Surprise! 15 million will owe taxes on tax break

The AP reports today that one of the centerpieces of Barack Obama’s middle-class tax cut will wind up looking like a tax increase next April 15th.  A $250 rebate did not get structured properly, and up to 15 million recipients — mainly seniors — will end up owing more money because of a double-dip that went unaccounted:

More than 15 million taxpayers could unexpectedly owe taxes when they file their federal returns next spring because the government was too generous with their new Making Work Pay tax credit. …

Most workers started receiving the credit through small increases in their paychecks in April. The tax credit was made available through new withholding tables issued by the Internal Revenue Service.

The withholding tables, however do not take into account taxpayers with multiple jobs or married couples in which both people work. They also don’t take into account Social Security recipients with jobs that provided taxable income.

The Social Security Administration sent out $250 payments to more than 50 million retirees in the spring as part of the economic stimulus package. The payments were meant to provide a boost for people who didn’t’ qualify for the tax credit.

However, they went to many retirees who also received the credit. Those retirees will have the $250 payment deducted from their tax credit—— but not until they file their tax returns next year, long after the money may have been spent.

The problem comes from using two different delivery methods for the give-back.  Had the Obama administration stuck with payroll tax credits or with one-time checks for both efforts, they may have avoided duplicating the payments.  Instead, the White House gave its $13 a week credit for one and a check for the other — and wound up sticking millions of people with an unexpected tax liability.

Unfortunately, the problem didn’t get noticed until well after Obama attempted to buy off seniors with the $250 check as a means to get their support for ObamaCare.  Most of the affected people have probably spent the money already; the rest will see it disappear long before they have to adjust their taxes next spring.  After all, the entire purpose of these givebacks was to get people to spend the money, not save it.

The AP tries to soft-pedal the impact:

For many, the new tax tables will simply mean smaller-than-expected tax refunds next year. The average tax refund this year was about $2,800.

Uh, sure — and for many, it will mean paying more out of pocket, too.  This follows on the revelation that the Cash for Clunkers subsidy will be considered taxable in several states, which will come as a shock to some of those 700,000 who decided to take advantage of the program.  When it comes time to do taxes next year, millions of middle-class people will get a couple of gentle reminders of this administration’s incompetence.

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