Posted on 07/26/2003 8:49:33 AM PDT by BraveMan
The checks are in the mailbox.
Friday, the Internal Revenue Service sent out the first wave of about 25 million checks - including more than a half-million to addresses in Wisconsin - as an advance payment on the expanded child credit in the new tax law.
Another wave will follow next week, with a final one washing into the nation's homes the week after that.
The checks came about because the new law increased the child tax credit to $1,000 from $600. They will pump some $15 billion into the pockets of Americans in a bid to add pep to the sluggish economy.
That will make most parents happy. But the same tax law that resulted in those checks also lowered withholding rates for all wage earners.
For that reason, the next few weeks are an opportune time for everyone to review withholding strategies so that when April rolls around, "there won't be quite a surprise for them," said James Brandenburg, a certified public accountant with Kolb + Co. in West Allis.
Getting the correct amount withheld may mean changing a W-4 at work. But no action at all is needed to get the child credit checks. They will be mailed automatically to most people who claimed the credit on last year's return for children who will be younger than 17 at the end of 2003. The maximum per child is $400, but because many people have more than one eligible child, the average check is $600, according to the IRS.
Eligible taxpayers who did not file a return or claim the credit last year, such as new parents, won't get a check. But they will see the credit reflected when they file their 2003 taxes next year.
And that is a downside to the check for some - the money they receive now will reduce their refund next year, or possibly even mean they must send in money with their 2003 return.
No rush to change That also could be the consequence of the lower withholding tables that went into effect in June or July at most companies. The lower withholding is because tax rates for everyone were decreased in the new law.
The result is higher take-home pay - and thus fewer dollars being sent to the IRS - for most taxpayers.
At Rexnord Industries Inc. in West Milwaukee, the new withholding schedule has been used since June, said payroll manager Mary Roberts.
"I got very little reaction at all," she said. "I was kind of surprised; I thought people would be thrilled. But a couple of bucks every check was not making a dent" in their finances.
Carol Gregory, payroll administrator at Western States Envelope Co. in Butler and president of the Greater Milwaukee Chapter of the American Payroll Association, reports a similar lack of reaction, except from a few people who, for technical reasons, did not see their take-home pay increase.
Neither one said there was a rush by employees to change withholding rates on their W-4 forms to reflect the new tax rates.
That can make for a surprise in April, Brandenburg said.
The new tax rates will mean a tax bill 5% to 10% smaller for most wage earners, he predicted. People with large capital gains or dividends could see an even larger reduction because the maximum rate on that type of income is falling to 15%. Previously they were taxed as ordinary income.
"So if they don't adjust their withholding, they may have a larger refund," he said.
That is fine for some people, who view overwithholding as a way of forced savings. Furthermore, they are sure to avoid owing a penalty for being underwithheld.
In general, penalties for underwithholding are avoided if, when a return is filed, a taxpayer has sent in at least 90% of the taxes due or at least 100% of last year's taxes - 110% if adjusted gross income is more than $150,000.
More information on withholding penalties is available in Internal Revenue Service Publication 505, available on the Internet at www.irs.gov.
However, every dollar in a tax refund check represents an interest-free loan to the government. Thus, people who are concerned about getting the most for their money strive to avoid large refunds, or even to owe the government a small amount at tax time, Brandenburg said.
"I personally think the goal for withholding is you want to be within $100 over or $100 under at the end of the year so that you maximize net pay for yourself," Roberts said.
That is in tune with the goal of the lower tax rates because it means more money goes into taxpayers' pockets now.
By targeting the advance payments to families with children, the government has made it more likely the money will be spent, said William L. Holahan, chairman of the department of economics at the University of Wisconsin-Milwaukee. Money spent ripples through the economy faster than dollars put into the bank, he points out.
"You get a bigger multiplier if you focus on people with a lower savings rate," he said. And people with children, "through no fault of their own, happen to have a lower savings rate" than the general public.
Children and savings accounts are not the responsibility of individual parents? Go figure that one out and you have the basis for all our problems!
No, seriously, can anyone waste money like our government?
We will not be free until we get rid of the tax on income.
Tax should be paid on what is removed from the economy, surely not what's put into it... talk about stifling growth!
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