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rainman5573 · Mar 24, 2009, 07:38 AM

Recently my net pay was increased due to the new federal tax break. I usually get a refund of less than $100. I have now heard that the new tax break will cause a huge change in the tax refund status for me and due to bringing home more pay may mean that I will now end up reinbursing on April 15 instead of receiving my usual refund. I am married and we file a joint return. My wife works part time and does not claim any exemptions. I work full time and claim one exemption. Should I be concerned about paying at tax time and as soon as possible change my exemption status?

stevetcg · Mar 24, 2009, 07:55 AM

It does not change the amount of pay you receive, it changes the amount of taxes owed (and withheld). It has the same effect as the government writing you a check for $800 (tax free)

You should not change your exemptions for the tax break.

ebaines · Mar 24, 2009, 08:22 AM

Stevetcgs response is not quite correct. The recent changes in tax withholding do not affect the amount of tax you have to pay over the course of the year, but rather just reduce the amount that is withheld by your employer. Result is that next April you will get a lower refund than you might otherwise, and in some cases people who had small refunds before now might actually owe something. The tradeoff is that you get to use a bit more of your money now rather than having to wait to next year for a refund.

I would agree however that you shouldn't worry about changing the number of allowances you claim on your W4 - although you may end up having to write a check to Uncle Sam next April.

stevetcg · Mar 24, 2009, 08:27 AM

Originally Posted by ebaines

Stevetcgs response is not quite correct. The recent changes in tax withholding do not affect the amount of tax you ave to pay overthe course of the year, but rather just reduce the amount that is withheld by your employer. Result is that next April you will get a lower refund than you might otherwise, and in some cases people who had small refunds before now might actually owe something. The tradeoff is that you get to use a bit more of your money now rather than having to wait to next year for a refund.

I would agree however that you shouldn't worry about changing the number of allowances you claim on your W4 - although you may end up having to write a check to Uncle Sam next April.

It's a refundable credit, so it actually DOES change the amount of tax owed, once the math is worked out.

So please explain how it affects next year's return.

Im not questioning the validity of your response... I guess I am just not understanding it.

ebaines · Mar 24, 2009, 08:52 AM

Stevetcg: you're correct - I need to qualify my response. The "Making Work Pay" credit basically gives a married family an $800 credit ($400 for singles), and with the lower withholding that started this past month you are effectively getting that credit spread out over your paycheck through the end of the year (rather than receiving a rebate check from the IRS in April 2010 like what happened with the stimulus rebate for tax years 2007/2008). I was thinking about the actual tax rates, which haven't changed. And for higher income people (>$150K AGI), because of phase outs they don't get the credit even though they may have lower withholding during the year - so these people could indeed end up having to write a bigger check to the IRS next April than they otherwise would have.