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Based on the “Making Work Pay” tax credit, employers now use new withholding tables to lower the amount of tax that is withheld from eligible workers’ paychecks.

That means, you’re probably receiving more money in each paycheck. up to $400 more per year if you are single and up to $800 more if you file jointly. While this sounds like a benefit, you also need to be careful that you don’t end up paying in when you file your taxes next year due to these new rules.

The information below gives you insight into the new changes and how you can avoid being overpaid.

Here’s How the Tax Credit Works

The full tax credit amount ($400 for single; $800 for joint) will be paid to single filers with modified adjusted gross incomes of $75,000 or less, ($150,000 or less for joint filers). Partial amounts will be paid to single filers earning between $75,000-$95,000, and to joint filers earning between $150,000-$190,000.

Since the amount is based on modified adjusted gross income, any income earned in a foreign country, or in Puerto Rico or American Samoa, will also be factored in.

Anyone who is claimed as a dependent on another person’s tax return is not eligible, even if the dependent works and earns income.

If lower-income workers do not make enough money to have taxes withheld, they won’t receive any extra money in their paychecks, but they can claim the amount when they file their 2009 tax returns.

Protect Yourself from Overpayment

It’s important to make sure you aren’t overpaid–since you will have to repay the amount when you file your taxes next year or have the amount deducted from your refund. Here are a few things to look out for:

• If you are a joint filer and your spouse works… both you and your spouse may receive extra money in your paycheck, resulting in an overage.
• If you have more than one job… you may receive the amount from both of your employers, resulting in an overage.
• If you receive investment or rental property income and you are paid the tax credit amount from your employer… the investment or rental income may increase your modified adjusted gross income above the eligibility limits, which means you may owe the IRS for the overage you receive.

What Should You Do?

First, take note of when your company starts paying. The new withholding tables were structured to start in April. If your employer started that month, then your paychecks will likely equal the appropriate amounts by the end of the year.

However, if your payments started in your February or March paychecks, you may receive a bit more than you were due. And if your payments start later in the year and you receive less than you are entitled to, you can claim the difference on your 2009 tax return.

Second, double-check your unique situation and withholdings to make sure you’re not a risk. The IRS makes it easy with its Withholding Calculator. This convenient online tool now reflects the new withholding tables created by the “Making Work Pay” tax credit.

That means, you can use the withholding calculator right now to help make sure that your reduced withholding will not result in having too little income tax withheld, which may cause you to owe taxes next year!

Remember, this article is provided for informational purposes only. It’s always a good idea to consult an accountant or tax professional if you have any questions about your specific situation. Let me know if you would like me to recommend someone.

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In an effort to fill in some of the gaps exposed in the initial Making Home Affordable (MHA) program, Washington has stepped up its efforts to assist more distressed homeowners. In a press release on April 28th, the U.S. Treasury announced an update to the program designed to assist nearly 50% of those homeowners seeking relief from the MHA program.

What’s New?

By some estimates, nearly 50% of all struggling homeowners actually have two mortgages. This is because many borrowers chose to split their mortgage in two to avoid an additional Private Mortgage Insurance monthly payment. The problem is, having two mortgages complicates attempts to refinance or modify home loans.

To minimize these complications, the new legislation is intended to assist mortgage servicers with new guidelines that give incentives for participation and help decrease payments for homeowners. These incentives have also been extended to homeowners enrolled in the program to assist them in making their future payments on time.

The news announcement also addressed the Hope for Homeowners (H4H) program created last year. The biggest news relating to H4H is that participating servicers will be required to look at H4H in tandem while considering a loan modification. In order to support more investor participation, incentives will be extended to the servicer and the Treasury will continue their buying program to help rates stay attractive as well.

What Does This Mean for You?

Despite these additional guidelines, the Making Home Affordable program is still best suited for helping a specific group of struggling homeowners.

Even if a modification isn’t right for you, there may be an opportunity to refinance your mortgage and take advantage of today’s historic lows.

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The deadline to file your taxes is practically here!

