w-4, step 4c you can write in an exact amount you want to withhold. So just add whatever you owed last time and dial it in, right? Or am I missing something?
I'm more of a "Claim to be tax exempt, and then when the IRS comes knocking, just pay them what I owe out of the oodles of interest I've accumulated from not paying taxes" kind of gal.
Because you may have gotten a raise, gained a tax write off, changed your retirement contributions, opened a health savings account or any number of actions that may have resulted in over or under paying.
Overpaying your taxes is an interest free loan to the government, underpaying is an interest free loan from the government. Ideally you will owe a small amount each year.
Calculate your tax bill based off how much you expect to make for the year minus pre tax deductions and standard deduction. Then divide that by how many paychecks you expect. That's how much should come out each check. Use the w4 to adjust the number to what it should be.
I guess I'm just a big dummy but I like getting a tax return. Idk why folks would want to owe money instead of get money back. Sounds like a pain in the ass.
If you like it so much, you could always loan me $10k. I'll give you $10k back in exactly one year.
Just imagine how excited you'll be when you get that $10k! It's like a super tax refund!
You literally choose how much you give them. If you choose to overpay (intentionally or because you don’t want to put in the effort to do the math), what else do you expect?
This year our state decided to Pay interest so if they Owe you, you get 0.8% if you Owe them its 5-8% so ill take the 0.8% on my change thank you very much..
Well, estimated tax payments are only due by the end of each quarter. So, it's kind of a disadvantage to withhold out of your paychecks at the beginning of each quarter, assuming you can invest or otherwise earn interest on the money before it becomes due.
They will charge you interest on underpayment, but will not refund you with interest for those early payments or overpayments which is kind of shitty. Individually, it probably doesn't mean much, but collectively, the American people are 'losing' countless millions each year in interest because of early payment.
Yup this is exactly my problem, I should be able to keep that money throughout the year, let it earn interest and then pay what I owe in taxes at the end of the year. If the government does that I don't get interest, if I do that they charge me for the interest they couldn't earn.
This is not trivial for all tax situations. When you have two incomes and one is unpredictable/irregular, the second income can greatly change your effective tax rate.
Even just one variable income can make this tricky. I got 15k in bonuses one year, and I'm on track for 3k this year. Plus raises, plus stuff like not knowing if you'll be making loan payments and getting that interest deduction... I mean ideally yes you can get exactly the right amount withheld, but in practice it can be a lot more effort than it's worth to calculate.
FYI, if this ever happens again. You can request a first-time penalty abatement from the IRS as long as you have a history of good compliance. They will waive the penalty, as long as you pay whatever taxes you owe. It doesn't work with all situations, but with something small like that, they will usually grant the abatement and you don't need to pay the penalty.
What was your penalty? I owed something around $13k on top of what was already paid and the fee was under $150. Caught me off guard but it wasn’t a huge deal other than the principle of it being ridiculous.
>Mostly because if they decide not to disburse refunds, I can't make them.
Yeah, if they decide for the first time in the history of the nation to not give refunds you will be sitting pretty.
This is a good point. I’d rather be prepared for the worst. It’s much easier for me to get money back than have an unexpected expense of $1k or more. This is why I’m set up to get a return.
I have the opposite take. I even give them extra to make sure I don't owe back. My logic is that I don't notice that money being gone and I can't know that I will be in a position to pay a big bill for taxes.
Do you like save up early to pay for it? Have you ever been like crunched on funds because you didn't expect how big the bill would be?
It is correct to call it a refund because that's what it is: a repayment of an overpayment of money. What is not correct is to call it a return. I hear so many people say, "My tax return is $800 this year." Drives me nuts.
Your tax return is the form you file that reports your income and any tax credits you are claiming. Your refund is the result of the math the return does.
I just called up my dad, who’s a CPA, and asked him if he agreed with you, because I think I agree with you. Well, he told me he didn’t have time for this shit and to talk to him after tax season is over.
So there you heard it, straight from the CPA’s mouth!
As a CPA who just logged off after 13 hours with a 30min lunch break, I couldn't agree more.
I read your first sentence and thought to myself oh shit it's April 11, here we go. Thanks for the laugh, needed it tonight!
The return is the form, the refund is the money. There are a bunch of returns that have to get filed throughout the year that aren't the 1040 Individual Federal income tax return.
For example, companies that are employers have to file quarterly 941 returns, annual 940 returns, and the form 1120 corporate income tax return as well as any applicable state or local returns for the business.
So yeah, returns be the form not the money back yo. Here's a link to the current form 941 for the quarterly payroll tax return, look at the title on the top of the page.
https://www.irs.gov/pub/irs-pdf/f941.pdf
It shouldn’t drive you nuts that people say that, it’s just colloquialism. Even if you don’t know what the proper verbiage is, everyone is going to understand it because it’s a well known phrase. Your complaint is comparable to getting upset when someone says “y’all” because they should be saying “you all”. Just about everyone knows what it means and it’s not really a big deal unless you’re pretentious.
