How much should my tax return be?

[leroyjenkens]

I made $22,000 last year and paid $1900 in federal taxes. I work with two other guys who both made less than me and paid less taxes, but they got double the money on their tax return as I will get. I haven't filed yet, but every website I go to tells me I'll get $577 back. They both went to Walmart and had someone else do their taxes for them and got over $1000. None of us have any kids or other credits that would boost their credit returns. The only thing different is that I made more money and paid more taxes, yet I'm getting half as much as they got. How does that make sense?

 

[BobG]

I haven't done my taxes yet, but I think the standard deduction plus the exemption for one person is around $10,000. In other words, taxable income starts around 10,000.

Tax rates for a taxable income of around $9000 is 10%. Tax rates for taxable incomes greater than $9000 is 15%. At around $37,000, the tax rate goes up to 25%, and so on.

So, your taxable income is around $12,000. You're paying a 10% tax rate on about $9000 of that income. You're paying about 15% on the last $3000 of that income. A ballpark estimate of the taxes you should pay is about $1500, meaning you should get somewhere around $400. The websites you're looking at probably give a better estimate, but are at least in the same ballpark.

If those two other guys are making about $3000 less than you, they're paying 10% on their entire taxable income. They may have had less money taken out of their paycheck, but they also owe less in taxes.

 

[SteamKing]

I made $22,000 last year and paid $1900 in federal taxes. I work with two other guys who both made less than me and paid less taxes, but they got double the money on their tax return as I will get. I haven't filed yet, but every website I go to tells me I'll get $577 back. They both went to Walmart and had someone else do their taxes for them and got over $1000. None of us have any kids or other credits that would boost their credit returns. The only thing different is that I made more money and paid more taxes, yet I'm getting half as much as they got. How does that make sense?

Made more money, paid more taxes. Yep, that's how it usually works. :L

Other guys made less, get more money back as refunds. Well, your refund will depend in part on how much money was withheld from your paychecks throughout the year, and how much of the year you worked. If your colleagues had more money withheld from their paycheck than you did, then they will get the excess amount back as a refund. :)

The government is always grateful to those who withhold more taxes than they are required to pay. :D

After all, any tax refund you get is actually an interest-free loan of your money which you provide to the government for their use.

At the start of each year, you can adjust the amount of withholdings from your paycheck by filing a Form W-4 with your employer:

http://www.irs.gov/pub/irs-pdf/fw4.pdf

 

[BobG]

Made more money, paid more taxes. Yep, that's how it usually works. :L

Other guys made less, get more money back as refunds. Well, your refund will depend in part on how much money was withheld from your paychecks throughout the year, and how much of the year you worked. If your colleagues had more money withheld from their paycheck than you did, then they will get the excess amount back as a refund. :)

The government is always grateful to those who withhold more taxes than they are required to pay. :D

After all, any tax refund you get is actually an interest-free loan of your money which you provide to the government for their use.

At the start of each year, you can adjust the amount of withholdings from your paycheck by filing a Form W-4 with your employer:

http://www.irs.gov/pub/irs-pdf/fw4.pdf

Yes. Did they actually have less money deducted from their paychecks than you? Or is that just an assumption, figuring if they made less than you, they must have had less withheld?

A person can adjust their W-4 to either raise their income tax refund (via an interest free loan to the government) or to lower the amount withheld from their checks. The loan they get from the government by having less withheld isn't guaranteed to be interest free, though. You pay a penalty if you owe more money than is reasonable by the end of the year.

But you can do it, though. When my daughter was going through her divorce, her ex claimed he didn't have a job and, therefore, couldn't pay child support. Since he didn't have a job, he told my daughter she could keep their entire refund check, whatever that turned out to be. Problem is... not only did he have a job that my daughter didn't claim on her tax forms, he claimed about 10 deductions so his withholding would be zero. My daughter got stuck for the entire tax bill (she was at least able to avoid the penalties associated with it since her ex essentially defrauded her). In her final divorce settlement, it was agreed that her ex owed her the extra money she had to pay the IRS, but the chance of actually getting that money is pretty small.

