In 2009, the Obama administration decided to try to stimulate the economy by giving people more money in their paychecks. The Internal Revenue Service (IRS) adjusted the schedules employers use to withhold taxes from employee pay. The idea was that with more money in their paychecks, people would spend more and that would help get the economy back on track.
Unfortunately, many of the people who got more money in their paychecks this year may find Uncle Sam waiting with his hand out when they file their taxes next year. Some may even find that they will have to pay a penalty for the underwithholding, in addition to the tax they owe.
It is estimated that 15.4 million taxpayers had too little tax withheld and will owe money to the government. So who are these taxpayers?
Those most likely to be affected are those with more than one income, such as single people with more than one job and married couples who both work. This could include independent contractors, such as mystery shoppers. Many people secret shop for “extra income,” to supplement the wages they or a spouse earn at a job where their employers withhold taxes. Because no taxes are withheld from independent contractor income, it is possible to underpay taxes, especially this year.
Although it is expected that the IRS may waive penalties for underpayment due to the withholding change, taxpayers will still be required to pay any tax they owe. If you think you may owe money to the IRS, start planning now so you can pay any taxes due by April 15, 2010, and avoid penalties and interest for late payment. If possible, you might even want to make an estimated payment on January 15, 2010 to avoid any possibility of an underpayment penalty.
This may not affect you, but you should be prepared. Calculate your taxes as soon as possible so that you can plan to pay any tax you owe. Although you can not file your taxes until you have received your W2 form(s), you can estimate your taxes based on your pay stubs. The forms and instructions for 2009 tax returns are available now at the IRS website. Http://irs.gov/
You may also wish to adjust the amount of tax withheld by your (or your spouse’s) employer. The same withholding schedules will be used in 2010, so if you owe money for 2009, you will probably owe again in 2010.