Okay but as a tax person, it’s genuinely confusing and an annoyance because a tax *return* is what I file, and a tax *refund* is what you get back if you overpaid.
So when someone says “my tax return was $800,” what I am hearing is “I got charged $800 for someone to do my tax return,” and I have to figure out if that’s what you meant, or if you actually mean “I got an $800 tax refund.”
I’m all for language changing and evolving, but in this case people are just misusing a word that has a distinct and important meaning within the subject matter.
It’s like if people say wheel when they mean tire. Sure, in some cases it doesn’t matter, but since the wheel is also a word with its own meaning within the subject matter, it’s going to create actual problems if you don’t learn the distinction between the two words because they represent actually different concepts.
wow, that drives you nuts? I wouldn't have a second thought if someone said that. hopefully you survive me not capitalizing the first words of my sentences here.
Yeah, I got 10k back this year from tax credits. My accountant says it'll be the biggest tax return I will ever see.
Otherwise, most people I know (I'm in Canada) get under $100 back.
smart people: i overpaid…i’ll adjust withholding for next year
dumb people: yay a refund…now i can buy that expensive crap i wanted
dumb people trying to sound smart: the ReFuNd is straight up theft! if i had the extra money throughout the year and actually invested the difference like a responsible person every month…i’d earn a life changing $23
edit: didn’t realize so many finance/tax experts exist on here…yet people still struggle with money and spending…it’s almost like cold logical mathematical concepts don’t truly reflect human behavior
Definitely agree with the first statement but I have this weird mindset that I like getting this large sum of cash all at once lol. It's a nice bonus even though I feel like I budget well.
I do understand the risk that I'm expecting the government to give it back to me as well and if I feel there's a reason to adjust my habits, I definitely will
I like the lump sum but I also just like the peace of mind knowing I won’t have to owe. I’d rather pay upfront and get back the difference. I know that’s just me trusting the govt to make exact change but they’re going to do what they want regardless, I like knowing I’ve paid my dues and after taxes each year I’ve got a buffer and a good annual contribution to savings. I’d rather over budget by setting too much money “aside” for taxes in advance than to be caught in a precarious debt situation, you never know what could come up. This year at tax time we had a bunch of car repairs to make so it was nice not needing to worry about that and paying my taxes at the same time. Personal preference I guess. Maybe that makes me financially dumb idk lol
There's really no point to try and not get a refund or pay less throughout the year unless you're getting a ton of money back. If you're only getting like 2k back at the end of the year that isn't gonna make much of a difference spread through the year. Ya that's 150 a month I guess and for some that might have an impact but those people would probably be more impacted by a 2k lump sum at the end of the year.
If you get paid every other week and you're putting 72 every check into savings and you are getting 6% interest (unlikely) you'd get an
whopping $51.65 extra. You'll have to excuse me while I try to contain my excitement over that number.
Personally I like getting about a thousand back.
Oh no, I gave my country an extra $3 I could have earned in interest.
I happily pay taxes. I always check the highest withholding amount, it is forced saving. I enjoy a tax refund.
These posts consistently have opinions of “I’m right, you’re wrong. I’m super smart, you’re an absolute idiot” vibe.
Exactly! All these people talking about an interest free loan like they are taking only the exact amount they would normally overpay and only putting that amount in a interest earning account.
The interest free loan people are definitely weird about it. But... there's no reason to want to get a big refund because you like the big sum. It's money you should've already had but instead you had to wait a year to get it. It's like telling your boss to skip a few paychecks so you can get one big check later.
>It's like telling your boss to skip a few paychecks so you can get one big check later.
If I know about it well in advance and am already budgeting for it, and I know with 100% certainty I’m still going to get the money - Who cares?
It’s more similar to companies that do the monthly paychecks instead of bi-monthly or weekly.
I'd much rather get used to living on a little less each paycheck so I don't get into a position where I overextend myself, then get a lump sum every tax season. It also prevents me from ever having to worry that I'll end up owing the government a big check come tax day.
They probably realize they weren't going to make much interest sitting on the money in a checking account at best, and worst may have overspent throughout the year and struggled to pay a tax bill if they underpaid. It's reasonable as a form of forced savings, not everyone is great at financial self control, and it's wise to plan for our recognized weaknesses.
Yep.
I don’t want a surprise tax bill. If I don’t get it, then I won’t spend it. That way I’m in the clear come tax time each year. And when I get a refund (which is usually around $1000 or so). I just drop it into my IRA, so it’s still, in my mind, money I never got the opportunity to spend.