 

[Windadct]

What I am not seeing is how much they actually paid - how much they got back depends on a lot of things. One of the key things for part time or new employees to understand - the amount withheld from a paycheck is typically calculated based on earning that amount for the whole year. -- every pay period. So if you only worked for 9 months out of 12 - the amount calcuated / and then withheld will be higher and you will get more back. -- Assuming the person did not use the W4 to instruct the employer to compensate for this.

 

[russ_watters]

If they are making about $20k a year an getting back $1000, then they are having way too much withheld from each paycheck. That's almost $40 a paycheck or more than $80 a month, which is a lot to someone who only gets $600 paychecks.

If I remember correctly, a big difference maker is whether you claim yourself as a "dependent" (exemption) or your parents still do. If they filled out the form and didn't count themselves, I think that could account for the difference.

 

[dlgoff]

If they filled out the form and didn't count themselves, I think that could account for the difference.

And also, note item 6:

 

[leroyjenkens]

Thanks for the responses. We all work part time doing the same job, I just work longer, and I get paid quite a bit more than one of the guys; the other guy has the same pay rate as me.
I haven't found out how much they were having withheld from their checks, but if I'm getting $577 back, having paid $1900 in taxes throughout the year, does that mean they paid roughly $3800 throughout the year in taxes, since they got double on their tax return? I find that hard to believe, since they made less than $20k in the year.
But I've tried three different online tax return programs, and they all want to give me back $577. If that's the right amount I'm owed, that's fine, I just don't know how I'm getting less back than someone who paid less taxes than me. And everything else really is the same. We all show up to work every day. I missed one day in 2014. They missed only a few.
This is a manual labor job, so the guys I'm talking about barely know what taxes even are (they're basically potheads), so I'm sure they didn't change anything on their job application regarding taxes. I know I didn't, and we filled out the same application.

 

[russ_watters]

Thanks for the responses. We all work part time doing the same job, I just work longer, and I get paid quite a bit more than one of the guys; the other guy has the same pay rate as me.
I haven't found out how much they were having withheld from their checks, but if I'm getting $577 back, having paid $1900 in taxes throughout the year, does that mean they paid roughly $3800 throughout the year in taxes, since they got double on their tax return?

No. It's not a "return", it is a refund ("return" is the name of the paperwork). It means if you owed $1323 and paid $1900 you get $577 back, but if they worked fewer hours and owed $1000 but paid $2000, they get $1000 back.

It is a refund for paying more than you owed. What you owed is based on your income but what you paid is based largely on your own estimates. It just means they estimated wronger than you did.

The smartest thing to do, financially, would be to pay 10% less throughout the year and owe $130 (for your example) in April instead of getting a refund. My father made a lot of money but always ensured he never got a refund.

 

[leroyjenkens]

There are a bunch of deductions on the tax forms that I don't use because I never owe at the end of the year. So if I ended the year owing money, would those deductions kick in and take away the money I owe?

 

[russ_watters]

There are a bunch of deductions on the tax forms that I don't use because I never owe at the end of the year. So if I ended the year owing money, would those deductions kick in and take away the money I owe?

You aren't getting it: you DO owe money each year, you just already paid it and paid extra. So if you include applicable deductions, it reduces what you owed and increases the overpayment (increases the refund).

Say it with me: I already paid my taxes, but I paid too much, so I'm getting money back.

Its like paying $40 for a $25 pizza meal and then getting change. If you paid with a ten and a twenty instead of two twenties, you get less change even though the meal costs the same.

 

[SteamKing]

There are a bunch of deductions on the tax forms that I don't use because I never owe at the end of the year. So if I ended the year owing money, would those deductions kick in and take away the money I owe?

Well, yeah, that's what the deductions are there for.

