The problem lies in new withholding tables issued by the IRS, which would cause taxpayers to get hundreds of dollars more than they are entitled to under the credit.  This is money that will have to be repaid at tax time.

Taxpayers affected by this problem include married couples in which both people work, taxpayers with more than one job, retirees who have income taxes withheld from their pension plans, and Social Security recipients with jobs providing taxable income.

What should you do?  Check your federal withholding to make sure you have enough taxes being taken out.  If you are married and both you and your spouse work, you might consider having taxes withheld at the higher single filer rate.  If you are currently working two jobs, you might consider having one of your employers withhold more taxes.  You can do this by requesting a W-4 from your employer.

Not sure if your taxes are being withheld properly?  You can use the IRS’ online withholding calculator at www.irs.gov.

Some common examples of items that are not included in your income are:

• Adoption Expense Reimbursements for qualifying expenses
• Child support payments
• Gifts, bequests and inheritances
• Workers’ compensation benefits
• Meals and Lodging for the convenience of your employer
• Compensatory Damages awarded for physical injury or physical sickness
• Welfare Benefits
• Cash Rebates from a dealer or manufacturer
• Economic Stimulus Payment received in 2008

Some income may be taxable under certain circumstance, but not taxable in other situations. Examples of items that may or may not be included in your income are:

• Life Insurance. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price.
•  Scholarship or Fellowship Grant. If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.

All other items-including income such as wages, salaries and tips-must be included in your income, unless it is specifically excluded by law.

Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

These examples are not all-inclusive. For more information, visit the IRS Web site at IRS.gov to view or download Publication 525, Taxable and Nontaxable Income from the Forms and Publications section or call 800-TAX-FORM (800-829-3676).

If you receive alimony payments from your ex-spouse, that money is taxable to you in the year you receive the payments. And since no taxes are withheld from alimony payments, you may need to make estimated tax payments throughout the year or increase the amount you have withheld from your paycheck.

On the other hand, if you are making alimony payments under a divorce or separation instrument, you can deduct the payments if certain requirements are met. Payments that are not required by a decree or agreement do not qualify as being deductible.

Child support is different, however. Child support payments are not deductible, and child support payments received are not taxable.

Now, if you paid or received alimony, you must use Form 1040, not 1040A or 1040EZ. And, if you received alimony payments, you must give the person who paid the alimony your Social Security number or you may be subject to a $50 penalty.

For more information about alimony payments and how they affect your tax return, you can go to www.irs.gov or call 1-800-TAX-FORM (1-800-829-3676).

In general, most income you receive is going to be taxable. However, there are some situations where it is only partially taxable and some that are not taxable at all.

Some income that is not taxable includes: child support payments, gifts, bequests and inheritances; workers’ compensation benefits; welfare benefits; and cash rebates from a dealer or manufacturer.

Money from life insurance or scholarship or fellowship grants may or may not be taxable.

If you surrender a life insurance policy for cash, the proceeds that are more than the cost of the policy itself must be included as taxable. However, if you are paid life insurance benefits because of the death of the insured, these funds are not taxable unless the policy was turned over to you for a price.

As for the scholarships and fellowship grants, if you are working towards a degree, these amounts are not taxable. However, any amounts used for room and board are.

For a comprehensive list of taxable and nontaxable income, you can visit the IRS website at www.irs.gov.