This is how taxes work: you pay a specific $ amount in tax based on ALL of your income, this is compared to what your employer withheld. If your employer withheld too much, you get a refund. This isn’t a good thing, it means the government had your money all year. If your employer didn’t withhold enough, you have to pay the balance. This doesn’t mean you got screwed.

likehelpful
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Yes exactly. I actually prefer to owe money at the end of the year, as long as it’s no more than ~1k. I never understood why people are so thrilled to get a huge refund after filing…

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PwC1, but that is how we make most of our decisions. Kahneham work on System 1 and System 2.

For most people, lump sum refund is better b/c they ideally would not have "saved" the monthly difference with a optimal withholding. Totally get your point though.

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Can you explain that a tax refund is not a “tax return” for the people in the back?

likefunnyuplifting

There dozens of us! Fingernails on a chalkboard every time I see that.

Ok, you can’t read fingernails on a chalkboard but you get my drift.

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If you have a lot of income outside of your W2, you will probably owe. If you owe and don’t have extra income, change your withholdings at work so more is taken out of your paycheck at the end of the year.

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This was meant to be a crash course, there have been other good points made on individual situations, etc. Thanks for coming to my TED talk

likefunny

OP, now do marginal tax rates. I have never met anyone like this in real life, but the number of anecdotes I hear is too damned high, of people who turn down raises, bonuses, or overtime because they think they will LOSE money when they “go into the next tax bracket.”

SMH 😳😵‍💫

likefunny

M2 yes. At some point the effort required to earn the next dollar is not worth the after tax value of said dollar. This is of course entirely subjective.

I actually think about this often as I ponder my next promotion. Sell my soul for PPMD or just lateral and enjoy my life. Decisions decisions…

MVP OP!

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To be fair, I suspect a good amount of refunds that people talk about come from refundable credits.

Isn’t there a penalty for not having enough taxes withheld by year end? Forgot the threshold

Check the safe harbor rules. I believe a penalty could only apply if you had over 1K tax due. You’d have to have 100% of prior year paid in or 90% of current year to avoid a penalty. I also believe being eligible for safe harbor phases out at a certain income level. Haven’t worked on individuals in years so check this but I believe it’s roughly along these lines.

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