If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

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If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby sardia » Tue Oct 19, 2010 6:10 am UTC

http://www.nytimes.com/2010/10/19/us/po ... ml?_r=1&hp
Remember when the newly elected Obama promised using scientific and psychological techniques in government policies? For example, instead of asking people to opt in to a program, that is optional but good for you, you design it so that you have to opt out. This plays off human behaviors to increase enrollment. One of those policies was giving people tax cuts in a way that nobody noticed. That way, the taxpayers wouldn't just save the money, they would spend it. Well the policy turned out great, less than 10% of people know about the tax cut. Of course, the result is that everyone thinks the Democrats don't care since they didn't cut taxes for them. Isn't it funny? You try to help people out by taking advantage of their behavioral quirks, and it bites you in the ass because they don't know you're helping them.
Notes: If they cut your weekly paycheck taxes, but you have to pay more taxes elsewhere, it doesn't really feel like a taxcut. In addition, if you got laid off, then you won't notice your taxes going down or up.

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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby PeterCai » Tue Oct 19, 2010 6:16 am UTC

such is politic

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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby mmmcannibalism » Tue Oct 19, 2010 12:53 pm UTC

Reminds me of the whole problem of pork barrel spending; once creating jobs with federal money stops being a dick measuring contest the considerations for spending would improve.

Personally, I despise how a tax cut is viewed as an expenditure*; opportunity cost of letting people keep their money in the first place if anything. That being said, its easy to see how a small tax cut was lost in the midst of a giant economic crisis; especially if that cut didn't effect the top of the bracket.

*Could someone studying economics explain why it is done this way?
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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby Crius » Tue Oct 19, 2010 5:48 pm UTC

Is this article talking about the Making Work Pay tax credit? Or was it an actual % cut? Generally I would think of a tax cut as actually lowering the percentage rate, not a tax credit.



mmmcannibalism wrote:*Could someone studying economics explain why it is done this way?


I think this is mainly referring to tax credits to incentivize certain actions. It can be viewed as the government paying people/companies to take that action; it's just easier to function as a tax credit as opposed to taking the money and giving it back. It's somewhat misleading, though less so than calling them "loopholes".

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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby DrSir » Tue Oct 19, 2010 10:37 pm UTC

Crius wrote:Is this article talking about the Making Work Pay tax credit? Or was it an actual % cut? Generally I would think of a tax cut as actually lowering the percentage rate, not a tax credit.



mmmcannibalism wrote:*Could someone studying economics explain why it is done this way?


I think this is mainly referring to tax credits to incentivize certain actions. It can be viewed as the government paying people/companies to take that action; it's just easier to function as a tax credit as opposed to taking the money and giving it back. It's somewhat misleading, though less so than calling them "loopholes".


I'm just guessing, but I think it would also be easier in the case where the cut is just temporary. That way it's easier for the government to see where money is flowing to and from, and how to change the flow if necessary. Putting it under expenditures would help show it's temporary, because then the gov. can see the base revenue it derives from taxes when they're at the rates they normally are.
Also, it may be easier to drop the tax cuts later, without cries of "Raising Taxes Ahhhh!" Although I don't think it helps much.

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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby Silknor » Tue Oct 19, 2010 11:36 pm UTC

Tax credits are rightly viewed as expenditures. There's no difference between a transfer payment of say $250 to all seniors and a tax credit for seniors only of the same amount. One is direct and the other reduces the tax liability, so it's less direct, but they're the same. And calling it a tax cut when it can produce a negative tax liability doesn't make much sense.
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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby meatyochre » Tue Oct 19, 2010 11:48 pm UTC

But if there isn't a huge announcement at the beginning of the fiscal year about the tax credit, and it is spread out over 26 paychecks, it seems at least a little disingenuous.

I was a little bitter when I found out in NOVEMBER last year about half of the Making Work Pay credit not being taken out of my paychecks in unnoticeable, practically infinitesimal amounts. Forcing people to spend? Where do you get off telling me how to spend my money?

$800 bucks at tax time would have been way better than $400 at tax time + $15 every pay period. If I'd known about it ahead of time I could have set up direct deposit to put that money into savings instead.
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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby Anubis » Wed Oct 20, 2010 12:21 am UTC

meatyochre wrote:But if there isn't a huge announcement at the beginning of the fiscal year about the tax credit, and it is spread out over 26 paychecks, it seems at least a little disingenuous.

