KANSAS CITY, MO (MARKETWIRE via COMTEX) -- Millions of taxpayers, depending upon other tax breaks they may qualify for, could find themselves with a tax surprise next year because of the Making Work Pay tax credit unless they adjust their withholding, according to analysis by The Tax Institute at H&R Block (NYSE: HRB.
Ninety-five percent of taxpayers automatically started taking home more money in their paychecks this past April thanks to a change in the IRS withholding tables, triggered by the Making Work Pay Credit. Those taxpayers who should take special care in understanding their new take home pay thanks to the Making Work Pay tax credit include:
"Considering how complex taxes can be, most taxpayers need guidance on assessing their tax picture," said Amy McAnarney, executive director of The Tax Institute at H&R Block. "Not knowing or not taking the time to understand how their withholding and other tax breaks affect them could lead to a surprising tax liability. A little knowledge now could save them a lot of disappointment later."
The credit could mean up to $400 for individuals and $800 for couples in 2009 and 2010. There is a phaseout of the credit starting at modified adjusted gross income (MAGI) of $75,000 for single filers and for married filers at MAGI of $150,000. It's totally phased out at MAGI of $95,000 for singles and $190,000 for married filers.
Prescription: tax checkup
To avoid an unwelcome tax surprise, H&R Block recommends taxpayers receive a tax checkup now to see if they should adjust their W-4 allowances before the end of the year. Taxpayers just need to follow three easy steps:
If needed, it's recommended taxpayers adjust their W-4 and submit it to their employer. If not, the amount being withheld could be more than the credit amount they're eligible to claim.
Survey shows taxpayers reluctant to change withholdings
A Tax Institute survey showed that 14 percent of respondents didn't know that the W-4 controlled their withholdings. More than 40 percent of those surveyed have not adjusted their W-4 in three or more years.
"To better understand how the Making Work Pay Credit and other tax law changes impacts you a W-4 review and tax checkup now can save money on your tax liability and give you peace of mind," McAnarney said.
For more information, visit the IRS newsroom
The Tax Institute, a division of H&R Block, is a national leader in providing unbiased research, analysis and interpretation of federal and state tax laws. Staffed by enrolled agents, CPAs and attorneys, The Tax Institute provides industry expertise for matters related to taxes and the professional tax preparation industry.
Disclaimer: The tax checkup and information provided are estimates, and your actual tax liability may materially differ depending on recent and future changes to the tax law and changes in your personal and financial circumstances. If your personal and financial circumstances do change, we suggest that you review the changes with your tax advisor.
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