ReceiveTax Credit? You May Owe Money to the IRS

Millions of Americans who expected slight tax breaks courtesy of this year's stimulus could soon discover they actually owe money to the federal government.


The Making Work Pay tax credit, offered as a wage advance, may have been incorrectly administered to more than 15.4 million workers, according to a report released Monday morning by the Treasury Department's inspector general for tax administration.



Consequently, a large swath of recipients could find themselves forced to return portions of their Making Work Pay credit, and others could discover they owe tax penalties, the Treasury's inspector general warned.

The Making Work Pay credit, which eligible workers began receiving in April, offers up to $400 to individuals and $800 to couples in order to encourage spending and stimulate economic growth. It was a staple part of President Barack Obama's 2008 campaign platform.


What makes the refundable credit particularly unique — albeit difficult for the IRS to implement — is its method of payment: The money was advanced to taxpayers throughout the year, but workers were required to claim it only much later on their tax returns, according to the report.

Ultimately, that means some Americans who otherwise would not have been eligible for their allotments of money — including workers with two jobs or those who receive Social Security benefits on top of their weekly wages — still received a share of the total billion-dollar tax credit, the inspector general found.

However, the IRS on Monday stressed that most workers would not owe the federal government a substantial amount.


The Making Work Pay credit alone is not sizable enough to trigger a tax penalty, unless workers have other tax delinquencies to address, and many workers would instead see the amount owed deducted from their other tax refunds, according to an IRS spokeswoman.


The Treasury Department, however, similarly maintained this morning that the tax credit was still responsible for helping families and stimulating the economy, exactly as the president intended.


"Making Work Pay was designed to deliver much-needed boosts to the paychecks of 95 percent of all working Americans," a Treasury official said. "Since enactment, more than 110 million families have benefited from as much as $60 in additional take-home pay each month to put toward their family budgets — serving as a steady boost to spending and consumption.


"The IRS has worked quickly and effectively to ensure that taxpayers received the benefit of this credit as soon as possible — starting just days after the Recovery Act became law — and will continue to do so going forward," the official added.

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