Avoiding Refund Delays
The IRS has provided this very important information. Please note this is directly from:
Five Tips for Avoiding Refund Delays Relating to Your Economic Recovery Payment
The $250 Economic Recovery Payments that were issued in 2009 by the Social Security Administration, Department of Veterans Affairs and Railroad Retirement Board must be included when claiming the Making Work Pay Tax Credit on 2009 tax returns. Many people who worked during 2009 and also received a $250 Economic Recovery Payment in 2009 are slowing down their tax refunds by not properly including the payments when claiming the Making Work Pay Tax Credit.
Here are five tips from the IRS that will help you avoid these refund delays:
- If you worked during 2009, you may be eligible to claim the Making Work Pay Tax Credit that was established by the American Recovery and Reinvestment Act of 2009 and is worth up to $400 for individuals and $800 for married couples.
- The Economic Recovery Payments are not taxable income; however, anyone who receives social security, veteran or railroad retirement benefits, as well as certain other government retirement benefits, must reduce the Making Work Pay Tax Credit they claim by the amount of any payment they received in 2009.
- Taxpayers with earned income should claim the credit by attaching Schedule M to their 2009 income tax return.
- To help avoid delays when you claim the credit, make sure you properly report your Economic Recovery Payment on IRS Schedule M, Making Work Pay and Government Retiree Credits.
- If you are not certain whether you received the $250 payment, you should verify that information by contacting the appropriate agency before preparing and filing your tax return and claiming the Making Work Pay Tax Credit.
More information about the Economic Recovery Payment and the Making Work Pay Tax Credit can be found at IRS.gov/recovery. Schedule M and the related instructions can be obtained at IRS.gov or can be ordered by calling 800-TAX-FORM (800-829-3676).
Links:
- The American Recovery and Reinvestment Act of 2009: Information Center
- Schedule M, Making Work Pay and Government Retiree Credits
Additional Contact Information:
- Social Security Administration - Toll free Number: 800-772-1213
- Department of Veterans Affairs – Toll Free Number: 800-827-1000
- Railroad Retirement Board
Making Work Pay tax credit
April 1st was implementation day for the Making Work Pay tax credit, and it wasn’t an April Fool’s joke. The American Recovery and Reinvestment Act of 2009 (ARRA), Congress’ most recent effort to “stimulate” our economy, contains this new tax credit, which will affect everyone when filing your individual return. You may be able to take advantage of an income tax credit of as much as $400 ($800 for a married couple) on your personal tax return for the next two years.
The Making Work Pay tax credit served as centerpiece of the tax reduction provisions of the ARRA. President Obama strongly pursued its inclusion in the legislation because it would put money back into the pockets of working people. The annual tax credit (available in 2009 and 2010) is equal to 6.2% of earned income, to a maximum credit of $400 for an individual ($800 for a married couple filing jointly). The Key is “a maximum credit of $400 per working individual”. Dependants have no bearing on this.
Technically, taxpayers will receive the tax credit when they prepare and file their tax returns a year from now for 2009 (and then for 2010 the next year). However, practically speaking, taxpayers that receive wages from employment in 2009 will receive the tax credit in small increments throughout the year. How? The IRS in late February issued a new set of withholding tables structured to informally pay the amount of the tax credit over the course of the year by reducing required withholding amounts on payroll.
The Issue
The new withholding are designed to save employees roughly $10 per week for the rest of the year (40 weeks x $10 = a $400 tax credit). This isn’t working out for a lot of people. Several of my clients have called me because they are having more taken out then the ten dollars, some are even getting as much as forty-three dollars more a week.
This is a problem and will affect refunds and or amount due/s. Why, because you aren’t having as much withheld, and tax tables on your income haven’t changed. Withholdings went down, not income tax on your earnings.
The IRS produced new withholding tables in February and asked employers to implement them by April 1. But, withholding tables are a blunt instrument, unable to precisely assess taxes for everyone’s unique situations. Employers who use the tables don’t know workers’ complete situation, such as whether an employee has a second job or is married to someone who also works. That means some workers will end up with more cash than they’re eligible for under the new credit.
Adjustments may have to be made by individuals to make sure they’re not over- or under-withheld.
Again, the lower withholding may cause some unwanted results for taxpayers with more than one job, two-earner married couples, and high-income taxpayers.
The Fix
The IRS is aware of this issue and warns taxpayers that they (individual taxpayers) are responsible for making sure their withholdings are correct. This means that you are ultimately responsible for making sure you have enough withheld from your checks using your form W-4.