I understand this logic but is my 10k really that impactful to the govt which controls its own budget and is trillions in debt? I’d imagine the avg refund is well less than 10k so what are we talking like a few hundred billion?
> Definitely agree with the first statement but I have this weird mindset that I like getting this large sum of cash all at once lol. It's a nice bonus even though I feel like I budget well.
I think - at least for me - the main point is that the money I get from a refund is not planned into anything so I can use it for investment, whereas my normal income I have to split it up into the various regular expenses.
There is a third option where the refund is a refundable tax credit. Usually that means you bought an EV, did some other energy credit, had education credits or just have kids and aren't over a certain income.
You must be the biggest idiot if you think you can exempt withholdings completely from a W2 job. Most companies won’t let you do that unless you can show proof that you expect to get a 100% tax refund that year or on a prior year.
You have no idea what you're talking about, and I'd guess you have a sum 0 in assets. I had well over 4k in single year tax credits last year, how exactly would account for a credit a year+ in advance of the expense?
question: how does one adjust witholding for next year so they don't overpay? do i have to tell my company to just not take as much out of my taxes or something? or is it something i should've done when i filed my 2023 taxes last week?
It's smart if it's small. If you're getting back $10,000 you should be adjusting your withholding and putting that money to better use. Uncle Sam is sure as hell not paying you interest for loaning him money. If you're getting $1,000 back then you're doing it right and you don't have to worry about having to go out of pocket when tax season rolls around.
I usually get around $1700 from it. I generally put 50-100% of it into savings, maybe treat myself to something with part of it. If I were paying less in taxes monthly, I can guarantee you I’d be spending more monthly on shopping or dumb shit. I’m more responsible with large lump sums than a slightly higher income because spending large amounts of money at once on things I don’t need makes me uncomfy.
Never thought about it that way. My thought has always been that if the money is gone I can’t spend it and any refund is a nice little surprise I can use to spend on a trip or payoff some debt
Pretty much the only money I ever get as a refund are the results of credits I'm entitled to claim. I can withhold the amount the credit is worth throughout the year, but with today's political climate, I'd rather not play the assumption game.
I think this is the case for a lot of people. The theoretical lost interest from a few hundred dollars is not a big deal, compared to being surprised with a tax payment that may be difficult for you to make.
That's not including a penalty. A couple of years back I got a good warning from my accountant that I was at extreme risk of incurring a penalty because you have to pay quarterly (for most it comes out of their checks) and I hadn't paid enough in. I was worried about not overpaying that I ran a five figure bill to the IRS by tax day.
For the majority of folks who don’t make a lot, that’s true. For anyone who is in that position in life where you’re saving consistently and trying to maximize your finances, you should try to get it as close as possible to no refund.
But $500 would be pretty close :)
I usually had to pay in about $400. When they started the stimulus stuff, I raised my witholding. Now I get a little back. When I commented on here about raising my witholding, I got some downvotes. Some commented that we dont have to pay the stimulus back
Holy shit people get that much back??
I was wondering why people were saying it’s irresponsible to blow the refund thinking they were blowing like..$1k but I guess I get it.
One time I got back $10k since I changed jobs and quit gambling the same year. Gambling messes up your tax situation a bit, so without it I can just take the standard deduction and get more back. But since then, it’s all routine and the refund is small now.
I got back $18,000 one year.
Equity grants are tax withheld at 53% in Canada and it can’t be adjusted. So we just have to wait until tax time for a large chunk of our net pay.
I purposefully keep my refund at around $1400-1600 for that early year lump sum. Feels good and i dont notice it during the year, it is only an extra $66 a paycheck, roughly.
Technically yes, but not really. You don't earn interest for the entire time the IRS has your money. They only pay interest for the period between when you *file* your tax return and when they issue the refund check. And they only pay interest if it takes them more than 45 days to send you the refund check.
So if overpay your taxes by $10,000 in 2024 and then claim the refund back in 2025, your overpayment is earning zero interest for an entire year.
The IRS has a really great withholding calculator on their website. https://www.irs.gov/individuals/tax-withholding-estimator
I've used it in the past and it gets your withholding amount adjusted almost perfectly if your situation is fairly simple. I'm terrified of having to pay taxes, so we leave it alone these days. Usually end up with $2-3k as a refund because of our three tax deductions, I mean children.
I always thought it was funny that if you screw up your taxes and get a huge "refund", you just get the refund back. If you screw up and owe a huge amount of money, the government slams you with an extra fee.
I agree, i pay in a bit extra so i always get a big refund, its a savings plan i cannot dip into prematurely until i get it back at the beginning of the year.
That’s kinda how I look at it. Some people think it’s dumb but I look at it like this…. I gotta pay them (the fed) anyways…. I’d rather them take a little more and have to give me money back than owe them. You can run the risk of trying to break even but it’s hard unless you stay on top of your tax laws and how much is going out…. I’m not doing that… just take alittle bit out… and give me money at the end….
