Stimulus money - there may be strings attached

You know that extra money that started showing up in your paycheck last month? Uncle Sam may want some of it back.

But first - perhaps within a few weeks - the Internal Revenue Service plans to uncork a big educational campaign to help you figure out how to keep as much of the cash as possible. It will deal with the potentially eye-glazing topic of income tax withholding calculations, but watch for it anyway. Whether you get a refund next year and how much or how little may be riding on it.

"This one's a hot burner issue," said Michael Devine, IRS's spokesman in St. Louis.

Here's the deal. To help stimulate the economy, Congress and President Obama earlier this year ordered a tweaking of tax withholding rules so that most everyone's take-home pay would be maybe $8 or $9 fatter, and work out to as much as an additional $400 2009 tax cut on earned income for single taxpayers and $800 for couples. Multiply that times a few hundred million taxpayers and you get some real stimulus working, the theory went.

But real life isn't always as simple as lawmakers like to imagine. Tax professionals and others soon realized many of the changes might get really messy when we calculate taxes next April. That's because the tax withholding tables employers use to calculate our net pay often don't match our individual situations.

A single worker holding down two $20,000 a year jobs at different employers, for example, might get a $400 bigger paycheck from each of them. But the law only allows that worker to keep $400 of the tax cut. He or she would then have to repay the other $400 next April and either get a much smaller refund or owe a larger balance due.

Many of the nation's 33 million dual income married couples are headed for similar trouble. If they both work and are eligible for an $800 tax credit, their employers could refund them as much as $1,200. Then the couple get to figure how to come up with an unexpected $400 more they'll owe at tax time.

Retirees who work part time to supplement their Social Security income, or who are having taxes withheld from their pension checks, may get nailed too. Both are getting extra money now, but may have to give some of it back later. Social Security and pension benefits don't count as earned income, which is what the $400 and $800 credits are based on.

Details of the IRS campaign to help taxpayers avoid these jams will come soon, said Devine in St. Louis. Meantime, IRS already offers an online calculator at its Web site to help you sort out the right amounts of withholding for your situation.

Kicking the tires on recession-proof auto financing

Promising to cover your car payments if you lose your job seems at first like the slickest idea automakers have come up with since they began offering cash back a few years ago.

It's probably a better deal for them than for us, though.

Hyundai, which kicked off the plans, offers to cover up to three months of payments and to buy back your car if a financial calamity happens. Ford basically offers to make up to 12 payments at up to $700 a pop. General Motors will pay as much as $500 a month for nine months.

All three plans come with some restrictions. They don't kick in if you leave your job voluntarily or if you lose your job too soon --45 days or so-- after you drive off the showroom floor. And you generally will need to file for unemployment benefits to qualify, according to Consumer Reports.

And unlike cash back offers, the recession-proof financing plans don't seem to cost auto companies much. Hyundai is laying off its potential costs with third-party insurance to cover the $5,000 or so depreciation that can occur when your new car becomes a gently used one. And none of the automakers have actually had to pay much in claims, so far at least.

Meantime, the idea is spreading. Airlines, cell phone companies, clothiers and even the low cost Walgreens in-store minor care health clinics offer versions of the plan, The New York Times reports.

So far, there aren't many takers, though. If your job is shaky enough to potentially qualify, you probably are worried about the parts of the payments that aren't covered by the offers too.

For Mothers Day retailers, it's not the thought that counts

The latest word from the National Retail Federation is a head scratcher. There's a recession on and Mom will understand if we're chintzier with the celebration next weekend, the trade group says.

So, do they really believe that or are they trying to guilt trip us into spending more to help revive the economy? Retail spending traditionally accounts for about two thirds of U.S. economic activity and, as economist Paul Krugman reminds us, too much of anything, including thrift, isn't good for us.

And, boy, are we getting thrifty. I saw something in a Wal-Mart a couple Sundays ago I've never seen before. Six open checkout lanes and not one customer in any of them. I wished I were picking up more than shoe strings and shaving cream; Wal-Mart probably wishes so too. Officially, the retailing giant insists things are looking okay, all things considered.

Other retailers are hurting, though. Retailers hope things will pick up later this year. We'll find out next week if sales are making any recovery from a big drop in March. I'm betting any recovery will modest. Googling frugal in fashion will get you 214,000 hits to choose from.

And I'm checking out dollar stores to see if their prices beat Wal-Mart.

Streetwalking for fun and spare money

You who've been visiting this site lately know I haven't posted to kitchentablenomics for a few weeks. I've been exploring how bleak my economic future might be. Working survival jobs is not bad, but it is busy.

Briefly, I've been canvassing northeastern Kansas residential addresses for the U.S. Census Bureau in preparation for next year's big decennial nose count. I first took the job because it pays more than unemployment benefits. But it's interesting work, plus walking door-to-door for 100 to 200 homes a day is good for the waistline. And, no, Uncle Sam won't reimburse me for the smaller belt I need to buy.