The first thing you can do is make sure your employer has these new tables. The new tables and instructions are found in IRS Publication 15-T. The next thing to do would be to Contact your tax professional and discuss this with them.
If that isn’t a viable option you can contact me I will be glad to help.
Beware, though, because the credit is phased out as your adjusted gross income exceeds $75,000 for individuals ($150,000 for married couples filing jointly). If your income exceeds $95,000 ($190,000 for married couples filing jointly), then you will not be able to receive any benefit from the Making Work Pay tax credit.
Timing is everything, especially with taxes … and tax information.
The IRS has an online calculator that reflects the new stimulus act withholding tables to help you get your amount just right. Armed with your most recent tax return and paycheck stub, you can in 10 minutes or so fill in the required information and get instructions on filling out a new W-4. You should use the calculator now. Then again, later in the year to ensure your assumptions are on track (around the end of October). You can always make a tweak or adjustment with your very final paychecks for the year so you don’t have any penalty or big surprise.
If you don’t have the time to run through the calculator — it involves entering various tax-related figures, including expected credits and the like — there’s another way: Submit a new W-4 filled out the same way as your old form but with one exception: On line 6, add the extra dollar amount to be withheld from each paycheck. See Form W-4 on IRS site (PDF).
The easiest way might be to leave the number of allowances alone, see how much they’re reducing your withholding by and then on line 6 write in that you want them to withhold an extra amount.
But remember: That W-4 stays in effect until you file a new one. If you don’t want the same additional amount to be withheld starting in January, file a new W-4.
There’s a third option: Don’t worry about the credit now, and just wait until you file in 2010 to pay the bill. Not recommended by me unless your checks are exactly $10.00 more per week.
A Little Straight Talk
Another “stimulus”? did the last one even make a dent? Help in the slightest bit? If it did I missed it. Honestly, I can’t help but shake my head. I just don’t get the logic.
Before I get to the specific steps you should take, let’s talk for a moment about the big picture.
The President and Congress encouraged millions of Americans to SPEND, and yet many of these very same Americans were/are already over their heads in debt with an average credit card balance of more than $9000!
Good thinking.:bomb:
Let’s continue one of the very reasons that our country is in such poor economic shape. In fact, don’t wait. Spend it now and pay it back later — with interest, of course! The current government thought that spending the rebate dough was a vote of confidence for our economy’s future. Wake up, Congress! Smell the damn coffee and join the rest of us in the real world.
I believe it’s irresponsible for our government to encourage us all to spend, spend and spend more without even a mention of paying down debt or, actually saving some money for the tough times I think are still ahead. While I question just how effective this whole band-aid approach will be, if the government wants to put a little extra money in our pockets, we’ll take it, right?
But…I want you to be smart about what you do with it.
If you’re in great shape financially and don’t have any debt to pay down, college educations to fund, cars to buy, etc., by all means – spend it! Enjoy yourself. That’s just not the reality for most of us. We can use this money to do some serious good.
So what exactly should you do with extra money? Here are suggestions for the smartest ways to put it to good and meaningful use:
Pay down your credit card balance as much as possible. Think about this. If you’re part of a couple with $10,000 in credit card debt and you apply your $1,200 right to that balance, you’re paying off more than 10% in one fell swoop. That’s huge! And it will save you a ton of money in interest over time. You’ll be in much better shape financially than if you spend that money.
Get ahead on your mortgage payment. This is especially true if you have one of those adjustable-rate mortgages that caused the whole sub-prime crisis. If you are in danger of not being able to make your payments, don’t even consider any other option for this rebate.
Start a family emergency fund. I recommend that you have at least six months’ worth of expenses set aside. This is more important than ever now when the economy is struggling, people are losing jobs, and so on. The situation is only going to get worse in my opinion.
Add a few dollars to your IRA. You get a double bang for the buck. You get a tax break and you’re saving for your retirement. When you’re retired and sitting at your beach house sipping a glass of fine wine, you’ll look back and be glad you made decisions along the way to save for your retirement and not rush out to buy that big-screen HDTV.
Invest in your career. If you are at all concerned about your job in the current economy, spend some of this money on training or courses to help you keep your job or make you more marketable if you need to find one.
Start or add to a 529 savings plan to help pay for your children’s (or grandchildren’s) college education. There’s no better investment in our future! Saving for college can be confusing, so be sure to check out all additional information.
Passing the week. . .
Okay I have been on vacation but I still tried (and for the most part succeeded because of being an early person) to keep up with all the web logs. I have taken criticism from friends, family, and clients for this but alas when it comes to taxes, I just can’t get enough. Just before “tax season” for 2009 I plan another vacation I should do better on that one. Yeah, whatever. . .