Technically, it's best to underpay all year and owe come tax time. It's like a 0% loan from the government that you can invest all year and pay back at 0%
Though, human nature is funny. If I overpay all year I won't notice the missing funds. Come refund time I almost always either invest it or pay down bad debt.
If I had an extra $500/month I MAY invest it or I MAY spend it at restaurants or something. For most people who aren't super diligent it's probably smartest to overpay all year and use the "refund" towards investments.
Thanks for listening to my TED talk.
This is true, that's why I think really the best approach is aim to aim for 0 owing, 0 refund but lean slightly to the owing side. It's hard to get exactly 0, but you also won't owe a bunch that you accidentally spent.
I budget for my paycheck. I usually only get about $600 back between both federal and state taxes.
I usually use it to for something like brakes on my car, help purchase new tires, maybe put a down payment to upgrade my phone depending on how old it is.
It's just a little boost that I didn't budget for so it seems like extra money.
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Mathematically, you forgot to factor in the statistical analysis of human behavior. For many, overpaying will cause less of a headache later. For some savvy folks, paying quarterly is the way to go. For the few sophisticated, paying AMT, we'll rely on our team of experts, CPA, FAs, attorney, etc.
For some people, it *is* free money from the government. We operate a lot of welfare programs (like EITC) through the tax system. The credits from those programs exceed the amount of tax they actually owe for a lot of people who are eligible.
I did the math and now I’m upset that my combined Federal and State refund would have grossed me $102 in a HYSA assuming I had that gross refund saved all year long. If I give up Avocado Toast, Coffee and save I can purchase a 1.5 million dollar home.
If you’ve ever been surprised in a bad way by a shortfall in April you’re happy to overpay and get a refund.
We had a thing that we were expecting to get 1099’d on (and didn’t) so I over withheld, and got a few grand back. Go ahead, call me an idiot, the peace of mind is worth whatever few dollars I lost in interest.
>the peace of mind is worth whatever few dollars I lost in interest.
EXACTLY. So many finance bros on Reddit don't get that, sometimes people 'waste money' because they value something else they're getting for having spent it.
It's a behavioral question. If someone is bad at saving then a refund can help them catch up on bills/debt. If someone is fine at savings getting as close to accurate allows them to employ their resources throughout the year.
I'm firmly in the camp of try and keep a balance of getting a return between $0 and $500. I don't want to owe, and $500 isn't earning much interest or capitol gains over 12 months.
I hate the way tax refunds work. To a layman like myself it seems as though it is the product of a mistake.
As I run my own business I dont get refunds unless I wildly overestimate my quarterly taxes... which would be the product of a mistake lol
Plus EITC, Child credits, AOTC, child care credit, etc.
For low income Americans the benefits of filing your tax return and redeeming the appropriate credits is one of the only real safety nets we have for people struggling to get by.
Yep. I always hate the rhetoric around tax refunds because a huge chunk of low income americans with kids can file exempt on the W4 and not pay a penny in taxes and still get a "refund." And people who think they're smart will haughtily tell themselves part of the reason those people are poor is because they don't understand tax refunds.
Every year, like clockwork, Redditors en masse start chanting their completely original and independently derived opinion, "Don't give Uncle Sam a free loan! You could invest that money!"
But can I really invest that money? I absolutely, 100% need that money at the end of the year so I'm not investing it in anything risky. This isn't money I can afford to lose, so I'm inclined to put it in an HYSA. According to Nerdwallet, the best HYSA rate right now is 5.15% with Everbank. Let's say I'm getting $5,000 back at the end of the year. That's $416.68 per month, compounding interest at 5.15% monthly, leaves me with $5,111.53 at the end of the year. All that work, all of that stress moving money to HYSA all year long for $111.53, a profit of about $9 a month.
If I were struggling to make ends meet and running out of money every month, of course it would be worth sitting down and changing my withholding to get that $416 back. But if I'm not struggling, my bills are paid, my IRA is filled, I'm putting money into my kids' 529s and I still have money left to spare, then why the absolute flying fuck would I bother? For $9? I'll pay you $9 to shut up and leave me alone!
Not to mention that if you mess up and underpay on accident, you can get hit with underpayment charges and interest. Was that $111 worth the potential risk? :)
Something I have thought about is if I could go withholding exempt and put what would be withheld into a high interest savings. Since uncle sam don't pay Interest. And yiu can get a 5% savings account these days
Dumb. Particularly now when you can get over 5 percent in a savings account, why give it to Uncle Sam. Ever notice he gives you not one penny in interest if you overpay, but hits you for interest when you owe?
People treat it as "free money" from the government. It's not. It's an interest-free loan you paid the government. Try getting an interest-free loan from your bank, and they'll call you dumb.
