$250 stimulus checks only a loan for many

About 52 million Social Security recipients started receiving $250 economic recovery checks Thursday, including many who will have to repay the money at tax time next year - either through a smaller refund or a larger tax bill.

The payments were meant to provide a boost to people who don't qualify for President Barack Obama's "Making Work Pay" tax credit, which pays individuals up to $400 and couples up to $800.

Taxpayers are ineligible to keep both the full tax credit and the stimulus payment. However, stimulus payments will go to many people who also are earning the credit through jobs that provide taxable income. Those people will have the $250 payment deducted from their tax credit next spring, when they file their returns for the 2009 tax year.

Stimulus payments are slated to go to people who receive Social Security, Supplemental Security Income, railroad retirement benefits or veteran's benefits. In all, a little more than $13 billion will be distributed.

"There's going to be millions of individuals who receive Social Security benefits and will be receiving the Making Work Pay credit," said Christina Martin Firvida, director of economic security for the AARP.

About 17 percent of U.S. residents 65 and older are in the labor force, according to the Bureau of Labor Statistics.

The Internal Revenue Service issued tax withholding tables in February designed to distribute the new tax credit by increasing workers' pay a few dollars a week. However, the tables could cause millions of taxpayers to get hundreds of dollars more than they are entitled to under the credit, money that the IRS will recoup at tax time next year.

At-risk taxpayers include married couples in which both spouses work, workers with more than one job, as well as Social Security recipients with jobs that provide taxable income.

Retirees who have federal income taxes withheld from pension benefits also are getting an income boost as a result of the new withholding tables. However, pension benefits are not earned income, so they don't qualify for the tax credit.

The IRS is close to issuing updated withholding tables for pension plans, to help retirees ensure they are withholding sufficient taxes from their payments, said IRS spokesman Terry Lemons.

The agency also is planning an outreach campaign to help educate people about the tax implications of stimulus payments and the new tax credit, he said.

"We have a vast array of people facing an incredible range of financial situations," Lemons said. "The withholding tables can't be tailored to fit every situation."

Some members of Congress said the Obama administration has been slow to notify the public that the stimulus payments could affect their taxes - even though they do not count as taxable income.

"For a lot of taxpayers, these payments will be a loan, not a gift," said Sen. Chuck Grassley of Iowa, the senior Republican on the tax-writing Senate Finance Committee. "That wasn't made clear in the way the program was sold to the American people."

Jackie Perlman, an analyst with the Tax Institute at H&R Block, said taxpayers should check their federal withholding to make sure sufficient taxes are being taken out of their pay.

Married couples in which both spouses work might consider having taxes withheld at the higher rate for single filers. If workers have multiple jobs, they might consider having extra taxes withheld by one of their employers, Perlman said.

Taxpayers can make those changes with a Form W-4. The IRS has a calculator on its Web site to help taxpayers figure withholding. So do many private tax preparers.

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On the Net:

IRS information on stimulus payments:

http://www.irs.gov/newsroom/article/0,,id205927,00.html

IRS tax withholding calculator:

http://www.irs.gov/individuals/article/0,,id96196,00.html