Penelope from Our Fourpence Worth introduced me to “Twitter” then told everyone “It’s Official: I am a Full-Fledged Tweeter”. Very cool.
American Housing Rescue and Foreclosure Prevention Act gets a look at by Kay Bell in her post Housing bill almost official.
The Money Blog Network has a group project once per month and this month they’ve invited non-members to also write on the topic of the month: our best advice for new entrepreneurs. Kevin at nodebtplan adds “My Advice for New Entrepreneurs”
5 easy ways to increase your savings from Ashely at Wide Open Wallet. Along with Green Living: Energy Smart shows we can all be doing things to save money and save our planet.
To Strip or Not to Strip! A post by Babyboomer11852 at TAX RESOLUTIONARIES. Sparked a great post from The Wandering Tax Pro. I would have to agree that It ain’t necessarily so, Babyboomer11852! While I too agree that breast augmentation cannot be deducted as a medical expense because it is elective cosmetic surgery (unless it involved a severe psychological difficulty), there is a Tax Court precedent ( 
)here that involves the client’s specific “industry”.
Will $5 extra really make a difference is more reflections on the minimum wage increase. Let’s do the math at $savingtoInvest.
Buying stock is generally a good idea, when choosing a stock please follow the Nine good reasons NOT to buy a stock from Blunt Money.
Trent does a great job discussing The Value (and Cost) of Experiences over things.
So the housing bill past, The Wandering Tax Pro has a great explanation of THE HOUSING BILL AND THE 1040. If you are wondering how this works on the 1040 this is a must read.
A lot of sites were down (unresponsive) yesterday so I missed them as when they came back up, I was off enjoying the day with my family. Inclosing I want to thank the two guest post I had for Monday and Friday.
Thank you Kevin – Good Intentions, Terrible Execution
Thank you Robert – THAT WAS THE ECONOMIC STIMULUS REBATE THAT WAS
Now come Monday it is back to work.
Guest Post. . .
THAT WAS THE ECONOMIC STIMULUS REBATE THAT WAS
by Robert D. Flach
(My name is Robert D Flach. I have been preparing 1040s since 1972. I write the tax blogs “The Wandering Tax Pro“, “Ask the Tax Pro” and “The Flach Report“. I am honored that Bruce has asked me to write this guest post on the economic “stimulus” rebate situation.)
Congress decided earlier this year that the way to help our sagging economy was to send out rebate checks. This was the usual Congressional quick-fix reaction to the situation instead of a well thought out response to the problem.
The last time Congress sent out rebate checks to stimulate the economy was in the summer of 2001. They were actually not “rebates” in the true sense of the word – but advances on the refunds taxpayers were going to get on 2001 tax returns filed in early 2002 – specifically the savings from the new 10% tax bracket. These checks cost the IRS a fortune, created tons of confusion, and resulted in millions of errors on 2001 tax returns! And it is doubtful that they did anything to stimulate the economy.
The 2008 rebate checks are not an advance on a 2008 tax reduction, as was the case in 2001. These checks represent a direct credit from the government. They come out of the budget and not a future refund. The current rebate checks will increase the federal deficit by billions of dollars.
The thinking behind the current rebate checks is, as George W put it, that putting money in the hands of Americans would “boost our economy and encourage job creation.” Upon receiving a check from the government we would all run out and buy something we really didn’t need, like a 50-inch television.
The regular readers of my blog will note that whenever I write of these economic “stimulus” rebate checks I put the word stimulus in quotations. And that I often refer to them as “election year bribes“. I feel that one should “call a spade a spade” – the concept of the rebate check has absolutely nothing to do with stimulating the economy.
Politicians love rebate checks. They are literally a way to legally buy votes. Citizens get a check in the mail and say “look what George W, or the Republicans, or the Democrats have given me” (in the case of the current rebate checks recipients receive letters telling them basically “look what we have given you”) and show their appreciation by voting for the party that gave them the check.
The Democrats had become famous for requiring “offsets” to pay for any tax reductions. However they did not blink when George W proposed the current rebates with no offset. If they had opposed the plan in an election year they would most certainly be portrayed as the villian and lose votes.
My home state of New Jersey has been sending homeowners and tenants alike “property tax rebates” for years now. In the early years of the program the annual checks were actually sent out on November 1st, so NJ taxpayers could say. “look what (then Governor) Brendan Byrne has given me” and run right out and vote for the Democrats.
The most recent revision of the NJ rebate program was supposed to send the money to the local municipalitieis so that an individual’s property taxes would be directly reduced by the amount of the rebate. Instead of a homeowner receiving a check for $1,000, the property taxes paid by the homeowner to the municipality would be reduced by $1,000. However this did not happen because it would have ruined the true reason for the rebate check.
