Your Money Matters: You may owe taxes in 2010 and here is why

With 2009 nearly half over, the Internal Revenue Service reminds individual taxpayers there is no better time to check their 2009 federal income tax withholding levels to make sure they do not face any surprises when returns are due next spring.

The Making Work Pay Credit lowered tax withholding rates this year for 120 million American households. However, particular taxpayers who fall into any of the following groups should review their tax withholding rates to ensure enough tax is withheld:

multiple job holders
families in which both spouses work
workers who can be claimed as dependents by other taxpayers and pensioners.

Because retirees typically have withholding from their pension payments, pension plan administrators or pension payors should be aware of the optional adjustment procedure for pension withholding announced in Notice 1036-P, Additional Withholding for Pensions for 2009.

Also the following groups need to be aware because they receive this year’s one-time $250 economic recovery payment . The Making Work Pay credit will be reduced by the $250 payment amount. It may be possible to end up owing taxes.

Social security beneficiaries,
supplemental security income recipients
disabled veterans
railroad retirees

Failure to adjust your withholding could result in potentially smaller refunds or may cause you to owe tax rather than receive a refund next year.

So far in 2009, the average refund amount is $2,675 and 79 percent of all returns received a refund.

In addition, the IRS reminds unemployed workers that the first $2,400 of unemployment benefits they receive during 2009 are tax-free for federal income tax purposes. People who expect to receive more than that should consider having tax withheld from their benefit payments in excess of $2,400. Use Form W-4V, Voluntary Withholding Request, or the equivalent form provided by the payer to request withholding to begin or end.

Taxpayers should visit IRS.gov for more information about how to adjust federal income tax withholding. The Web site also has details on various tax incentives in the American Recovery and Reinvestment Act as well as downloadable forms and publications. Free tax forms and publications are also available by calling 1-800-TAX-FORM (1-800-829-3676).

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