There are different forms which are used when filing federal taxes, however, and different deductions are available on each.
The simplest form is the 1040EZ. You get a single deduction because your life is pretty simple: you don't make a lot of interest on your savings, you don't own a house, you haven't racked up a lot of medical bills, etc.
The 1040A Form (or the Short Form, as it's called) is a little more complex than the EZ and more deductions are available.
The 1040 Form (or the Long Form) is the one which is the most complex of all. Different forms called Schedules can be filled out and attached to the 1040, things which cover deductions, capital gains, self-employment income, real estate income, etc. Typically, if people need to fill out a Long Form, they go to a tax service or an accountant for help.

Generally, in addition to a personal exemption of $3950, one is also allowed a standard deduction from income of $6200 when filing single. This deduction typically covers most of the things which can be deducted from income which are also called itemized deductions, things like mortgage interest, medical expenses, etc. Unless the total of your itemized deductions exceeds your standard deduction, generally there is no tax benefit to itemizing deductions.

However, if you are single, not living with any dependents, and aren't qualified to take those deductions, the tax you owe is pretty much what is being withheld from your paycheck. It might be a different story on your state income tax, however, as sometimes states allow individuals to deduct federal income taxes from their income when calculating state income tax.

 

[Vanadium 50]

There are a bunch of deductions on the tax forms that I don't use because I never owe at the end of the year. So if I ended the year owing money, would those deductions kick in and take away the money I owe?

Yes, a deduction would reduce the amount you owe. It would also increase the amount refunded to you. However, you still seem to be missing what the tax return is. You earned money over the year. If you were paid weekly, you were paid 52 times, and you also made 52 tax payments to the federal government. These payments were based on estimates, and these estimates are rarely exactly right. So the tax return is a 53rd payment - if the 52 sum to too little, you send in a check. If the 52 sum to too much, they send you a check.

That said, it is unlikely tyhat a deduction will help you. You already have a standard deduction of $6200. Itemizing these deductions only reduces the taxes you pay once they are over $6200. If you made $22,000, it's improbable that you can deduct over $6200.

 

[leroyjenkens]

You aren't getting it: you DO owe money each year, you just already paid it and paid extra. So if you include applicable deductions, it reduces what you owed and increases the overpayment (increases the refund).

I'm getting it. I know I owe money each year. How could I not know that? I said at the END of the year. I thought deductions reduce how much you would have to pay at the end of the year IF you have to pay anything, but don't increase the amount you get back.

Say it with me: I already paid my taxes, but I paid too much, so I'm getting money back.

Why are you being condescending?

 

[SteamKing]

I'm getting it. I know I owe money each year. How could I not know that? I said at the END of the year. I thought deductions reduce how much you would have to pay at the end of the year IF you have to pay anything, but don't increase the amount you get back.

I think this is where you are getting confused. The tax return you file on or before April 15 covers the entire previous year you worked. The return is a tool which is used to reconcile the total amount of taxes you had withheld from your paycheck during the previous year with the amount of taxes you are required to pay on your income.

If you had more taxes withheld than you are required to pay, you get a refund.
If you had less money withheld as taxes than you are required to pay, you owe the IRS that additional money.

The income tax is figured for the whole year, and any amount you might owe or any refund you are due is also for the entire year.

The amount of your paycheck which is withheld in taxes is based on a percentage of your income. It doesn't include things which can happen during the year which might affect the total amount of money you make which is subject to tax. For example, you might buy a winning lottery ticket, and your winnings would become taxable income. Or you might get married during the year or have a baby. These events change the amount of income tax you are required to pay, which aren't covered by a simple deduction plan. Any deductions from income or tax credits you might claim are typically not included when your withholding amount is calculated, so you file a return each year to get straight with the government on the income tax you are required to pay.

 

[russ_watters]

I'm getting it. I know I owe money each year. How could I not know that? I said at the END of the year. I thought deductions reduce how much you would have to pay at the end of the year IF you have to pay anything, but don't increase the amount you get back.

