IRS Errors and Economic Stimulus Refunds For Home Buyer Credit and Overpayment of $250 SSI and Making Work Pay Tax Credit

The IRS has officially admitted that they are having issues with processing some of the most popular economic stimulus payments that the Obama administration has handed out over the last few years. In particular, the many versions of the first time home buyer credit, each with different eligibility and income rules, has made tax time difficult for tax payers starting to repay the original $7,500 credit.  About 950,000 of the nearly 1.8 million who claimed the credit on 2009 tax returns may have to send the money back because in some cases they were not eligible for the second $8,000 version of the home buyer tax credit that did not have to be paid back.

The IRS has stated that the agency is “working quickly to resolve this issue and update its systems….which will allow the correct processing of these impacted returns.” Anyone who is claiming the final and most generous (in terms of qualification) installment of the tax credit on a home purchased in 2010 shouldn’t be affected by the errors according to the IRS.

$250 SSI payment and Making Work Pay tax credit over-payments for working seniors

The Senior Citizens League also reports that millions of Americans may be in for an unpleasant surprise during tax season because the Making Work Pay tax credit was incorrectly applied to an estimated 13 million taxpayers in 2010, many of them seniors. This potentially leaves many retirees unexpectedly owing hundreds of dollars in taxes, and in some cases paying penalties for last year.

The $400 making work pay tax credit  was advanced to working taxpayers in 2009 and 2010 in the form of higher payroll and pension checks (via lower federal income tax withholdings deductions).  Seniors who received the Social Security, Supplemental Security Income (SSI), railroad retirement or veterans’ disability compensation also qualified for a separate one-time $250 payment. Working seniors who qualified for the tax credit and SSI payment had to reduce the larger making work pay credit by the SSI amount of $250, making them only eligible for a $150 making work pay tax credit. But the IRS withholding tables used by employers did not adjust for those payments and so many seniors received $650 ($400 + $250) instead of the $400 ($250 + $150) that they should have.

Seniors receiving pensions were affected as well, because the IRS tables allowed reduced withholdings for pensions — even though such income was not even eligible for the credit, which only applied to income earned from a job. Married couples who worked and also received a pension are at greatest risk and could potentially owe as much as $1,600 if they are not eligible for any of the credits (due to income limits)

Because the faulty tax tables caused many people to owe taxes they didn’t expect to owe, the IRS allowed penalties to be waived for the 2009 and 2010 tax years. But the waivers are only given if taxpayers explicitly request them. According to the Treasury Inspector General, last year virtually no taxpayer surveyed knew they could request a waiver.

“Many seniors will be surprised to find they owe money on their tax returns for 2010 because of the way the IRS implemented the Making Work Pay tax credit,” said Larry Hyland, chairman of The Senior Citizens League. “We urge affected seniors to file their penalty waivers. We also urge the government to eliminate what amounts to double taxation of Social Security benefits, by removing taxes on those benefits.”

Feel free to leave a comment below for any issues you have had claiming any of the above or other economic stimulus credits.

Source: PR Newswire

This article was updated on January 12

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4 thoughts on “IRS Errors and Economic Stimulus Refunds For Home Buyer Credit and Overpayment of $250 SSI and Making Work Pay Tax Credit

  1. its very hard I never dream that my life be like this you work for 12 years no violation and terminated i loss my car everything .and I been applying job at least three times a weeks no one call me .i need a job. thank you

  2. I am a single mother of a 15 year old to young boy. I have and income $902 a through disability. I am 36 years old and just recently became disabled as of last year. I am having such a hard time making ends meet and being able to pay my rent, electric and also take care of my son. Just last week our refrigerator had when and everything we have bought for the month and food went completely bad there was only certain things we were able to save. Now we I have absolutely nothing going from Pantry the pantry which provides us with can goods and pastas. I am greatly appreciative all the help that I have recently received but at the same time my son is so tired of eating eggs and pasta every day and night. I’m in such a bad depression and I don’t know what to do from here. I have tried everything even down to Payday Loans which my credit is not good at all due to my ex my son’s father destroying it throughout our relationship. I am in such a hard place right now and I don’t know what else to do! My son is wearing clothes that barely fit him and we have been to our local church for donations. my son completely understands everything that we are going through right now and they’re strong right next to me. About a week ago my son had mentioned to me about feeling like self-harm because I was getting made fun of about the clothes he wears but I continuously to remind him that it is not always going to be this way. Yes we absolutely hit rock bottom and have no other means of help at this time of need. But I constantly remind him we have each other and that’s all we need. I will not allow him to starve nor suffer. When your child tells you that he feels like self-harm you can never believe the gut feeling as a mother of what to do at that point in time. We have reached out two local counseling and he has been talking with somebody. I am at the point in my life that I feel like I am going to have to degrade myself as a woman and allowed my body to be used two men. Which I never wanted to do in my entire life. That seems like the only way to go at this moment. How many times men offer a day to pay me to company them. I just find it so degrading as a mother and is a woman. I just don’t know what to do anymore I’m so lost for words and in such a depression it is unbelievable. I stand strong for the young man that Stand’s by my side every step of this way… please I asked if you have any suggestions or every other means that can help us at this time of need I am open for anything. I live in the state of New Jersey where funding is not very fortunate at all! I asked you please please if there is any type of help financially, food-wise, clothing anything at this point I’d be greatly appreciative! I want to thank everybody in advance that reads to send message oh my bad I know that you’re not alone going through this hardship on your own… I really would appreciate if you do not share my message with the world. I only wrote this because this is what I’m feeling at this moment and I am in desperate need for help!

  3. This is just another example of inefficient and ineffective government. The money spent on the home buyer credit and other giveaways did little to help the economy. We need to pass the Fair Tax which would create an economic boom and get rid of the IRS being involved in our everyday lives. For more information visit FairTax.org

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