The NJ budget had become such that state could not afford to send out rebate checks (because it was fat with double and triple dipping into the state pension and health insurance benefit plans by elected and appointed politicians holding two and three paying “show” and “no-show” jobs). So to keep the checks coming Governor Corzine raised the state sales tax by 1%. It was truly a case of robbing Peter to pay Peter! NJ took money out of one pocket via increased sales taxes for the sole purpose of putting money in the other pocket via property tax rebates.
Now that the first wave of federal stimulus checks have been mailed out let us see what they have done.
* Just as the 2001 rebate checks were a refund of 2001 taxes based on information from 2000 tax returns, the current rebates are an advance of a special “credit” on your 2008 income tax return based on the information reported on your 2007 return. And, just like with the last set of rebate checks, if the amount of the advance you receive based on your 2007 information is more than the amount you are actually entitled to based on the 2008 tax return you get to keep the money! You do not have to pay back the money to which you are not entitled under the law.
* The administration of the 2008 rebate program will cost much, much, much more than that of the 2001 rebate checks!
(1) The IRS first sent out a mailing to Americans during the tax filing season to tell them that they may be entitled to a rebate but that they had to file a 2007 federal tax return in order to get one.
(2) A few days before the actual check was mailed out a recipient would receive a letter to report that a check was “in the mail” and indicating the amount of the rebate.
(3) Then the check would arrive.
(4) If for some reason the check was not for the total amount of the rebate or there was no check, for example the recipient owed back federal or state income taxes and the rebate was used to offset this outstanding liability, another letter would arrive to so state.
(5) Early next year another letter will be sent out telling how much the rebate was, as this information will be needed to properly complete the 2008 federal income tax return.
Michael says of his pre-check letter in his post “Stimulus Payments – a Braggy Uncoordinated Mess?” at his “Beyond Paycheck to Paycheck” blog – “I get a letter (this one from my Congresswoman; the first was from the IRS) telling me how wonderful it is that I am getting a stimulus.”
The Government Accountability Office (GAO) issued a report on June 19th that reported (the emphasis is mine) – “The costs for implementing the economic stimulus legislation may be up to $862 million. IRS received a supplemental appropriation of $202 million for implementing the economic stimulus legislation. The Social Security Administration received a supplemental of $31 million and the Financial Management Service received a supplemental of $64 million. The reallocation of hundreds of IRS collections staff to answering taxpayer telephone calls will also result in up to $565 million in foregone enforcement revenue, according to IRS estimates.”
As Key Bell of the “Don’t Mess With Taxes” blog put it in a post on this subject, “administering the stimulus payments is likely to cost the agency, and the U.S. Treasury, much more than all our spending of the checks will recoup.”
As a point of information, TAX GIRL Kelly Phillips Erb reported in her post “Rebates Push Deficit to Record Highs” that “The economic stimulus payments – which qualify more or less as “free money” from the government – pushed the federal budget deficit to an all-time high of $165.9 billion in May.”
* If the rebate checks have stimulated anything they have stimulated confusion.
The GAO report referenced above also discussed the effects of the Economic Stimulus Act of 2008 on the Internal Revenue Service’s (IRS) telephone service.
“Demand for telephone assistance related to the economic stimulus legislation has been unprecedented, according to IRS. For the week ending May 24, volume was almost six times greater than the same week last year. Despite reallocating staff from collections work to answering stimulus-related calls, the percent of callers waiting to speak with an assistor who got through has declined markedly to 39 percent for the week ending May 24 compared to 80 percent for the same week last year.”
* The true extent of taxpayer confusion will not be known until the filing of 2008 federal income tax returns next year. We, and the IRS, still have to look forward to the millions of errors regarding the rebates that will inevitably be made on these returns.
* Those who have received 2008 rebate checks are not running out and spending the money on items that they would not otherwise have purchased – and therefore “stimulating” the economy. They are using the checks to pay down credit card debt, to help pay for essentials, and to invest in savings for the future – as they should be doing!
According to a poll conducted by CNN/Opinion Research Corp. at the end of April a whopping 82% of Americans believe the stimulus package won’t work.
An article titled “Report: Stimulus Checks Spent on Gas; Higher Fuel Costs Eat Up Tax Rebates, Consumer Advocates Argue in Study” (Link is broken) that appeared in the Newark Star Ledger in late June told us that New Jersey residents have used their rebates to pay for gas.