I was a little bitter when I found out in NOVEMBER last year about half of the Making Work Pay credit not being taken out of my paychecks in unnoticeable, practically infinitesimal amounts. Forcing people to spend? Where do you get off telling me how to spend my money?

$800 bucks at tax time would have been way better than $400 at tax time + $15 every pay period. If I'd known about it ahead of time I could have set up direct deposit to put that money into savings instead.



That's exactly why they didn't tell you. Still, no one forced you to spend anything. You could have simply paid more attention to your finances, and/or saved what you thought was a reasonable amount regardless of whether you thought you were getting a "tax cut".

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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby meatyochre » Wed Oct 20, 2010 12:24 am UTC

Anubis wrote:
meatyochre wrote:But if there isn't a huge announcement at the beginning of the fiscal year about the tax credit, and it is spread out over 26 paychecks, it seems at least a little disingenuous.

I was a little bitter when I found out in NOVEMBER last year about half of the Making Work Pay credit not being taken out of my paychecks in unnoticeable, practically infinitesimal amounts. Forcing people to spend? Where do you get off telling me how to spend my money?

$800 bucks at tax time would have been way better than $400 at tax time + $15 every pay period. If I'd known about it ahead of time I could have set up direct deposit to put that money into savings instead.



That's exactly why they didn't tell you. Still, no one forced you to spend anything. You could have simply paid more attention to your finances, and/or saved what you thought was a reasonable amount regardless of whether you thought you were getting a "tax cut".

Paying attention to finances is a muddy process if you're (as I am) working with hourly pay, overtime, and some hours modified by shift differential and some not (overtime pay + shift differential gets even more confusing, the breakdown on my paycheck makes very little sense to me most of the time).

I would rather have a shady tax credit than no credit. But I'd rather the government work with transparency and let citizens make their own fully informed financial decisions. Why is this a problem for you?
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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby mmmcannibalism » Wed Oct 20, 2010 1:27 am UTC

meatyochre wrote:
Anubis wrote:
meatyochre wrote:But if there isn't a huge announcement at the beginning of the fiscal year about the tax credit, and it is spread out over 26 paychecks, it seems at least a little disingenuous.

I was a little bitter when I found out in NOVEMBER last year about half of the Making Work Pay credit not being taken out of my paychecks in unnoticeable, practically infinitesimal amounts. Forcing people to spend? Where do you get off telling me how to spend my money?

$800 bucks at tax time would have been way better than $400 at tax time + $15 every pay period. If I'd known about it ahead of time I could have set up direct deposit to put that money into savings instead.



That's exactly why they didn't tell you. Still, no one forced you to spend anything. You could have simply paid more attention to your finances, and/or saved what you thought was a reasonable amount regardless of whether you thought you were getting a "tax cut".

Paying attention to finances is a muddy process if you're (as I am) working with hourly pay, overtime, and some hours modified by shift differential and some not (overtime pay + shift differential gets even more confusing, the breakdown on my paycheck makes very little sense to me most of the time).

I would rather have a shady tax credit than no credit. But I'd rather the government work with transparency and let citizens make their own fully informed financial decisions. Why is this a problem for you?


Just for clarification; are you making the claim that your financial behavior is in part based around knowledge of the yearly tax rate(when that change is near trivial)?
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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby meatyochre » Wed Oct 20, 2010 1:42 am UTC

mmmcannibalism wrote:
meatyochre wrote:
Anubis wrote:
meatyochre wrote:But if there isn't a huge announcement at the beginning of the fiscal year about the tax credit, and it is spread out over 26 paychecks, it seems at least a little disingenuous.

I was a little bitter when I found out in NOVEMBER last year about half of the Making Work Pay credit not being taken out of my paychecks in unnoticeable, practically infinitesimal amounts. Forcing people to spend? Where do you get off telling me how to spend my money?

$800 bucks at tax time would have been way better than $400 at tax time + $15 every pay period. If I'd known about it ahead of time I could have set up direct deposit to put that money into savings instead.



