Millions may have to repay part of Obama tax credit [Updated]

For more than 15.4 million people, the Making Work Pay tax credit enacted as part of the $787-billion economic stimulus package could turn out to be a Making You Pay Back tax credit.

That's the finding of a government watchdog report out today about the credit, which provides as much as $400 for individuals and as much as $800 for joint filers. It is the signature tax cut that President Obama promised in his campaign and was delivered with much fanfare in February.

The problem: In order to maximize the credit's stimulative effect on the economy, withholding changes for taxpayers kicked in within days of Obama signing the legislation and taxpayers started seeing the changes in their paychecks in April. In essence, the credit was "advanced to taxpayers through their wages by a decrease in federal income tax withholding" for the 2009 and 2010 tax years, according to the report by the Treasury Department's Inspector General for Tax Administration.

If too much of the credit was advanced, a person would end up having to pay the extra money back. After analyzing 2007 tax return data, the Inspector General found that more than 15.4 million people could fall into that category this year. Among the reasons for having to pay back some of the credit are having more than one job or receiving pension or Social Security payments while still working.

The Internal Revenue Service said the report overstated the problem. The agency noted that about three out of four taxpayers receive refunds on their tax returns each year, averaging about $2,700 each. For most households, the withholding problem associated with the tax credit "means a reduced refund and not an out-of-pocket tax liability," the IRS said in a letter to the Inspector General.

[Updated at 1:42 p.m.: IRS spokesman Eric Smith said this afternoon that the agency would waive any underpayment penalty related to the tax credit. The agency is working on a waiver process for the approximately 65,000 people it said would face a penalty.]

[Updated at 9:15 a.m.: The Treasury Department put out its own statement on the issue. "Making Work Pay was designed to deliver much-needed boosts to the paychecks of 95% of all working Americans. Since enactment, more than 110 million families have benefited from as much as $60 in additional take home pay each month to put toward their family budgets -- serving as a steady boost to spending and consumption. The IRS has worked quickly and effectively to ensure that taxpayers received the benefit of this credit as soon as possible -- starting just days after the Recovery Act became law -- and will continue to do so going forward."

-- Jim Puzzanghera

Photo: Gary Friedman / Los Angeles Times

Comments

[Andy K]

What did you expect, you act like the community organizer knows what he is doing.

[gary]

Trust me - I'm from the government. I'm here to help

[See I told you...]

I knew it! I don't trust this joker, his head is in the right place but the issue is execution. I figured out how much "credit" over-paid my husband and I; then added it back into our additional withholdings. Glad I won't owe!

[Toluca Lake Observer]

Ooh, the grouches are here already! And it is such a nice day outside. Why do they spend so much energy hating?

[George]

I knew this was coming.. Maybe they should just stop messing with the "free market" and let it do its job and we wouldn't have this mess we're in..

[erik]

do people just not pay attention to the world around them? seriously, this was ALWAYS billed as an advance on taxes refunded in 2010. those who adjusted their withholding did so to protect their refund in 2010. those who did not adjust their withholding will have a smaller refund in 2010.

it amazes me the depth of idiocy contained within the common person. seriously, each taxpayer had a choice here.

[Joker?]

'If TOO MUCH of the credit was advanced, a person would end up having to pay the extra money back. ' Meaning if they got more than the promised $400. This is similar to claiming more dependants than they have throughout the year and then paying the actual amount owed(that which one would have paid incrementally throughout the year) come tax season.

Learn to see the bigger picture.

[Tony]

Screw the IRS and the Government

[S]

Oh boy!!! More good news for the working people!

[Ramon]

Obama, Obama, oh how we love to hate thee. How many people can look at me with a staight face, and tell me that Obama is not the Dumbest excuse for a President? The guy is littered with road kill aka his drop out buddies who have all had to resign over crimal behaviour. This is no different, Obama is TAXING us at the worst possible time. We are all broke, and the Government is saying Oops one more time! Give me a break. Obama can you please resign as well as every other idiot you have nominated? This would go a long way to show good faith that you acctualy care for this country, cause right now you suck!

[Joker? Humm, yes...]

Agree with erik! Exactly my point...too many individuals thought "free money". I heard exactly the sentiment around my office.

To poster Joker?: You totally missed my point, I didn't want to owe. I took the responsibility to figure out how much (too much) was "credited". Many individuals are having issues making ends meet right now. If they cannot put food on the table how are they going to pay an IRS Bill? Maybe you should learn the bigger picture :)

[Will]

Much ado about nothing here. If you have any sort of ability in the area of arithmetic, one can easily see that this might happen when you change the amount of tax withholding. At the end the year, the sum total is still the same.

If you do owe, which I always do, consider it an interest free short term loan from the govt. If you are due a refund, you just gave the govt an interest free loan and Uncle Sam thanks you for it.

[Katt]

George, your comment hit the nail squarely on the head. This stimulus approach is just putting us farther behind the 8 ball.