According to the article – “The rebate check approach was created with the hopes that consumers would increase their spending on goods and services,” said Brandi Kennedy, assistant director for the Montclair office of NJPIRG {New Jersey Public Interest Research Group – rdf}. “But as gas prices keep rising, American families have been pouring their stimulus money into their gas tanks.”
The National Retail Federation has reported that retail sales in June edged up 0.2% over May. The retail sales figures in this report do not include sales of automobiles, or gas station and restaurant receipts. If you take those excluded sources into consideration, the U.S. Commerce Department reported that retail sales actually decreased 0.1% from May to June. The chief economist for the NRF commented, “As retailers enter the back-to-school season, they will have to be creative in finding ways to get consumers to spend on discretionary items.” So it is clear that the stimulus checks are not encouraging consumers to spend.
I can guarantee that after all is said and done when I write about the affect of the 2008 economic “stimulus” checks I will be once again saying, “These checks cost the IRS a fortune, created tons of confusion, and resulted in millions of errors on 2008 tax returns! And it is doubtful that they did anything to stimulate the economy.”
TTFN
Copyright © 2008 by Robert D Flach LLC
Guest Post. . .
(This is a guest post from Kevin at No Debt Plan. He writes about personal finance including getting and staying out of debt. He’s developing a plan for you to follow to help you achieve wealth in the long run.)
Bruce asked me to fill in today with an article about the economic stimulus checks the government sent out earlier this year. I wrote about this on my blog earlier this year, but thought I would share my perspective a few months after we’ve gotten ours.
Good Intentions, Terrible Execution
I think the economic stimulus checks had a lot of good intentions by the government. As I discussed in my previous post, the idea of stimulating the economy makes sense. The multiplier effect can be very positive as the money trickle out into the economy.
A quick refresher on the basic idea behind the multiplier effect: essentially, you spend money at a local retailer. That retailer employees 3 people and your purchases help make sure the owner and the three employees keep their jobs. Those four people spend their money at other retailers, which furthers the cycle. End result? The economy is strengthened.
So it’s a good idea… the execution is flawed.
The government did an economic stimulus check in the past – I want to say during the 90s. That check, as with this one, did not do much to stimulate the economy. People who received checks used them to pay down debt or bolster savings.
I think it is safe to say a majority of people in the United States did that this year. I’ve read a few accounts of people taking vacations or buying something with part of the check, but most people paid down their home equity loans or credit card debt. The lucky, including me, put a large majority of the money into savings.
If I Were in Charge
If I were in charge of the government, we wouldn’t be in this mess! But, I wouldn’t give what essentially is a tax cut. I would make sure we would have the flexibility to increase government spending which directly stimulates the economy. That means we can’t have record deficits as we do now because increased government spending is politically unpopular.
If the government directly pushes spending into bridge infrastructure across the nation, that creates jobs. The employed workers spend their earnings in the economy. Everyone wins.
As I’ve mentioned handing out money is a politically popular, but economically is not the best option.
the tax guy, with the week in review June 22nd, 2008
Okay I read a lot of blogs every week. I have decided to start getting serious about this blog of mine and have chosen Sunday to have a rundown of the best blogs I have read during the past week. This will be my first:
the tax guy, with the week in review
Short and to the point is Andy’s Effectively Managing Credit Card Debt in these tight economic times. 3 rules to live by for sure when considering turning to your credit cards for money.
A look at gas and attitude is well done in a post today over at Blunt Money titled This is what’s wrong with America. Agreeably, We need to care about more than just ourselves.
From Texas “Don’t Mess with Taxes” reviews HEART Act now official Heroes Earnings Assistance and Relief Tax Act was signed into law. She also wrote about our great stimulus payments and how the Rebates could cost IRS $862 million.
Last Thursday Moolanomy gave everyone an Introduction To Morningstar Style Box. Great explanation and intro.
Honda Sells First Hydrogen Powered Vehicles sounds great, or does it. Check out this post from Roni Deutch: The Tax Lady Blog. (no we don’t know each other)
Curious about the floods in Iowa? Roth & Company, P.C. Tax Update Blog has some great pictures. Along with some great tax information. (scroll down for pictures)
Updated Comparison of the McCain and Obama Tax Plans can be a scary thing really. But a good read if you are looking at what the candidates are thinking as far as your taxes.
Let us not forget that finding a Pro isn’t as easy as you might think, and use your sence as I point out in a guest post for Ashely at Wide Open Wallet.
Prepare your taxes on-line With L & R Tax Preparation
L & R Tax Preparation
Tax Preparation, Payroll, and Accounting,
Including online services.
E=MC2 or use QuickBooks