That really wouldn't make any sense. You have one tax bill and one tax bill only (for the fed). It wouldn't make sense that the amount you owe in total would depend on how well you previously estimated how much you would owe. Otherwise, the sensible thing to do would be to pay nothing in regular deductions because the total bill would be lower than if your regular deductions had been properly estimated. Rather than paying those regular deductions to the government, you could just drop them into a savings account, collect them until the end of the year and pay a much lower total then.

Why are you being condescending?

I'm not trying to be condescending, I'm trying to emphasize key facts that you aren't getting even after they've been repeated multiple times. Shorter sentences, in bold, with additional emphasis pointing to them are easier to digest than long explanations.

 

[russ_watters]

However, you still seem to be missing what the tax return is...

So the tax return is a 53rd payment - if the 52 sum to too little, you send in a check. If the 52 sum to too much, they send you a check.

At the risk of sounding pedantic, I think the misunderstanding of what a "tax return" is is playing a role here. I think some people are under the false impression that a "tax return" is tax money "return"ed to you at the end of the year. It isn't. A tax return is the paperwork you file, not the check you give or get. It's the bill, not the payment/refund. Everyone files a tax return. Some send a payment with it and some get a refund after filing it.

 

[Mark44]

A point that has already been made that I believe deserves being repeated is that you should tailor what is deducted from each paycheck (via the W4 form) so that you either owe just a little bit in additional taxes or don't get a refund at all. A lot of people mistakenly believe that a refund is "free money" -- it isn't (*). It is money over and above what you owe in federal taxes for the year. If you have more than necessary deducted each pay period, you are allowing the US government the use of your money all year, at 0% interest, which is even less than what banks are paying in savings and checking accounts.

(*) - For some, it actually is free money, which is what earned income credit is. Of course, it isn't free to those of us who wind up paying it.

 

[Evo]

Some people feel it's free money, because if they had that money every payday, they would have spent it without thinking. If it comes to them at tax time in one lump sum, they think they've received a windfall.

 

[Greg Bernhardt]

Some people feel it's free money, because if they had that money every payday, they would have spent it without thinking. If it comes to them at tax time in one lump sum, they think they've received a windfall.

I've always been amazed when people happy dance or brag about their refund. They don't realize they just overpaid throughout the year and gave the government an interest free loan.

 

[SteamKing]

I've always been amazed when people happy dance or brag about their refund. They don't realize they just overpaid throughout the year and gave the government an interest free loan.

It's even more perverse when you see companies like H&R Block advertise that they can get you all this money back in your tax refund. Where were these guys when you needed them to set up a reasonable withholding amount? Still, a lot of people unwisely use overpaying of taxes as a form of forced savings, I suppose to keep them from blowing that money piecemeal during the year.

 

[russ_watters]

Some people feel it's free money, because if they had that money every payday, they would have spent it without thinking. If it comes to them at tax time in one lump sum, they think they've received a windfall.

There are better ways to work-around a discipline problem than giving the government a free loan. You could do an auto-deduction into a separate savings account, or better yet, an IRA. I have such a discipline problem and that's how I deal. I re-fi'd my house last year and lowered my payment by $500 a month, but I've never seen that money in my checking account.

Edit: Certainly there has to be a balance though: I'm also the type of person who will float an unexpected expense (say, 2 flat tires in 1 week last year) on a credit card, which isn't a good idea either if you can't pay it off right away.

 

[russ_watters]

Still, a lot of people unwisely use overpaying of taxes as a form of forced savings, I suppose to keep them from blowing that money piecemeal during the year.

Only to blow the big windfall when they get it...?

 

[SteamKing]

Only to blow the big windfall when they get it...?

I never claimed what these people did made sense. But they do seem to treat a big tax refund as some sort of windfall, like a surprise check from their Uncle Sam, to whom they haven't talked recently.

 

[BobG]

Only to blow the big windfall when they get it...?

Maybe.

Or maybe they buy the new couch they actually needed, but would have wound up buying with a credit card without getting a lump sum tax return. Accumulating a large tax return isn't the optimal method of saving money, but is a method.