That's exactly why they didn't tell you. Still, no one forced you to spend anything. You could have simply paid more attention to your finances, and/or saved what you thought was a reasonable amount regardless of whether you thought you were getting a "tax cut".

Paying attention to finances is a muddy process if you're (as I am) working with hourly pay, overtime, and some hours modified by shift differential and some not (overtime pay + shift differential gets even more confusing, the breakdown on my paycheck makes very little sense to me most of the time).

I would rather have a shady tax credit than no credit. But I'd rather the government work with transparency and let citizens make their own fully informed financial decisions. Why is this a problem for you?


Just for clarification; are you making the claim that your financial behavior is in part based around knowledge of the yearly tax rate(when that change is near trivial)?

The rate? No. But the making work pay credit was not a percentage, it was a flat $800 credit for single working folk.
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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby Anubis » Wed Oct 20, 2010 2:18 am UTC

meatyochre wrote:I would rather have a shady tax credit than no credit. But I'd rather the government work with transparency and let citizens make their own fully informed financial decisions. Why is this a problem for you?


Because in this particular case that turns into a tragedy of the commons problem and defeats the purpose of the tax cut. Every individual is better off saving the money, but if everyone does it we're all worse off.

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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby Silknor » Wed Oct 20, 2010 2:37 am UTC

More directly, the government isn't hiding anything. They're simply not publicizing things as much as you may like. Government resources are obviously limited: so not every change in the tax code that affects individuals, much less the law as a whole, can be broadcasted enough that everyone affected will hear about it immediately. So saying that by not making every possible effort to ensure that people know about a change (a change which not only is immediately reflected but is the result of a publicly available law), the government isn't being transparent really isn't the case.
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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby sardia » Wed Oct 20, 2010 3:48 am UTC

meatyochre wrote:But if there isn't a huge announcement at the beginning of the fiscal year about the tax credit, and it is spread out over 26 paychecks, it seems at least a little disingenuous.

I was a little bitter when I found out in NOVEMBER last year about half of the Making Work Pay credit not being taken out of my paychecks in unnoticeable, practically infinitesimal amounts. Forcing people to spend? Where do you get off telling me how to spend my money?

$800 bucks at tax time would have been way better than $400 at tax time + $15 every pay period. If I'd known about it ahead of time I could have set up direct deposit to put that money into savings instead.

Mwahahaahahah. That's right, dance, puppet, dance!

In all seriousness, try thinking of it as incorporating science into government instead of a secretive cabal trying to mind control you. Would you rather the government throw money at the problem by dumping money out of a plane? They are using scientifically tested behaviors to augment a government program. I was hoping for more of this instead of the political crap we've been dealing with.

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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby kiklion » Wed Oct 20, 2010 10:42 am UTC

I may have missed what tax was cut, but from my reading it looks like only federal withholdings were decreased. I'm probably getting this wrong but it looks like this to me:

Before:

$100 every paycheck taken out for income taxes.
Owe another $800 at end of year, paid $2,000 over all.

Now:
Pay $80 every paycheck taken out for income taxes.
Owe another $1040 at end of year, paid $2,000 over all.

Since some taxes are paid on a yearly marker, the fed just takes portions from each paycheck as an approximation, and then refunds/bills the difference, if there is no actual tax cut, people don't actually get more money. They just think they do until the end of the year, end up spending more throughout the year, and then suffer at year end?

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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby meatyochre » Wed Oct 20, 2010 10:20 pm UTC

What happened is a lot of married couples filing jointly DID end up owing taxes when they expected a refund. I think due to something like only one work credit was allowed per return. So married filing separately could claim both credits per couple, and no problem with filing single. But married and filing jointly (for a couple where both were working) meant you could only claim one credit for the household, despite the fact that the government had still decreased withholdings for both people.

The whole thing was an enormous clusterfuck and I'm still pretty angry that information about how the credit would "work" was not made into more of a big deal. The decreased withholdings should absolutely have been opt-in.
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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby EsotericWombat » Wed Oct 20, 2010 10:45 pm UTC

It wasn't a clusterfuck. It worked. It did exactly what it was supposed to do.

