Why do some owe money and others get a refund for their taxes?
i file my taxes every year no matter how little i make but i still dont understand how doing your income taxes work. how come some of us owe money and others get a refund? if there’s an amount in the federal withholding doesnt that mean you should automatically get some money back? my boyfriend has worked part-time at the same job for more than 3 yrs and he some how has owed money to the IRS every year. how come he gets nothing back? in what conditions will one owe money and in what conditions will one get a refund?
July 23rd, 2010 at 10:46 am
It all depends on how much you are having withheld. Many people want to get big refunds and don’t claim all of their exemptions so that more money is withheld during the year. When they file their tax return, they have a big refund.
However, it isn’t very smart to allow the government to use you money interest free. It is much better to claim all your exemptions and have less withheld during the year so that you break even when you file your return.
Lots of things come into play: itemizing versus standard deductions; number of dependents; business expenses; child care credits; earned income credit.
July 23rd, 2010 at 11:09 am
Joe and Sam are twins and work at the same job, making the same amount of money. The deductions on their returns are exactly the same, so they both owe $10,000 in taxes.
Joe can’t save any money, so he claims zero on his W-4 plus he has them take an extra $50 from his paycheck. He has $15,000 withheld from his taxes. He will get a $5,000 refund.
Sam wants to make every penny count, and does not want to loan the IRS any money, so he claims two on his W-4. As a result he has $9,500 withheld from his paycheck. He will owe the IRS $500 when he filed his taxes.
Same tax liability ($10,000) but one gets a $5,000 refund and the other owes $500 because they had different withholding amounts on their paychecks.
July 23rd, 2010 at 11:30 am
This s very complicated. When you get hired, you are required to fill in a Form-4. Witholding is done according your no. of exemptions. The tax tables take into consideration you are working for a full year thus the witholding amounts. If you filled out your Form-4 truthfully to match your tax returns and you worked less that a full year even if you file a short form (no deductions), chances are you will always get a refund. Also the tax tables are set up that we pay as we go and there is a cushion to avoid you from having to pay with you tax returns if all you have is personal-service income.
Your boyfriend probably lied on his W-4, so the amount witheld on his part-time job is in-sufficient if he claimed exemptions incorrectly. Even part-time one can earn a substantial income. If he has filled out his W-4 correctly then the question is that he probably has other income that gets reported and he dosen’t understand that one is taxed on all their income unless it is deived from tax-exempt sources.
Example; One works part-time, let say 3 days a week (21 hours) for a full year and makes about $500.00 a week, has no dependents but claims 2 or 3 exemptions, that person is going to be underwitheld. Part-time does not always mean a small amont of money being earned. It means you are not a full time employee and you have no benefits maybe and/or is hired to perform duties that are performed in a way that does not impact anyone else in your absence or limited capacity. The flip side, this person claims no 0 dependents, they are definitely going to get a refunds from both the Federal and State.
Hope this clears it up a bit for you.
July 23rd, 2010 at 11:58 am
Generally the people do not have enough withholding takes from their wages or they do not make quarterly estimated tax payments.
Not enough withholding could be from turning form W4 into the employer and claiming more exemptions than the person is entitled.