Treasury Inspector General for Tax Administration
December 16, 2010
TIGTA - 2010-79
Contact: Karen Kraushaar
WASHINGTON – Overall, the Internal Revenue Service (IRS) implemented the Making Work Pay Credit as intended by Congress, according to a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).
However, the report also found that approximately 13.4 million taxpayers who received the credit may owe taxes because adjustments to the withholding tables did not take into consideration all taxpayer circumstances. For example, single taxpayers with more than one job, joint filers where both spouses work or one or both of them have more than one job, taxpayers who receive pension payments, and Social Security recipients who receive wages are among those who may be negatively affected.
The Making Work Pay credit is an economic stimulus provision of the American Recovery and Reinvestment Act of 2009 (Recovery Act). The credit is advanced to taxpayers by their employers through withholding reductions which results in an increase in taxpayers’ take home pay. The credit is effective for Tax Years 2009 and 2010.
“The Making Work Pay Credit is a key tax credit designed to increase spending and stimulate the economy,” said J. Russell George, the Treasury Inspector General for Tax Administration. “However, many taxpayers who are accustomed to receiving refunds when they file their tax returns may have owed taxes and incurred penalties in 2009 and may yet again in 2010 because they were advanced more of the credit than they were entitled to claim,” Mr. George added. “My office issued a report in November 2009 warning of this possibility and encouraging the IRS to increase outreach and waive penalties for taxpayers who may be negatively affected by the credit. We still believe further actions are needed to ensure no taxpayer is unfairly penalized.”
TIGTA performed an audit to assess efforts by the IRS to implement the credit, to evaluate the credit’s impact on taxpayers, and to determine if taxpayers who were negatively affected in 2009 were aware of how to avoid being negatively affected again in 2010.
TIGTA found that despite significant outreach efforts by the IRS, most taxpayers who appeared to have been negatively affected by the reduced withholding associated with the credit were not aware of the credit or its effect on their taxes. In addition, TIGTA estimates that approximately 108,000 taxpayers may have been assessed the Estimated Tax Penalty as a result of the credit, and that an additional 1.02 million taxpayers may have had their Estimated Tax Penalty amount increased.
TIGTA made two recommendations to the IRS in its report, and the IRS agreed with the first recommendation and partially agreed with the second.
To review the report, including the scope and methodology, go to: http://www.treas.gov/tigta/auditreports/2011reports/201141002fr.pdf.
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