But survival jobs like that one seem to be becoming more of a fixture, especially for those of us who are passing middle age or past it. Deep thinkers tell us that unemployment is a lagging economic indicator; not picking up until the economy is really beginning to hum again. All I know is that there seem to be a lot of us out there holding things together as best we can.

Maybe a fourth of my 20 crew mates were working survival jobs like I was. Numbers of different studies show that there are more of us out of work than normal, even for a recession, and that jobs are scarcer.

So more of us likely will be working short term, relatively low paying jobs to hold things together as best we can. Survival jobs offer some advantages - you feel like you are really working again and there is always faint hope it may lead to something real. There are drawbacks too. Time becomes as precious as money when you juggle survival jobs with job hunting and family time.
And, from a financial planning perspective, you also end up rejiggering budgets more often to adjust to frequent changes in income.

A disturbance in The Force - both Suze Orman and IRS ease credit card rules.

First, Suze Orman makes a big switch and recommends saving your cash instead of making extra credit card payments if you are out of work

Now Internal Revenue Service changes its mind and says you can deduct the extra convenience-fee you pay if you pay your balance due with plastic. Not the interest, though. Let's not get giddy.

Neither seismic shift has anything to do with the recent spike in Alaskan volcano and earthquake activity as far as I can tell, but they are big.

Unlike some of Orman's pronouncements, making minimum payments credit cards in order to stash away more cash for emergencies makes sense. It might even be better for the economy, writes James Surieowicki in The New Yorker. It's tough to get past the idea that credit card companies need the fees they pull out of our wallets to unjam the finance system, though.

But let's not go nuts with this idea. Being debt free or as nearly so as possible is still the thriftiest way to ride out the recession if you can swing it. Cutting expenses, setting a budget and sticking to it ruthlessly is still more effective than stringing along the credit card companies. They make money and you don't when that happens. If you are getting anything close to the national average $2,975 tax refund this year, think about using some of it pay down your highest cost plastic.

Orman didn't say so, but it's more important than ever before to make those payments on time if you go with her minimum payment idea. Potential future employers will be looking at your credit history too, along with landlords and your car insurance company. You can't afford the dings right now.

And there are some bills you need to pay no matter what - your mortgage, your car payments, and probably your health plan are nearest the top of the list. That's stuff you need and can be taken away if you don't pay. It's harder for the Capitol One crowd to repossess money you don't have.

Tax refund rules change when you are job hunting

Tax time is a hoot on the unemployment line.

A guy named Ray Conejo in Kissimmee, Fla., apparently is using his refund to help pay for his bankruptcy filing this year. And late night TV tax doyen Roni Deutch points out, accurately, that it's easier for some of us to qualify for bigger refunds this year. With our reduced incomes, more of what we spent in 2008 bumps above the 7.5 percent of adjusted gross income threshhold that is tall cotton to itemizers.

It's a mixed boon. Like saving on shampoo because you are bald, quips Deutch

Kitchentablenomics.com crunched tax numbers this weekend. Our refunds are going to outrun our balances due by about $150. The really good news, when you are on a lean budget like ours, is that we don't owe. The not so good news is that unemployment benefits and other part-time income mean more tax work before April 15. We need to file estimated and self employment taxes too because our withholding is way down.

But what do we do with the $150 windfall? The basic advice that personal finance writers shovel out still works. Pay debts and stash as much as you can. But priorities change. We're more into stashing these days.

And whether you are employed or not, it's time to start planning for next year.

COBRAs bite two ways

April 18 is a big deadline for employers wrestling with their health care costs, business consultants say. It's also the beginning of a potential eye-popper for us downsized workers too.

Basically, it is 60 days after President Obama's signing of the American Recovery and Reinvestment Act of 2009, the stimulus bill, and the deadline by which employers must offer subsidized COBRA health plans to any workers laid off since Sept. 1 who want the coverage.

Like those zero percent credit card offers we used to get before finance markets froze, the subsidized plan seems a sweet deal at first. COBRA is an acronym for the Consolidated Omnibus Budget Reconciliation Act of 1986, a then-groundbreaking law designed to help workers stay on their employers' health plan after losing a job.

Under the old rules that will change April 18, departing workers pay all the premiums for the coverage, which usually is two times or more higher than their former co-workers still on the job.

Under the new rules, employers pick up 65 of the premiums for nine months. That could get pricey; they must offer the plans to workers laid off Sept 1 or later, even if the workers turned down COBRA coverage at the time. Employers get a pocketful of tax credits to absorb at least some of that higher cost.

Workers get a break now, but pay radically higher costs when the subsidy runs out. The numbers from my last job are pretty typical. My wife and I pay about $230 a month for subsidized COBRA coverage now. It jumps to about $750 - the equivalent of two and half unemployment checks - when the subsidy ends.

We get good at math when we are between jobs. Only 9 percent of us who push pencils on this problem end up keeping COBRA coverage, according to the Commonwealth Fund, a New York foundation advocating more efficient health care. The rest of us either buy private insurance for our selves and families or we go on the crossed fingers and emergency room plan.