Obama "Tax Cut" Doesn't Exist; AP Lies About Small Business Jobs

CALLER: I wanted to share quickly what I found out when I had my taxes prepared last week. The man that prepared my taxes for me cautioned me to watch out for my tax cut. He said, and you may want to adjust your withholding to take that back away, because the tax rate tables for next year when preparing taxes are not changing. So I could possibly owe my tax cut back to the government next year.

RUSH: You gotta be kidding. Not even I was aware of this trick. Say that again. They're not changing the rates, right?

RUSH: These are transfer payments. These are tax credits and all that. There's no tax cut here. I should have been able to think of this on my own here, absolutely right. You're getting income, you're going to be taxed on it next year.

RUSH: 'Cause the same rates -- ah, man, your tax preparer is not only pretty smart but he's pretty forthright and honest with you on it. So what you are going to do?

CALLER: Change my withholding and take my tax cut away so I don't have to pay it back next year. Thank you, president, for nothing.

RUSH: (laughing) It just never ends. There's nothing real from these people. They don't say anything they mean.

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The caller to Rush (and her tax preparer) are right in one respect, but wrong in another.

The tax tables for next year won't change. That's because this isn't a tax cut, it's a tax credit.

It doesn't reduce the amount of the tax on your income. It just offsets that tax and is applied almost like a payment.

That means that the tax form next year will have an additional line somewhere near the bottom (after the tax computation) where you subtract the "Making Work Pay" tax credit from the amount of tax you owe. The amount of the credit will be $400 for an individual with "modified adjusted gross income" of less than $75,000, or $800 on a joint return with a "modified adjusted gross income" of less than $150,000.

So, if you have a fairly simple return, and your income is under the $75,000 (or $150,000 for a joint return) limit, your total tax bill will be lower next year, and you won't have to worry about "paying back" the credit.

There are still some potential problems here. I'm not sure what the new withholding tables look like. If they change the withholding on April 1, they should add $10.25 per week to your paycheck (by withholding $10.25 less). For those with low incomes, this could result in a negative withholding amount for income taxes. The idea is that this will offset FICA payroll taxes.

The problems come for two groups of people.

The first, obvious problem is for those making over the $75,000 per year limit ($150,000 per year for joint returns). You'll need to look closely at your paystubs and see what this new credit does, and try to figure out how much to set aside to pay back the credit you aren't eligible for. I'd still take the credit myself. No need to give the government the money now, when you can earn interest on it until next April 15th and pay it then.

The second group that will be affected is people working two jobs. If you have two (or more) paychecks for the same week, each paycheck will see a reduction in withholding for the new tax credit. But when you file your taxes, you only get to claim the credit once. If you keep the money, when you file next year, you'll find that you owe $400 for each additional job that gave you the credit. People with multiple jobs at the same time often have to watch their withholding carefully anyway. And this will be one more thing to throw in the mix.

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