As for transparency, anyone who was paying attention knew that the stimulus was one-third tax cuts, and that 95% of Americans would be seeing more in their paychecks. I'm not terribly moved by "oh noes! I wasn't paying attention and accidentally spent a tax cut that was approved based on the premise that it would be spent."
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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby meatyochre » Wed Oct 20, 2010 10:59 pm UTC

EsotericWombat wrote:It wasn't a clusterfuck. It worked. It did exactly what it was supposed to do.

As for transparency, anyone who was paying attention knew that the stimulus was one-third tax cuts, and that 95% of Americans would be seeing more in their paychecks. I'm not terribly moved by "oh noes! I wasn't paying attention and accidentally spent a tax cut that was approved based on the premise that it would be spent."

I think painting is as people not paying attention is wrong, and you're also being incredibly rude.

When you say "anyone who was paying attention," to what would they pay attention? I don't read the tax code in my spare time, nor should the average American be expected to. I don't recall hearing a single word about it online, or at work, until October when my mom offhandedly mentioned the phrase "making work pay tax credit" to me.

Families filing jointly who got screwed over at tax time would surely have preferred not to have the tax cut approved in the first place. I maintain that proper notice was not given out. You can say I'm stupid, or that those families were stupid, but we're all citizens who are paying the government. It'd be nice to be advised if a radical new cut method is implemented differently than we expect based on years of experience paying into the system.

At the very least, married filing jointly couples should have been notified by their employers that withholding was going to decrease significantly so they could change their withholdings to compensate and not end up owing taxes when they expected a refund.
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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby EsotericWombat » Wed Oct 20, 2010 11:24 pm UTC

How about the news?
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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby kiklion » Thu Oct 21, 2010 10:36 am UTC

Once again, what was the tax cut? All I read in the article was federal withholdings being reduced, but your total tax for the year not being changed.

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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby sardia » Thu Oct 21, 2010 4:51 pm UTC

kiklion wrote:Once again, what was the tax cut? All I read in the article was federal withholdings being reduced, but your total tax for the year not being changed.

"Actually, the tax cut was, by design, hard to notice. Faced with evidence that people were more likely to save than spend the tax rebate checks they received during the Bush administration, the Obama administration decided to take a different tack: it arranged for less tax money to be withheld from people’s paychecks. "
That's from the article. Please read if you are unsure what the article was about. You get about $400 more in your paycheck because they taxed you less per paycheck. It's $800 for married people. I've also noted that this only applies to your paycheck, and other levels of government may raise and/or continue to tax you.

meatyochre wrote:What happened is a lot of married couples filing jointly DID end up owing taxes when they expected a refund. I think due to something like only one work credit was allowed per return. So married filing separately could claim both credits per couple, and no problem with filing single. But married and filing jointly (for a couple where both were working) meant you could only claim one credit for the household, despite the fact that the government had still decreased withholdings for both people.

The whole thing was an enormous clusterfuck and I'm still pretty angry that information about how the credit would "work" was not made into more of a big deal. The decreased withholdings should absolutely have been opt-in.
Do you have anything better than hearsay? Because the article did report on the tax cut and everybody else didn't know a thing about it. Did YOU end up paying more for your withheld taxes at the end of the year for some reason? This tax cut cost the country $116 billion, so unless they spent it all on personnel and administrative changes, they gave you a god damn tax cut. It wasn't trying to trick you into spending money you didn't have. It tricked you into spending money they gave you.

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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby kiklion » Thu Oct 21, 2010 9:33 pm UTC

So for people who are as horrible as I am with tax talk.

Making work pay tax credit went through. It is a flat 400 or 800 deduction off of your federal income tax.

Rather then give it to you at the end of the year, they reduced the withholding throughout the year by a proportional amount. (tax credit / pay periods)

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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby meatyochre » Thu Oct 21, 2010 9:46 pm UTC

http://www.cfodailynews.com/who-making-work-pay-will-hurt-this-tax-season/
Overall, the Department of the Treasury is estimating that over 10% of taxpayers will end up owing additional taxes.


http://blogs.cbh.com/midmarket/?p=1154
According to a report issued earlier this month, millions of taxpayers may owe additional taxes for 2009 due to underwithholding caused by the Making Work Pay Tax Credit (MWPC).


http://www.bargaineering.com/articles/make-work-pay-stimulus-chec-tax-credit.html/comment-page-1
One thing to watch out for is how employers implement this. For single filers, you don’t have to worry because your employer knows your complete tax picture. For couples, you may want to work with your HR to determine the proper amounts.

