Wednesday, December 30, 2009

some of us may end up owing the IRS in 2010

Many people may have forgotten this, but back in March of this year, your pay check got a boost from a tax cut included in the stimulus package. How much it was depended upon your income and your tax filing status. My personal tax cut amounted to a little more than $80 a month, or $40 per half month pay period. Over the course of the year that amounted to an extra $800.

Today we received our 2009 IRS 1040 instruction booklet and forms in the mail, and they held an unpleasant surprise. The calculation of taxes for 2009, was reduced, but by LESS than than the amount that withholding was reduced.

The 2009 standardized deductions was increased from $5,450 (in 2008) per person to $5,700 -- an increase of $250. The 2009 individual exemptions (multiplied by the number of persons/dependents) was increased from $3,500(in 2008) to $3,650 -- an increase of $150. And in the 2009 tax tables, the amount tax amount for each level of income was reduced by about $30.

So all told, a single person with my income, who was had $800 less withheld from their pay check over the past ten months, will get an actual tax break of $430 over last year, and could end up owing the government $360. Of course a person with one income and a dependent child (or two) will have additional exemptions, and that will change the equation. Married people with more than one income, will have larger standardized deductions and more exemptions, but both incomes will have had less tax deducted over the course of the year.

Everyone's situation will differ, but in all likelihood many people will end up with a smaller tax refund this year, and some will end up owing the IRS come April 15. Seems like someone in the Federal government didn't think things through carefully enough.


Anonymous said...

In all actuality it is better to pay a small amount into the IRS than have a refund. WHY???? Because I would rather have the money all year than for them to have it. After all they do not pay interest to us.....
Happy New Year!

sgreerpitt said...

You are quite right, Marilyn, but only IF you are expecting it to come out that way, and have the money ready to pay them. But if you aren't expecting it, and you don't have the cash sitting around ready to pay, then you can end up with interest payments, and legal fees and a whole other pile of troubles.

The problem is that most people don't expect to have to pay the IRS, most people expect to get a refund.