming if you think we can grow our way out of this financial mess, it is impossible.

Jan 4, 2011 2:32PM
leavc it to the government to screw things up. And they want to run our health care.
Jan 4, 2011 11:59AM
And now they did it again!!  Starting January 1, you will pay less into your social security.  Now you will have less ss for retirement.  They are "letting" you pay less into your future retirement.  How kind of them.  Aghh!!!!
Jan 4, 2011 6:45PM
If there are just small bits added onto one's existing paycheck you just spend it without thinking about it. If you are withheld that small bit paycheck and then at the end of the year you are handed a couple hundred dollars then you suddenly have a lot of 'extra' money and you are more inclined to go make a large purchase.
Jan 4, 2011 11:53AM

Reading this, I couldn't help but notice the words MAY, COULD, MIGHT.  In other words, this is more hyperbole than fact.  AND, don't miss the wording, " may have owed taxes and incurred penalties in 2009, and may yet again in 2010..."  So, this is not New News!!


Political motivation??


Seems like a waste of space & words.

Jan 12, 2011 8:06PM




What's realy kind of them is telling people up front that there may only get 75% back.  I can think of many ways my money would be better spent.

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.