But what do you do if you’ve completed your tax returns only to find out that you owe way more to Uncle Sam than you were expecting - or worse, that your tax bill is more than you can possibly afford to pay right now?

Don’t worry. If this is the case, you’re not alone. especially in today’s economy. And more importantly, you’re not going to jail just for being a little short on cash.

Rest assured, the IRS only seeks criminal charges for those who the agency can prove intentionally chose not to file and pay taxes. So, even if you can’t pay your bill right away, file your return on time, and not only will you stay off the IRS’s bad side, you’ll avoid some hefty financial penalties in the process.

Penalties

According to the IRS, the penalty for filing late is generally 5% per month, or up to 25% of the total tax amount due. Not to mention interest charges, which the IRS changes quarterly, and which range between 4% and 9%. This interest applies to the unpaid balance, penalties, and to any interest that has been charged to the account as well.

If no effort is made to pay back-taxes, the IRS can impose stricter penalties, including levying bank accounts, wages, other income, or taking other assets like houses and cars. A Federal Tax Lien could also be filed, which could ruin your credit history for years to come.

The penalty for filing on time but paying late, however, is only half of one percent or .5% per month, up to 25% of the total amount owed. If you choose an installment plan to pay your debt, interest will accrue on the unpaid debt amount only.

Therefore, when you file your return, pay as much as you can and cut down the penalties even more.

Extensions

It is possible to get a 30- to 120-day extension to pay your taxes after filing a return on time. Soon after filing, the IRS will send you a tax bill for the amount you still owe. Simply call the number on the bill and request an extension and explain your situation. If granted an extension, the penalties and interest will be much lower.

If you cannot pay any part of your tax bill, the IRS may temporarily delay collection until your financial situation improves, although interest and penalties will accrue throughout this time. But this extension is reserved for what the IRS calls “significant hardship.”

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The economic recovery package that Congress passed in February included a “Making Work Pay” tax credit that eligible workers will receive through their paychecks in 2009 and 2010. Employers will use new withholding tables to lower the amount of tax that is withheld from eligible workers’ paychecks.  And since the Obama administration has asked that employers begin implementing these changes this month, you may have already noticed an increase in your paycheck.

While single filers can receive up to $400 a year from these changes, ($800 a year for joint filers), just how much extra money you will get depends on a number of factors, including your salary, marital status, and the allowances or exemptions you claim. Here are the highlights:

• The full amount will be paid to single filers with modified adjusted gross incomes of $75,000 or less, ($150,000 or less for joint filers). Partial amounts will be paid to single filers earning between $75,000-$95,000, and to joint filers earning between $150,000-$190,000. Since the amount is based on modified adjusted gross income, any income earned in a foreign country, or in Puerto Rico or American Samoa, will also be factored in.
• Anyone who is claimed as a dependent on another person’s tax return is not eligible, even if the dependent works and earns income.
• If lower-income workers do not make enough money to have taxes withheld, they won’t receive any extra money in their paychecks but they can claim the amount when they file their 2009 tax returns.

In addition, it’s important to make sure you aren’t overpaid since you will have to repay the amount when you file your taxes next year, or have the amount deducted from your refund. Here are a few things to look out for:

If you are a joint filer and your spouse works… Both you and your spouse may receive extra money in your paycheck, resulting in an overage.

If you have more than one job… You may receive the amount from both of your employers, resulting in an overage.

If you receive investment or rental property income…If you are paid the amount from your employer, but the other income you earn increases your modified adjusted gross income above the eligibility limits, you may owe the IRS for the overage you receive.

Also, take note of when your company starts paying. The new withholding tables are structured so that payments starting in April will equal the appropriate amounts by the end of the year. If your payments started in your February or March paychecks, you may receive a bit more than you were due. And if your payments start later in the year and you receive less than you are entitled to, you can claim the difference on your 2009 tax return.

The above article is provided for informational purposes only. It’s always a good idea to consult an accountant or tax professional if you have any questions about your specific situation. Let me know if you would like me to recommend someone.

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