Even for single filers, the employer may not know your complete tax picture if you have significant income that is not reported on that company’s W2. If you work two jobs (both W2), both will make the adjustment, and you’ll end up owing tax back. If you work one job and have self-employment income or significant interest/dividend income, you may owe tax back. Your employer only assumes that what’s reported on the W2 is your only income.
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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby Me321 » Fri Oct 22, 2010 3:29 am UTC

kiklion wrote:I may have missed what tax was cut, but from my reading it looks like only federal withholdings were decreased. I'm probably getting this wrong but it looks like this to me:

Before:

$100 every paycheck taken out for income taxes.
Owe another $800 at end of year, paid $2,000 over all.

Now:
Pay $80 every paycheck taken out for income taxes.
Owe another $1040 at end of year, paid $2,000 over all.

Since some taxes are paid on a yearly marker, the fed just takes portions from each paycheck as an approximation, and then refunds/bills the difference, if there is no actual tax cut, people don't actually get more money. They just think they do until the end of the year, end up spending more throughout the year, and then suffer at year end?


This explains why I ended up owing more taxes on 4/15 than I had ever, even though I made less money

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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby Dauric » Fri Oct 22, 2010 1:56 pm UTC

Me321 wrote:
kiklion wrote:I may have missed what tax was cut, but from my reading it looks like only federal withholdings were decreased. I'm probably getting this wrong but it looks like this to me:

Before:

$100 every paycheck taken out for income taxes.
Owe another $800 at end of year, paid $2,000 over all.

Now:
Pay $80 every paycheck taken out for income taxes.
Owe another $1040 at end of year, paid $2,000 over all.

Since some taxes are paid on a yearly marker, the fed just takes portions from each paycheck as an approximation, and then refunds/bills the difference, if there is no actual tax cut, people don't actually get more money. They just think they do until the end of the year, end up spending more throughout the year, and then suffer at year end?


This explains why I ended up owing more taxes on 4/15 than I had ever, even though I made less money


Yeah, I had the same shock 4/15 and I'm supposed to not be one of the ones who's supposed to need to pay taxes at the end of the year (according to those articles). The accountant I had do my taxes* suggested that I increase my withholdings by an extra $10 a week to account for the MWPC. Ultimately I decided to double that just to be safe. I can find $20 a week, but an extra grand at the end of the year just isn't going to happen.**

*because I suck at it

** Yeah, I know in the end I'm paying the same amount, but it's the psychology of the thing combined with the fact that I suck at long-term finances.
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Re: If Taxes Are Cut, But Nobody Notices, Is It A Tax Cut?

Postby Chen » Fri Oct 22, 2010 2:21 pm UTC

Me321 wrote:
kiklion wrote:I may have missed what tax was cut, but from my reading it looks like only federal withholdings were decreased. I'm probably getting this wrong but it looks like this to me:

Before:

$100 every paycheck taken out for income taxes.
Owe another $800 at end of year, paid $2,000 over all.

Now:
Pay $80 every paycheck taken out for income taxes.
Owe another $1040 at end of year, paid $2,000 over all.

Since some taxes are paid on a yearly marker, the fed just takes portions from each paycheck as an approximation, and then refunds/bills the difference, if there is no actual tax cut, people don't actually get more money. They just think they do until the end of the year, end up spending more throughout the year, and then suffer at year end?


This explains why I ended up owing more taxes on 4/15 than I had ever, even though I made less money


I'm pretty sure that isn't how it worked. They didn't STOP withholding and then make you pay that amount. Instead they simply added the $400 across the year's paychecks instead of keeping the same withholding and then giving you $400 at tax time. It was a cut of $400 on your tax liability.

The issue arises when people had the $400 added to multiple checks, say by working 2 jobs (there are other cases too it seems but this is the simplest to see). These people now owe an additional $400 because they RECEIVED $400 more than they should have, spread over the year because each of their employers reduced the withholdings when they are only entitled to one benefit of $400.


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