[Joe #1]

Earth to Washington, DC - Earth to Washington, DC - come in please. *HELLO* - I don't work two jobs because I want to.

[Hairy Carrion]

Why don't they ask the Banksters to repay their stimulus package, instead?
And stop picking on the poor, working and middle class taxpayers.

My ass hurts from all this probing.

[Alex]

@ Joker? et al: "learn to see the bigger picture"? Wow, $60 per month! I was certainly stimulated by that. How about if the government just backs out of all but the most basic things in my life? How about allowing citizens to decide how best to spend their money? Ever been to a DMV or had to deal with an entity of the court system? Cash for Clunkers: cost $24K/vehicle -- insane! Social Security -- bankrupt! Medicare/Medicaid -- bankrupt! Now the government wants to run our healthcare?!? In the end we'll all be working for the government.

Wake up people! You are owed nothing from our government, except its support of borders, language and culture (via Constitution and Bill of Rights). Not only are you not entitled to health care and all this other crap, you shouldn't want it. Learn how to manage your own life, and keep the government out of it ... or continue to enslave yourself and your family forever.

[Art in San Clemente]

Well, this should not be a surprise. The method of implementation guaranteed this problem. For those paying attention, any money owed back (or smaller refund) should have been expected. For the rest of the folks, hey, it was free money - (don't worry, the grandkids have the bills covered), so stop complaining.

It's going to be really nasty, when all the bills come due. Remember, in the long run, thanks to new levels of national debt that George W could only dream of, will be in place the next 4-8 years, the new Bill Collector on the block won't be Uncle Sam, but

China.

You see, until very recently, while the Federal government ran up a ton of debt - roughly $10 trillion, which Obama plans to double in the short term, we had one thing going for us:

Most of that debt was to ourselves. The government borrowed from the old Social Security surpluses which are now a thing of the past. We borrowed from citizens with savings bonds, and treasuries and US Gov long bonds. Our business also bought in, when it made sense.

Today, however, that's all changed. The US now has to unload the majority of its new debt overseas, primarily to China.

Soon, you won't have to worry about vacationing in Hawaii, or drilling oil in Alaska, we'll probably have to sell both states to China within the next decade or so, to keep us from having to file bankruptcy.

Virtually every economist says we cannot maintain this level of borrowing very long (a couple few years) certainly not a decade.

Worse, it's smoke and mirrors, for example most of the gov healthplans overhauls being put forth will add $100 - $250 billion a year to our debt load on top of everything else. That will make the wars in Iraq and Afghanistan/Pakistan look like low cost expenditures.

True, first few years there will be profits -because it will be all taxes and virtually no new healthcare, for the first three years.

Tis a shame the CBO won't provide a year by year breakdown. My money is on $220 billion loss for any new healthcare program, in the last year alone of the 10 year projection. Scary. And don't forget, Obama has to borrow $250 billion just to keep from dropping doctors payouts (nevermind cost of living increases).

BTW I'm confused, how come teachers are noble creatures who, with experience (not necessarily skill) often make an adjusted $70K - $100K+ considering benefits and the fact that they get an extra 10 more weeks off a year then most private sector workers. Yes, they are noble, but our president seems to think that our Doctors, many of those those in private practice not making much more than teachers, are greedy, evil people responsible for our poor health system, and for providing terrible medical care.

This must be the case, or we wouldn't be tearing down what works as an excuse to give health insurance (they already get health care), to a couple dozen million people, many of which already qualify for existing programs but are just too lazy or clueless to apply. -a

[Whit P]

For the Silver Tongued Devils in this administration:

Every penny you receive from a taxpayer is an "out of pocket liability." When someone sends the government more money than they have to during the year, and the government has to refund the access, that is simply getting your change back.

It is like buying your prescription at WalMart for $4.00. You give the clerk a $10 bill and the clerk refunds $6.00 of your $10.00. If the clerk elected to keep an additional $1.00 of your change, your out of pocket liability has increased $1.00.

The administration has obviously made significant errors in funding this ill conceived stimulus boondoggle and is going to demand that the needy recipients bare the brunt of government's poor planning.

This administration is directly responsible for increasing the out-of-pocket liability for Americans who can least afford it.

"Americans never vote for a Democrat. Americans never, ever vote with a Democrat."

Whit

[JUJU]

I'm happy to pay my fair share of taxes. That is part of being a citizen. I am so sick of people complaining about taxes -they're pretty low compared to other countries. And, I didn't see many of these people complaining when the Bush administration gave businesses and the wealthy huge tax breaks during war time. People need to understand why we are in the debt we are in; it wasn't created in the last six months.

[Duane]

If this bunch of community organizers and tax cheats ran our health care and I had an organ transplant, maybe they would figure out it wasn't due me and make me give it back. Face it, it's a government operation!

[Holly Star]

Classic Obama!

I guess since he's never actually had a job, let alone run a business, we should have expected nothing less...

