Make sure to do your taxes early this year

I have been getting reports from some of my friends on the internet regarding larger than normal tax bills this year. This is due to a change in the tax code last year. In order to avoid a surprise in April, I suggest that you get your taxes done early this year. Here’s why:

In 2009, the Congress passed and the President signed the American Recovery and Reinvestment Act. In addition to other provisions, this act contained a provision called the Making Work Pay tax credit. This credit changed the withholding tables for working Americans to allow for a $400 per person ($800 if you are married) tax credit. Instead of mailing everyone checks, this credit gave everyone a bit more money in each paycheck. When people do their taxes this year, they may see some problems with this change in the withholding tables.

If you make more than $75,000 or $150,000 married, you don’t qualify for the credit and therefore must pay it back.

If you worked more than one job, you may have had too much taken out of your paychecks since the credit is $400 per person, not per job.

If you work a part-time job and are also on Social Security, you would have received a check for $250 last year, plus had the extra money withheld from your check, but the maximum credit is $400 so you might owe as well.

Make sure that when filing your taxes, you complete the new Schedule M or you won’t get any credit for the tax credit.

If you are penalized for underpayment of taxes, you can appeal based on the Making Work Pay credit. According to the IRS, they will waive penalties related to this credit.

I urge you to get your taxes done early this year so that you can plan in case you do end up owing. Also, do not go out and make a big purchase because you think you are going to get a large refund this year. Wait until you have your refund in hand before spending it.

Please feel free to post questions here or email me at kristin at klingtocash dot com.