A Tax Decrease or Increase?
As of April 1, 2009 the new Federal Withholding tables have been established. Under this temporary arrangement, there has been a short term adjustment to the amount being withheld from your paycheck. THIS IS NOT A TAX CUT. Rather it is a sleight -of-hand.
You see, although you will have a few more dollars in your pay check it is not necessarily yours to keep. Here is a simple example…
Let’s say you earned $75,000 in 2008, and the tax withheld by year end was $10,000. For simplicity, let’s say an April 15th, 2009, tax day, you do not owe any more tax, nor do you get a refund. So, for the 2008 year your tax liability is $10,000. Simple.
Now for 2009 let us assume all things are going to be exactly the same ($75,000 income, $10,000 withheld and tax for 2009 will be $10,000). Well, this new withholding legerdemain, of the current administration, is set so you will have more money in your pay check for the remainder of 2009. To you it appears as a tax cut, but it is NOT. Let’s say the new withholding change gives you an extra $125 per month in take home pay. That means you will have $1,000 in extra “pay” by year’s end. But it isn’t. You see, you will only have $9,000 in your year end withholding account (since they did not withhold that “extra” $1,000). So, come April 15th 2010 you will owe $1,000 in tax (the amount that was not withheld in 2009).
Be careful! If you do not have the money to pay in when you file your return, or, have not had the correct amount withheld you may be subject to a penalty tax plus interest.
You may consider setting this extra money aside until the air clears next April 15th or you could be in financial pain later. Please get proper tax advice on your specific situation.
Why didn’t someone tell you the rest of the story? I just did!
So, it is a tax decrease that will be a tax increase!!! Did I tell you about the bridge in Brooklyn or the swamp land that is for sale…….
Discipline or regret!