More than 15 million people who received the Making Work Pay tax credit as part of Obama’s $787 billion stimulus package may end up paying back part of their tax credit due to the federal government mishandling allocation of the credit.

The Treasury Department admits that the government may have been too generous in distributing the credit, and taxpayers who received the credit but were otherwise ineligible may end up actually owing money to the federal government.

The Making Work Pay tax credit was Obama’s signature tax credit and provides workers 6.2 percent of their earned income, up to $400 for individuals and $800 for couples or joint filers. Individuals making more than $95,000 and couples making more than $190,000 are ineligible. The tax credit was aimed at boosting the paychecks of nearly 95% of all working Americans to encourage spending and consumption.

However, the problem was in the system of paying out the tax credit. The tax credit was distributed to most workers through reduced withholding on their federal income tax, which lead to small increases on their monthly paychecks throughout the year. Workers saw the advance in their paychecks almost immediately when the legislation was signed in April; however, they were not required to claim it until much later on their tax returns. The legislation didn’t take into account certain circumstances, like some taxpayers who have more than one job, married couples with two working spouses, and those who receive Social Security. In these cases, taxpayers may have been advanced more than they were entitled to receive on the tax credit. Nearly 15.4 million workers, or 10% of all taxpayers, may be liable to pay back a part of the tax credit by owing additional taxes when they file in 2010.

Paying back the tax credit may impact some workers with smaller-than-expected tax refunds, which averaged $2,800 this year, or it might mean actually paying out of pocket for others. The Treasury Department maintains that the stimulus tax credit has been effective in helping 110 million families with the pumped up month-to-month paychecks. But the poor structuring of the tax credit allocation may do more to annoy taxpayers already hard-up paying bills and taxes. This glitch in stimulus fund handouts, if not addressed, may plague more taxpayers in 2010 who will be stuck footing the bill on what was supposed to be a tax break.

At Credit Karma Blog, what goes around comes around… So what do you think about the fact that millions may need to repay part of this tax credit? Agree, disagree, or have something more to say? We’d love to hear your reactions!

April 15th is fast approaching and there is a lot of information out there. Don’t procrastinate! In order to get everyone into the tax spirit, I wanted to share a few of my favorite sites for helpful tax tips.

One of the best places to start is Bankrate’s Tax Guide. Bankrate offers a wealth of tax related information on subjects ranging from capital gains, work benefits, retirement and real estate. Additionally, there are tax calendars, calculators and other tools to help you complete your tax return.

Another good site is SmartMoney’s tax section. SmartMoney concentrates on tax tips and has a variety of articles arranged by tax related topics. It’s a bit harder to find information, and is not as comprehensive as Bankrate, but still has a good amount of helpful articles.

Lastly, MarketWatch has several informational articles discussing how to pick a tax-prep website, early-bird tax guides, and real estate issues.

If you decide to do your taxes online, I recommend using TurboTax. I’ve used it the past few years and they do a good job making the process as streamlined as possible. Prices start at $29.95 for a standard federal tax return, and if you are doing a 1040EZ return, its free!

As always, consult with a tax professional as every financial situation is unique and tax rules are complex and constantly changing. How you file your taxes have significant ramifications on your refund amount and your tax liability moving forward.
Good Luck!

As an American facing the economy today, you may be one of the many facing a tax debt with the Internal Revenue Service. Facing a large bill resulting from back taxes and old returns, is a huge problem that may seem very daunting. The IRS is a large agency, and there may be a number of reasons that you are now in your current situation. What is important is that facing a tax debt is not something that will ruin you. It will be a tough journey, but one that can easily be traversed.

The first thing to keep in mind, by no means should you avoid paying your taxes. They will not go away, as all of your records go to the IRS anyway. Filing your taxes is a way to alleviate the duties of the IRS. The IRS just does not have the resources to handle tax filing for the entire country. That is why you are required to file. What should be your course of action is to look and research various plans of attack for solving your tax debt. Individuals with less than $10,000 in debt with the IRS should work with the IRS to get a handle on your debt. The IRS is equipped to offer payment schedules and work with you to get a plan in place. Even if you feel that you are prepared and equipped to work out your problem or seek out any help, make sure you look at all possible deductions and ways of changing your tax liability.

Debts of more than $10,000 dollars are best handled by a professional. This is a situation which can ruin you financially and professionals are best equipped to handle the problem. Professionals have experience and connections which help you in your time of need. Without their help, you can easily find yourself in a situation where your children will inherit your debt with the government and become responsible for paying it off. Professionals can spot errors in prior returns, and provide help in correcting them. They also are aware of various tools and financial devices which can help you save money in repaying your debt. Make sure that if you do hire a professional, that they are reputable and possess the expertise you need to fix your situation.

It all comes down to ridding yourself of the debt that you owe to the IRS, regardless of if you use a professional or tackle the problem yourself. What ever your decision should be, it should hold into consideration the various variables that constitute what you owe, how much you make, what you are capable of handling, and if you really need professional assistance in alleviating your debt. There are amnesty programs out there that provide free counseling, and you may find that it will take hiring a professional to solve your problems and handle your IRS debt. What is of utmost importance and bears repeating again, you need to pay off this debt one way or the other.

Photo Credits: 1