Monday, January 11, 2010

Making Work Pay

Today's topic is sure to tickle and tease for it involves the tax return. YOUR tax return. Line 63 of Federal Form 1040, to be exact. It's called the Making Work Pay tax credit.

I hear you now, saying stuff like "It doesn't involve me" and "I don't qualify for anything" and "what's a tax return" and "my work already does pay" and "why don't you write about masala chai" and other such declarations. I realize that aside from accountants and tax attorneys, I'm among the few who actually like to discuss the tax return. I've also found myself under the delusion that I can impress people at parties by talking about the tax return.

Uh huh. Impress people by talking about the tax return. That's just about as popular as a turd in the punch bowl. And a turd in the punch bowl is quite popular.

Even though I know and feel that today's post might bore or cause the anxiety that only money can buy, it will inform. Promise. Shall we get started?

Here's the technical babble: The Making Work Pay Credit is a refundable credit claimed on line 63 of the 1040 form. All taxpayers are entitled to a tax credit of 6.2% of their adjusted gross income (AGI) up to $800 for married returns and $400 for all others (single, married separate, head of household, and qualified window/er). Retirement income, social security benefits, retirement income, foreign income, net business losses and wages earned while in prison are not subject to the credit. A reduced credit will be given to taxpayers who's AGI is over $150,000 married and $75,000 for all others. No credit will be given to taxpayers who's AGI is over $190,000 married and $95,000 for all others.

In a nutshell: If you are married and have income that is more than $6451 but less than $150,000, you're gonna pay $800 less in taxes this year. Isn't that great news!?

It is great news! But I'm still going to complain about it.

First of all, I take serious issue with its name, The Making Work Pay Tax Credit. Work already does pay, does it not? Are you working for free right now or for pay? I don't know about you, but I don't work for free. I work for pay. Therefore my job already does pay. If Mr. Federal Government feels the need to give us a tax credit to make it feel like our work pays, then there's a problem with the current tax code. (Hahahah! That was funny. A problem with the tax code. As if this credit is the first place to find problems with the current tax code. Hahahhaah again!)

I'm also in the midst of some visions of bureaucratic grandeur whereby twelve staffers are stuffed into a conference room for three days all in hopes to agree on the perfect name for this credit. I'm sure it only took three days for all twelve of the chosen to agree on a name because it didn't involve a nifty acronym. Can you image if it did have a nifty acronym? Would have taken 'em a whole month.

The second reason I have issue with this Making Work Pay Tax Credit is because of it's used car salesman approach to communicating. As in let's give 'em the good news up front and slide in the bad parts of the deal while coughing into the sleeve. However, in typical government endimanché, those with the authority have done it backwards. They coughed the bad news into their sleeves several months ago and are now telling you the good news - long enough for the Pavlov response to lapse and you don't put the two together.

Let me explain. Several months ago, as part of the American Recovery and Reinvestment Act, the President and company made changes to the tax being withheld from your paychecks. Basically they changed the withholding tables so that the government would take less cash from your pay each month and you'd take home more. You are getting more money in your pocket right now. This is great news, yes? Not necessarily. At the end of the year, when you figure your tax return, the tax due for the entire year will be the same. The government is letting you keep more of your earned money each month without changing your total tax due.

Are you used to a big fat refund at tax return time? Prolly not gonna happen this year.

If you happen to be like those who try to make it break even every year, you better take that extra cash the government let you keep and put it in a bank account or change your withholdings. Why? Because you just might have to give all of that extra cash back. Unless.... unless you qualify for the Making Work Pay Tax Credit. In the which you can spend that extra money each month and the government will give you a nice little number on Line 63 of your Federal 1040 to compensate. Will that number be enough? Maybe. It's a gamble though. Be warned.

Do you see the back door salesman approach to this? Hey! We're gonna let you keep a few hundred bucks right now and hopefully, if you don't make too much money, you'll get to keep it. But if you don't play your cards right, or you end up windowed or divorced or you and the spouse file separately, then you might have to pay all or some of it back.

See? Backwards. How about a quote from

"A limited number of people, including those who usually receive very small refunds, could in some situations owe a small amount rather than receiving a refund. Those who should pay particular attention to their withholding include:
  • Pensioners (see more information under Pensioners, below)
  • Married couples with two incomes
  • Individuals with multiple jobs
  • Dependents
  • Some Social Security recipients who work
  • Workers without valid Social Security numbers"
Here's the link to the above quote.

Why not cut taxes in general and save all the bureaucratic headache? Oh right. That's not how taxes are practiced in this country. They'd rather spend a few million administrating this goofy credit then say cutting the program and letting taxpayers keep their hard-earned cash. The government wouldn't get to "own" that $800 per tax return either. If they take something from you then give it back, the governmental folk are the good guys doing favors. If they let you keep the cash to begin with, then they don't get to own your dollars.

Owning dollars is what politics are all about. I dare you to disagree.
I dare you! Come on! Don't be a chicken. Brock, brock, brock!

Wow. This is turning into a book. I need a break.

