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Some Tax Credits Will Have to be Paid Back

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Many American’s enjoying their Obama tax credit should not be spending every cent. Some of that money will have to be repaid to the IRS.

In what can only be describe as poor planning/poor execution, it’s far too likely that Americans will accidentally receive more tax relief than they’re owed:

–A single worker with two jobs making $20,000 a year at each job will get a $400 boost in take-home pay at each of them, for a total of $800. That worker, however, is eligible for a maximum credit of $400, so the remaining $400 will have to be paid back at tax time — either through a smaller refund or a payment to the IRS.

The IRS recognized there could be a similar problem for married couples if both spouses work, so it adjusted the withholding tables. The fix, however, was imperfect.

— A married couple with a combined income of $50,000 is eligible for an $800 credit. However, if both spouses work and make more than $13,000, the new withholding tables give them each a $600 boost — for a total of $1,200.

There were 33 million married couples in 2008 in which both spouses worked. That’s 55 percent of all married couples, according to the Census Bureau.

For many Americans, this flaw in the system will mean a smaller than usual refund. For others, it will mean writing a check next spring. In either case, Congress and the IRS should have been more aware of these potential problems and done something to prevent the possibility of taxpayers having to pay back portions of their credits.