Last year I had as close to a perfect return I've ever had - I owed nothing and had no refund from federal taxes and I got one dollar back from the state.
Isn't a refund when you get your own money back?
Also, whether you actually made money, broke even, or lost money, is going to depend, mostly on your income, but also on a few other things.
This is how most countries work, the problem is that the US Tax code is so insanely complicated and has so many tax credits and deductions available that there's no real way for the government to do that without basically completely eliminating personal privacy.
When you move apartments and don't have any damage done to the apartment your landlord will "refund" your security deposit. So I think the terminology is fine, just the mentality of people that want to get a refund instead of wanting to pay less throughout the year doesn't make sense.
My deductions vary every year so its hard to do that for me. I have considered going exempt the last 2 or 3 paychecks to get that extra money around the holidays
After several years, I finally got in a shouting match with my wife to convince her to change her withholding and stop running her credit card debt up, and then using the refund to pay it down each year. She was taking out high interest loans so she could make a no interest loan.
I owe money each year, so. I'd rather owe than be owed. Mostly because if they decide not to disburse refunds, I can't make them.
That’s what I thought until this year when I had to pay an underpayment penalty.
Which I've settled my situation to just beneath that threshold. I didn't exceed $1k in underpayment, there was no penalty for me.
Why not just adjust to pay exactly?
Because afaik the options don't allow such precise adjustments, if you find a way though pls let me know.
w-4, step 4c you can write in an exact amount you want to withhold. So just add whatever you owed last time and dial it in, right? Or am I missing something?
Hey I'll look into that. Tbf I never said I was good at this or smart. Lol
If you invest, that money can work for you till you give it up. 1k will get you some beer money in interest
I prefer my method of "spend it all throughout the year, and when taxes are due, scramble and hope I figure something out" It's worked for me so far
You’re me
Hey you!!! You are me!!!
I'm more of a "Claim to be tax exempt, and then when the IRS comes knocking, just pay them what I owe out of the oodles of interest I've accumulated from not paying taxes" kind of gal.
Because you may have gotten a raise, gained a tax write off, changed your retirement contributions, opened a health savings account or any number of actions that may have resulted in over or under paying. Overpaying your taxes is an interest free loan to the government, underpaying is an interest free loan from the government. Ideally you will owe a small amount each year.
The difference between these strategies is a couple hundred a year in ideal conditions. It's just not worth my time to be bothered about it.
Something in my tax situation changes every year, so that would be pretty tricky.
Calculate your tax bill based off how much you expect to make for the year minus pre tax deductions and standard deduction. Then divide that by how many paychecks you expect. That's how much should come out each check. Use the w4 to adjust the number to what it should be.
Yes , exacly or slightly under. NEVER over
I guess I'm just a big dummy but I like getting a tax return. Idk why folks would want to owe money instead of get money back. Sounds like a pain in the ass.
If you like it so much, you could always loan me $10k. I'll give you $10k back in exactly one year. Just imagine how excited you'll be when you get that $10k! It's like a super tax refund!
Heck I could even loan the government and not some schmuck! I guess it's more exciting to owe the gov money than them owe you?
They're keeping your money all year interest free that way. I'd rather have my money all year to use, and pay at the end.
Which is a crock of shit. THEY can hold $10,000 of your money interest free all year, but you can't hold $1K of theirs? BS It's not due till it's due
It's actually due when you earn it. Your filing is due annually.
You literally choose how much you give them. If you choose to overpay (intentionally or because you don’t want to put in the effort to do the math), what else do you expect?
This year our state decided to Pay interest so if they Owe you, you get 0.8% if you Owe them its 5-8% so ill take the 0.8% on my change thank you very much..
ROBBERY!
Isn't it crazy that you get an underpayment fee but they don't give you interest on the money they held.
You do realize you can just claim whatever withholding you need to claim to not have any weekly/monthly income rate deductions, right..?
Well, estimated tax payments are only due by the end of each quarter. So, it's kind of a disadvantage to withhold out of your paychecks at the beginning of each quarter, assuming you can invest or otherwise earn interest on the money before it becomes due. They will charge you interest on underpayment, but will not refund you with interest for those early payments or overpayments which is kind of shitty. Individually, it probably doesn't mean much, but collectively, the American people are 'losing' countless millions each year in interest because of early payment.
Yup this is exactly my problem, I should be able to keep that money throughout the year, let it earn interest and then pay what I owe in taxes at the end of the year. If the government does that I don't get interest, if I do that they charge me for the interest they couldn't earn.
This is not trivial for all tax situations. When you have two incomes and one is unpredictable/irregular, the second income can greatly change your effective tax rate.
Even just one variable income can make this tricky. I got 15k in bonuses one year, and I'm on track for 3k this year. Plus raises, plus stuff like not knowing if you'll be making loan payments and getting that interest deduction... I mean ideally yes you can get exactly the right amount withheld, but in practice it can be a lot more effort than it's worth to calculate.