The third and final irritation I have with this credit is the simple fact that it's refundable. Meaning, it's just like you paid the government $800 when you didn't. Confusing? I know, right? Taxes are bloody confusing.

For the purposes of this Making Work Pay argument, I'll explain it like this: A refundable credit is a credit you get even if your tax is zero. Let's say you earn $10,000 a year. There's a good chance that a $10,000 year income makes you tax free - your tax bill for the year is zero. So you don't pay the government anything and the government doesn't pay you anything. Right? Wrong. With the Making Work Pay Tax Credit, the government will pay you money you never had withheld. In essence, you could be bringing home $400-800 more money than you earned. The feds are paying people to keep their income low. Simple as that.

I don't want to delve into the controversial black hole of that spread-the-wealth dispute, but I will say this: The tax return is no place for welfare. If you want to hand out cash to people who need it, do it somewhere else. It's the Internal REVENUE Service. Revenue means bring money in, not send it out. I believe that it is every American's privilege to pay taxes. I don't care if it's a buck or five, but all people living here and taking advantages of the supplied services should have to pay something - however minimal it might be. The truth is: lots of folks in this country are not only living tax free, they're being paid more than they earn.


Okay. I'm done. Have a nice day. Maybe next time you'll get an earful over the first-time home-buyer credit.

In other news, did you know that Andy Warhol was the manager for The Velvet Underground!? Me neither!


Winder said...

WOW! That is a lot of information. What should I do with it?

rabidrunner said...

You're supposed to tell me that my time would have been better spent placing a turd in a punch bowl.

Lars said...

Fascinating info. I especially enjoyed your last paragraph. Your Taximony that is.

Winder said...

Rabid--Your time would be better spent placing a turd in a punch bowl. Just don't do it when I am at the party.

Jessica said...

I'll admit that I don't know nothin' 'bout taxes, but this brought up a thought (I rhymed. Tee hee.). Was the tax credit about the whole time value of money thing? Like, if I give you money now, and you invest it, you'll earn some interest even if you have to pay some back.

I really don't know, just a thought.

Also, I tend to fill out my witholdings so I get the most money. Because I want that money NOW, not later. You know?

p.s. that was intense. I had to read it two times. At different times of the day. So I could think about it.

megan said...

the more complicated it gets...the bigger the smile on my

Sure. I'm a single parent for the next 4 months...but my house is quiet at night and my kids go to bed early and I have the place to myself...I can feed them anything I want and come up with a 30 second dinner when he walks through the door...changes and wolfs food down and walks right back out...sigh...focusing on the good right now...

Ashley Thalman said...

you didn't WANNA DO MY TAXES know that Andy was the manager? Or that the big ole banana on their album was his? Oh, I am sure you know that.

The MacMizzles said...

So, this is the loose invested money installment plan?


Ski Bike Junkie said...

You had me at turd in a punch bowl.

Anonymous said...

It was well explained and good info. But I believe people that don't do tax planning and earn a good income might get burned.
If you earn a low income it's a nice bonus. But it's just going to run up our National Debt more in the long run.

Sparks said...

First off, Anonymous, you're incredibly lame for being anonymous.

Second, I can't belive I actually made my way through that whole thing. I am a total tax idiot and I understood about three percent, but I felt it my duty to read and become better and more edumacated. Not sure if it worked; I'm a tough nut to crack and have a learning curve appropriate for cross-country skiing.

I hate paying taxes. You know this. Okay, so it's my duty 'cause I drive on roads and other things I can't think of right now, but my tax dollars are WASTED. If I spent money like the government spends my money, I'd be, well, in the same kind of trouble the government is in, ya know? It really hurts to get a big fat bonus check and see the big fat deduction that won't do a damn thing for my day-to-day. Hurts like it makes me cry. It's like seeing great potential wasted.

rabidrunner said...

Taximony? Lars that's clever. I might even use it. Might I use it?

Winder, you might want to rethink inviting me to another one of your so-called parties. I'll put a baby ruth in the punch bowl. And I won't even be sorry!

Jessica, that's true. In theory, the government should give us more of our money and we should invest it. Sadly most do not. I'm not a big fan of the giant tax refund because I'd rather the feds not borrow from me. I'm mean that way.

Ashley, all these years I though that Andy Warhol had simply created the Yellow Banana for the Velvets. Found it a shocker that he was actually their manager. So embarrassing right? I claim to be a Warhol fan. And a Velvet Underground fan. Did you know that the BYU has the complete set of Marilyn Monroes in their basement? 'Tis true. Seen 'em with my very own eyes.

Anonymous is correct. I anticipate with my magic crystal ball, that many will get burned by this whole thing. And being as people yell at me when their tax returns don't turn out the way they had hoped, I get to to deal with it. Hurray.

Junkie, if you were to remember anything from that waste-of-space diatribe, I'd hope you'd remember the turd in the punch bowl.

Megan. Sparks darling, you are not a tax idiot. You just have someone taking care of it for you and therefore find no purpose for storing anything that dull and insane in that lovely noggin of your'n.

I hate paying taxes too.

Lars said...

Rabid my dear, but of course you may use it.