Avoid an unpleasant surprise in January. Review your W-4 today.

When using the new W-4 Withholding Calculator, pay close attention to your 'Total Withholding' calculation.

Because the IRS withholding tables cannot take into account ineligible taxpayers, workers with multiple jobs, or dual-income married couples, the reduced withholding may actually exceed the credit that you’ll be able to claim when you file your tax return next year.

Let's look at some examples
A married couple, for example, could EACH have up to $600 reduced withholding during the rest of the year ($1,200 combined). Their maximum credit on the 2009 return will only be $800, however.

A single taxpayer, who has two jobs, may have $400 less withholding from EACH job for a total of $800 in reduced withholding. His maximum credit on the 2009 return will only be $400.  Each case potentially results in either a lower refund or a higher balance due for the taxpayer.

Those who the credit could negatively impact:

• Married couples with two incomes
• Individuals with multiple incomes
• Retirees who have taxes withheld from a pension or social security benefits
• Individuals who work but who can be claimed as a dependent by another taxpayer

Do you qualify?
Remember, too, that not all workers qualify for the Making Work Pay Credit (MWPC). Individuals who are a dependent of another taxpayer and individuals who do have an Individual Tax Identification Number (ITIN) will find that their withholding is reduced the same as for other workers, even though they don’t qualify for the MWPC (unless they are married and file a joint return with spouse who is eligible to claim the credit).

Adult recipients of Social Security, Railroad, SSI, and Veterans Retirement or Disability benefits, WHO ALSO HAVE W-2 income, should be aware that the $250 one-time Economic Recovery Payment which they automatically received earlier this year reduces any allowable Making Work Pay Credit that they’ll be able to claim on the 2009 Tax Return next year.

Let’s look at another example: Assume a married couple who both work use Married for their withholding status. They also receive Social Security benefits. The couple could receive as much as $1,700 in early benefits ($600+$600+$250+$250). The problem arises when the 2009 Tax Return is prepared. Now assume the couple is entitled to a tentative Making Work Pay Credit of $800. They will only be able to claim a $300 ($800-$500) MWPC compared to their $1,200 reduction in withholding. This would result in additional tax liability of $900.

What to do?
You should review and adjust (if necessary) your W-4 to ensure that you are withholding the correct amount. H&R Block’s free Making Work Pay calculator can help you do just that. The calculator will estimate the overall reduction in your withholding due to this change compared to the credit you expect to claim on your return. Remember, the Making Work Pay refundable tax credit is worth up to $400 for individuals and up to $800 for joint filers.

Need more help?
Call 1-800-HRBLOCK to find an office near you to schedule a free tax checkup.