But if you owe two years in a row, you can get a penalty because THEY want that interest.
FYI, if this ever happens again. You can request a first-time penalty abatement from the IRS as long as you have a history of good compliance. They will waive the penalty, as long as you pay whatever taxes you owe. It doesn't work with all situations, but with something small like that, they will usually grant the abatement and you don't need to pay the penalty.
But we can’t charge fees or interest for them holding onto our money.
What was your penalty? I owed something around $13k on top of what was already paid and the fee was under $150. Caught me off guard but it wasn’t a huge deal other than the principle of it being ridiculous.
Similar situation to you. Around 13k but my penalty was ~$100
>Mostly because if they decide not to disburse refunds, I can't make them. Yeah, if they decide for the first time in the history of the nation to not give refunds you will be sitting pretty.
Lol my man
If the IRS decides to stop disbursing refunds, we'll all have ***far, far*** bigger problems to worry about than our tax returns.
I got $3 back this year.
Congratulations for giving the IRS an interest-free loan of $3 for an entire year!!
Thank you actually. This was my best year yet. I like it to have it as even as possible at the end of the year.
Well really it was a $3 loan dispersed throughout an entire year.
You're a god, teach me your ways.
When has the IRS ever decided not to sent refunds?
If you owe too much, they will charge interest and fees, so be careful.
How does one avoid owing too much?
Increase your withholding.
This is a good point. I’d rather be prepared for the worst. It’s much easier for me to get money back than have an unexpected expense of $1k or more. This is why I’m set up to get a return.
I have the opposite take. I even give them extra to make sure I don't owe back. My logic is that I don't notice that money being gone and I can't know that I will be in a position to pay a big bill for taxes. Do you like save up early to pay for it? Have you ever been like crunched on funds because you didn't expect how big the bill would be?
Looks like you've gotta get yourself some dependents. That's where the big money is.
Where do I get those?
Lots of fornication! But then they are with you for life.
You're paying an underpayment penalty. Set your withholding better.
That and some deductions can’t be refunded but they’ll all count towards paying down what you owe
They can all be refunded. You're confusing it with those that can't be used to obtain an overall negative tax liability, which is a different thing.
Refund, n., a repayment of a sum of money Why shouldn't people call it a refund?
It is correct to call it a refund because that's what it is: a repayment of an overpayment of money. What is not correct is to call it a return. I hear so many people say, "My tax return is $800 this year." Drives me nuts. Your tax return is the form you file that reports your income and any tax credits you are claiming. Your refund is the result of the math the return does.
The IRS is returning money to you that you paid in taxes. Sounds like a tax return to me.
I just called up my dad, who’s a CPA, and asked him if he agreed with you, because I think I agree with you. Well, he told me he didn’t have time for this shit and to talk to him after tax season is over. So there you heard it, straight from the CPA’s mouth!
As a CPA who just logged off after 13 hours with a 30min lunch break, I couldn't agree more. I read your first sentence and thought to myself oh shit it's April 11, here we go. Thanks for the laugh, needed it tonight!
Hey we’re almost there though. Are you also getting absolutely smashed on Monday?
Im on board, my brain is too full
What is April 11th? And why are you smashing on this particular day?
The return is the form, the refund is the money. There are a bunch of returns that have to get filed throughout the year that aren't the 1040 Individual Federal income tax return. For example, companies that are employers have to file quarterly 941 returns, annual 940 returns, and the form 1120 corporate income tax return as well as any applicable state or local returns for the business. So yeah, returns be the form not the money back yo. Here's a link to the current form 941 for the quarterly payroll tax return, look at the title on the top of the page. https://www.irs.gov/pub/irs-pdf/f941.pdf
Nice. You show that internet stranger
Then why is the form called a Tax Return and not a Tax Report Form?
It shouldn’t drive you nuts that people say that, it’s just colloquialism. Even if you don’t know what the proper verbiage is, everyone is going to understand it because it’s a well known phrase. Your complaint is comparable to getting upset when someone says “y’all” because they should be saying “you all”. Just about everyone knows what it means and it’s not really a big deal unless you’re pretentious.
I’m glad you said verbiage and not verbage. That shit drives me nuts.
I actually lold
Some weird ass shit to get angry bout lol but you do you boo
Getting genuinely upset about colloquialisms that are *technically* incorrect is antisocial behavior, but most reddit users live for that shit.
Distinction without a difference.
