Taxpayer asks:
What about a taxpayer who owes the IRS $$$ from previous tax years? Should they adjust their W-4 to have more taxes taken out to cover the Making Work Pay credit that will be on their paychecks?
Taxgirl says:
It depends. The Making Work Pay Credit is refundable, so to the extent that the withholding results in an overpayment at the end of the year, taxpayer would be entitled to a refund. The refund would, of course, be offset if there are existing tax liabilities. If withholding is adjusted to ensure that there’s no refund, then the refund would not be used to satisfy the existing tax liabilities.
Of course, that doesn’t change the outstanding liability. I often recommend that taxpayers with outstanding liabilities who receive a refund at the end of the year not alter their withholding. Most taxpayers don’t notice the few extra dollars each week and the refund helps pay down the liability. Most taxpayers in that situation wouldn’t save on their own in order to pay it down, so this “forced savings” can be a good thing.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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