Stimulus tax credit may increase penalties

Introduction

The “Making Work Pay” tax credit, which increased take—home pay for workers, may result in 13.4 million people actually owing the government money, according to an audit by the inspector general of the Treasury Department.

The tax credit, part of the stimulus package, gave taxpayers a small bump in their paychecks by decreasing federal income tax withholdings.

But new income tax withholding tables did not take into consideration different tax payer circumstances. Single taxpayers with more than one job, joint filers with both spouses working, taxpayers who receive pension payments and Social Security recipients who receive wages may all owe more taxes if they were advanced more of the tax credit than they were entitled to.

A survey by the inspector general revealed that 88 percent of taxpayers who were negatively affected said they had no knowledge of the potential for insufficient tax withholding.

The IRS attempted to notify taxpayers of the confusion through e—mails, public service announcements and information on tax forms. “Despite substantial efforts to inform taxpayers about the Making Work Pay credit, taxpayers negatively affected by the reduced withholdings are still unaware of the problem and the solution,” the IG said.

FAST FACT: The inspector general estimates about 108,000 taxpayers may have been assessed tax penalties due to the Making Work Pay credit, and another 1.2 million may have had tax penalties increased due to the program.

Following are other new watchdog reports released by the Government Accountability Office (GAO), various federal Offices of Inspector General (OIG), and other government entities.

NATIONAL SECURITY

• Billions of dollars of arms and other military products are exported to U.S. allies and strategic partners every year, but weaknesses in the export process create a high risk. Better coordination among agencies, a systemic assessment of the export process, and streamlining efforts could make the program safer. (GAO)

HEALTH

• The Rural Health Care Program, subsidized by the Federal Communications Commission, helps rural physicians reach patients through telecommunications and broadband internet services. The program has not taken full advantage of the funds allotted to it. Better performance measures and an assessment of the provider’s needs are necessary. (GAO)

MISC.

• A case study of sexual offenders working in public and private schools highlights the lack of federal laws regulating the employment of sex offenders in educational settings. State laws vary greatly on the matter: some states prohibit schools from employing any convicted sex offenders, while others have prohibitions which only apply to individuals holding a teaching license. (GAO)