Tax Question - Make Work Pay?

[fishnugget]

So I'm doing my taxes, and shame on me for not noticing or paying attention over the last year, but the amount of tax withheld from both my wife and I's paychecks was drastically decreased.

She made about 40k both years, in 2008 had $3700 withheld, in 2009 only $2500 withheld.

I made about 21k in 2008, and withheld about $1800. in 2009, I made about 35k, and withheld 2k. (same company, just more hours since I had less school).

These decreases were done automatically, with no change from us to our W4's.

Because of this, we are owing about $1300 more in taxes this year than last. That's a lot, because in our own financial planning we expected the numbers to be comparable.

I think I nailed down the reason to be this Make Work Pay tax credit. Indeed, there is an $800 tax credit being applied, but it's a far cry from what it should have been from what our withholding should have been. Again, shame on me/us for not really noticing as it happened, but crap!

I'm reading something about a waiver for underpayment of tax penalty (form 2210) that can help people in my situation, I think... Can someone give me the dummy explanation for how this works? Can I waive some of this huge increase or am I screwed because I wasn't paying attention?

Thanks

EDIT: Oh yeah, we are also likely buying a house (our first one) before the end of April to take advantage of the first time homebuyers credit. We were planning on refiling down the road to include this tax credit. Does that affect any of this stuff? My head is spinning. Thanks.

 

[texascoder]

Yeah, I think the government stepped on its collective dick by lowering peoples' witholding when they really didn't reduce anyone's actual tax liability. If I remember correctly, I don't think you'd need to pay a penalty unless you owe more than about $3k, so you shouldn't need to worry about any kind of underpayment penalty. I almost got hit with that penalty one year due to a status change (married to single... hehe), but I got to waive the penaly for that one year. And as you said, even if you would normally need to pay a penalty this year folks might able to be exempted from it due to the smoke and mirrors perpetrated by the government (trying to be nice here so this doesn't get moved to the West Mall

).

As for the home-buyer tax credit, if you're going to be buying a house in 2010, then that would be part of your 2010 taxes, not 2009.

I would recommend you get a copy of TurboTax as it does a great job of stepping you through your tax situation and helping you decide on all the various twists and turns you might have to take. I've been using it for about 10 years now and it never takes me more than about 2-3 hours to pull all my tax stuff together and then actually complete my tax form, despite having plenty of uncommon tax-related situations.

Good luck

 

[fishnugget]

Ok, I think I was misunderstanding the penalty waiver form 2210 and how it related to my situation.

I think I was confused about what an "underpayment penalty" was. My taxes aren't high enough and I don't have such a penalty. If they were, and I could show that it was because this Make Work Pay program withheld too few taxes and that's why, then I could try to get that penalty waived. However, since I just have higher taxes than normal because I didn't realize less was being withheld, I'm just screwed now that it's tax time. Does that sound correct?

Also, as far as the house thing goes, I was under the impression that I had a choice whether to file with 2010 taxes, or file an amended return for the credit to come through for the 2009 taxes. I'm not too concerned about being able to figure out the details there though, I was just wondering how it would affect my ability to try to waive some of these taxes due to Make Work Pay, which I think I am under the understanding now that I can't, and that the waiver I was talking about doesn't apply.