Wow, I already know the tax credit was a scam, but now they are compounding it.
I told everyone I knew when this started - “all they are changing is what they are withholding, the actual income tax owed tables are not changing” , the result is everyone will have to pay back the credit when they do thier taxes — now with the “mistake” that payback will be even more.
This isn’t how tax credits work, even mislabeled ones like the Chairman has pushed. I’m surprised at the number of people here who don’t understand taxes.
First of all, your tax is calculated on your total taxable income. This has nothing to do with with withholding; if you withhold more your tax is still the same amount and the government cuts you a check at tax time. Similarly, if you withhold less, this cannot possibly push you into a higher bracket. You simply owe at the end of the year (possibly with penalties).
Second, the fact that the tax tables are not changing is irrelevant. The credit operates outside of the tax tables (which is precisely why it’s not a real tax cut). Unless I’ve moved to bizarro world, however, the tax tables are an incredibly small part of the tax owed for the average family. Reading the article would’ve made this clearer.
At a basic level, we have a fully refundable tax credit that can be claimed by pretty much anyone. The IRS, in their infinite wisdom under Turbo Timmy and the Chairman, decided to try to be clever and adjust everybody’s withholding. Perhaps not surprisingly, they screwed up somewhere (most likely they couldn’t do the math). This is resulting in people’s income being increased by an amount they will have to pay back. This is not to say all of it, of course - the article states their income is increased by $1200 from the withholding errors but they are only eligible for an $800 credit. This results in an increase in tax owed by $400, which you would think would come out of the $1200 extra they’d received.
I don’t know if this was intentional or not, since if they accurately withheld an amount such that you received the tax credit over the course of the year if and only if you were eligible, most people would realize it’s inconsequential. The point is, it’s inaccurate to say that the total tax owed will not change. It’s also inaccurate to say (as people will inevitably do next year) that their taxes actually went up because they owe more in April of 2010 than they did in April of 2009.