Can I have my vote back yet? Even that nitwit Ron Paul is starting to make more sense.

I heard Obama was planning on paying down the deficit with Stimulus money over the weekend. That can't possibly be real, can it? I laughed for hours.

[Last time I checked, getting an interest-free loan was a good thing]

How is this a bad thing? If you have to owe money at the end of the year because your taxes are under-withheld, that's a good thing. You've just earned an interest-free loan from the government. In any case, this was quicker and a steadier source of revenue than a big fat check that was issued by the previous administration. And even then, there are likely folks that had be pay back some of that credit because of their personal financial situation. I'd be careful of misinformation floating around on these darn internets.

[Romgtr]

The Libs don't understand human pyschology when it comes to the economy, health care, marriage, governing, etc. That is why we're in the mess that we are in and the this hole is getting bigger...

[Alan]

Is it too much to ask that a person familiar with mathmatics could have been used by the Treasury Dept. to actual do it right the first time.

Don't go killing the leader, its the morons responsible for using a calculator you should be looking to linch.

[thomas]

LOL at the Obama Haters..after 8 years of let's see...Stealing 2004 election with the help of his brother in Florida, drafting plans for a "fake" war against WMD's, coming in with a surplus in the Fed Gov, leaving with the largest Def. in history, creating a world wide climate of hate in every country out there with his "my way or the highway mentality, turning a blind eye to torture,allowing the free market to create the mess we are in now economically, and many more acts...ask yourself in eight years what did he do to improve your lives...well except if you were rich...

[Dave]

Only stupid, uneducated ACORN voters will have to repay this clown -- all us smart conservative "Tea Party people" figured this out immediately and increased our with holding amounts months ago. You stupid liberals deserve every screw job your clown gives you! You idiots elected a non-American citizen clown! The Joke(r) is on you but heads!

[Do you see it yet]

Oh boy, I can hardly wait to see deficit neutral health care.

[Richard]

To the dolts who keep saying it was a "interest-free loan from the government" please refrain from posting stupidity on these boards in the future.
The money you earn with your paycheck (the gross, not the net) is YOUR money in the first place. It is the GOVERNMENT (Fed, State, Local) that is getting the interest-free loan from YOU when they pluck out up to 50% of your pay before you ever see a dime of YOUR money every two weeks.

[Calvin]

Ok so the problem was found and fixed, so hopefully LA Times will report the correction....or maybe...you'll just let mis-statement of the facts just float....out there

[TruthTeller]

George W. Bush last deficit was 425 Billion dollars. Obama's first deficit will be 1.8 TRILLION dollars. And there are progessive demotards who still believe this crap. Unfreakingbelieveable. Well, I guess they call them USEFUL IDIOTS for a reason.

[Last time I checked, getting an interest-free loan was a good thing]

It's a tough cause to fight for civilized debate on an anonymous internet comments thread. But in any case, for those reading that are intelligent enough to focus on the issue at hand rather than attacking others with name-calling, ultimately, the credit was passed to help those in need. Due to how the withholdings were done, some got more money back than their taxes called for. They now have to pay it back. Good for them, they got a free loan in the meanwhile. What would have been the alternative if there was no tax credit at all? They would have even netted less money, because their taxes would be higher.

Yes, there are those that argue on the basis of taxation in the first place. And those that would argue it was the scheme of one political party or another. That's great. Present your arguments when the time comes. Spouting vitriol at others does neither to advance your position nor does justice to those that hold similar views to yours.

[Sam]

Wow, what a sad excuse for journalism this article is. Talk about "gotcha" for nothing. Jim Puzzanghera needs to learn how taxes work.

Except for a few rational comments like JUJU and Will, most of you sound clueless.

Taxes pay for roads, schools, fireman, police and many other necessary things to make a country work. Compared to other countries we pay very little and poorer quality services because people whine and complain that they don't want to pay taxes. When George Bush shoved his scheme to give more to the wealthy and less to the middle and lower class where was the media and where all of you complainers? Nowere. So now when Obama is trying to clean up the mess and you all bitch and moan. So pathetic.

[Phil]

Only Republicans should have to pay it back. They are the ones who are stopping Obama from making our lives all better. If it weren't for the FOX news channel, we'd all have new GM cars and windmills for electricity. They are trying to make our leader fail. Just ask Rush.

[d wilson]

No surprise here; but early on it made good press. To get to the edible fruit inside, one must peel the banana, the orange, the grapefruit, etc. Sounds like the other shoe just dropped. Thanks to B. O. & our "Highly Paid" representative for the Trillions of $ in debt that will NEVER be paid.

[Sam]

d wilson, you can thank GW Bush for getting us into trillions of dollars in debt. Bush came in with a surplus and wasted that when he gave tax breaks to his rich buddies, got us into a bogus war in Iraq, the first Tarp bailout, etc, etc. That is the thing that you need to peel the layers on and see.