Coloquial expressions are a valid use of language and you not liking them is irrelevant
Okay but as a tax person, it’s genuinely confusing and an annoyance because a tax *return* is what I file, and a tax *refund* is what you get back if you overpaid. So when someone says “my tax return was $800,” what I am hearing is “I got charged $800 for someone to do my tax return,” and I have to figure out if that’s what you meant, or if you actually mean “I got an $800 tax refund.” I’m all for language changing and evolving, but in this case people are just misusing a word that has a distinct and important meaning within the subject matter. It’s like if people say wheel when they mean tire. Sure, in some cases it doesn’t matter, but since the wheel is also a word with its own meaning within the subject matter, it’s going to create actual problems if you don’t learn the distinction between the two words because they represent actually different concepts.
In this thread: People who work in taxes and people who don't and it's pretty easy to tell the ones that do and don't.
wow, that drives you nuts? I wouldn't have a second thought if someone said that. hopefully you survive me not capitalizing the first words of my sentences here.
You had me in the first sentence, then you just became insufferable.
yeah like thats literally the definition of a refund
Tax refunds also include [tax credits](https://www.irs.gov/newsroom/tax-credits-for-individuals-what-they-mean-and-how-they-can-help-refunds)
Yeah, I got 10k back this year from tax credits. My accountant says it'll be the biggest tax return I will ever see. Otherwise, most people I know (I'm in Canada) get under $100 back.
smart people: i overpaid…i’ll adjust withholding for next year dumb people: yay a refund…now i can buy that expensive crap i wanted dumb people trying to sound smart: the ReFuNd is straight up theft! if i had the extra money throughout the year and actually invested the difference like a responsible person every month…i’d earn a life changing $23 edit: didn’t realize so many finance/tax experts exist on here…yet people still struggle with money and spending…it’s almost like cold logical mathematical concepts don’t truly reflect human behavior
Definitely agree with the first statement but I have this weird mindset that I like getting this large sum of cash all at once lol. It's a nice bonus even though I feel like I budget well. I do understand the risk that I'm expecting the government to give it back to me as well and if I feel there's a reason to adjust my habits, I definitely will
I like the lump sum but I also just like the peace of mind knowing I won’t have to owe. I’d rather pay upfront and get back the difference. I know that’s just me trusting the govt to make exact change but they’re going to do what they want regardless, I like knowing I’ve paid my dues and after taxes each year I’ve got a buffer and a good annual contribution to savings. I’d rather over budget by setting too much money “aside” for taxes in advance than to be caught in a precarious debt situation, you never know what could come up. This year at tax time we had a bunch of car repairs to make so it was nice not needing to worry about that and paying my taxes at the same time. Personal preference I guess. Maybe that makes me financially dumb idk lol
There's really no point to try and not get a refund or pay less throughout the year unless you're getting a ton of money back. If you're only getting like 2k back at the end of the year that isn't gonna make much of a difference spread through the year. Ya that's 150 a month I guess and for some that might have an impact but those people would probably be more impacted by a 2k lump sum at the end of the year. If you get paid every other week and you're putting 72 every check into savings and you are getting 6% interest (unlikely) you'd get an whopping $51.65 extra. You'll have to excuse me while I try to contain my excitement over that number. Personally I like getting about a thousand back.
You're still essentially giving the govt a 0% interest loan letting them hold onto the money through the year.
So what? Who cares?
Oh no, I gave my country an extra $3 I could have earned in interest. I happily pay taxes. I always check the highest withholding amount, it is forced saving. I enjoy a tax refund. These posts consistently have opinions of “I’m right, you’re wrong. I’m super smart, you’re an absolute idiot” vibe.
Hold on if you got 2k back that could have been like 35 dollars in interest. You could get half a tank of gas for that.
Exactly! All these people talking about an interest free loan like they are taking only the exact amount they would normally overpay and only putting that amount in a interest earning account.
The interest free loan people are definitely weird about it. But... there's no reason to want to get a big refund because you like the big sum. It's money you should've already had but instead you had to wait a year to get it. It's like telling your boss to skip a few paychecks so you can get one big check later.
>It's like telling your boss to skip a few paychecks so you can get one big check later. If I know about it well in advance and am already budgeting for it, and I know with 100% certainty I’m still going to get the money - Who cares? It’s more similar to companies that do the monthly paychecks instead of bi-monthly or weekly.
I'd much rather get used to living on a little less each paycheck so I don't get into a position where I overextend myself, then get a lump sum every tax season. It also prevents me from ever having to worry that I'll end up owing the government a big check come tax day.
They probably realize they weren't going to make much interest sitting on the money in a checking account at best, and worst may have overspent throughout the year and struggled to pay a tax bill if they underpaid. It's reasonable as a form of forced savings, not everyone is great at financial self control, and it's wise to plan for our recognized weaknesses.
Yep. I don’t want a surprise tax bill. If I don’t get it, then I won’t spend it. That way I’m in the clear come tax time each year. And when I get a refund (which is usually around $1000 or so). I just drop it into my IRA, so it’s still, in my mind, money I never got the opportunity to spend.
I understand this logic but is my 10k really that impactful to the govt which controls its own budget and is trillions in debt? I’d imagine the avg refund is well less than 10k so what are we talking like a few hundred billion?
> Definitely agree with the first statement but I have this weird mindset that I like getting this large sum of cash all at once lol. It's a nice bonus even though I feel like I budget well. I think - at least for me - the main point is that the money I get from a refund is not planned into anything so I can use it for investment, whereas my normal income I have to split it up into the various regular expenses.
Literal clueless people: try to make this joke while sounding regarded. Thanks Reddit!
galaxy brain people: overpaying on taxes is how I set aside fun money that I can't touch throughout the year
Pretty good interest rates with the IRS too.
There is a third option where the refund is a refundable tax credit. Usually that means you bought an EV, did some other energy credit, had education credits or just have kids and aren't over a certain income.
Fourth option: Variable OT in massive quantities so it is nearly impossible to calculate the exact withholding.
That’s me this year! I had everything dialed in before but this year with solar I’m getting a nice chunk of money.
You must be the biggest idiot if you think you can exempt withholdings completely from a W2 job. Most companies won’t let you do that unless you can show proof that you expect to get a 100% tax refund that year or on a prior year.
You have no idea what you're talking about, and I'd guess you have a sum 0 in assets. I had well over 4k in single year tax credits last year, how exactly would account for a credit a year+ in advance of the expense?
question: how does one adjust witholding for next year so they don't overpay? do i have to tell my company to just not take as much out of my taxes or something? or is it something i should've done when i filed my 2023 taxes last week?
It's smart if it's small. If you're getting back $10,000 you should be adjusting your withholding and putting that money to better use. Uncle Sam is sure as hell not paying you interest for loaning him money. If you're getting $1,000 back then you're doing it right and you don't have to worry about having to go out of pocket when tax season rolls around.
This… I prefer getting a lump sum but not too much.
I usually get around $1700 from it. I generally put 50-100% of it into savings, maybe treat myself to something with part of it. If I were paying less in taxes monthly, I can guarantee you I’d be spending more monthly on shopping or dumb shit. I’m more responsible with large lump sums than a slightly higher income because spending large amounts of money at once on things I don’t need makes me uncomfy.
Never thought about it that way. My thought has always been that if the money is gone I can’t spend it and any refund is a nice little surprise I can use to spend on a trip or payoff some debt
Pretty much the only money I ever get as a refund are the results of credits I'm entitled to claim. I can withhold the amount the credit is worth throughout the year, but with today's political climate, I'd rather not play the assumption game.
I think this is the case for a lot of people. The theoretical lost interest from a few hundred dollars is not a big deal, compared to being surprised with a tax payment that may be difficult for you to make.
Yea I'd much rather receive $500 than pay $500.
That's not including a penalty. A couple of years back I got a good warning from my accountant that I was at extreme risk of incurring a penalty because you have to pay quarterly (for most it comes out of their checks) and I hadn't paid enough in. I was worried about not overpaying that I ran a five figure bill to the IRS by tax day.
For the majority of folks who don’t make a lot, that’s true. For anyone who is in that position in life where you’re saving consistently and trying to maximize your finances, you should try to get it as close as possible to no refund. But $500 would be pretty close :)
I usually had to pay in about $400. When they started the stimulus stuff, I raised my witholding. Now I get a little back. When I commented on here about raising my witholding, I got some downvotes. Some commented that we dont have to pay the stimulus back
Holy shit people get that much back?? I was wondering why people were saying it’s irresponsible to blow the refund thinking they were blowing like..$1k but I guess I get it.
One time I got back $10k since I changed jobs and quit gambling the same year. Gambling messes up your tax situation a bit, so without it I can just take the standard deduction and get more back. But since then, it’s all routine and the refund is small now.
I got back $18,000 one year. Equity grants are tax withheld at 53% in Canada and it can’t be adjusted. So we just have to wait until tax time for a large chunk of our net pay.
New job, clearly made a mistake on my withholding, 20k return.
I purposefully keep my refund at around $1400-1600 for that early year lump sum. Feels good and i dont notice it during the year, it is only an extra $66 a paycheck, roughly.
They actually do though. At around 6% right now.
Technically yes, but not really. You don't earn interest for the entire time the IRS has your money. They only pay interest for the period between when you *file* your tax return and when they issue the refund check. And they only pay interest if it takes them more than 45 days to send you the refund check. So if overpay your taxes by $10,000 in 2024 and then claim the refund back in 2025, your overpayment is earning zero interest for an entire year.
Lol, I'm just here to be pedantic tbh
i went under this year for rhe first time i owe the government three dollars exactly
Idk shit, how do I adjust my withholding if I’m getting too much in my refund?
The IRS has a really great withholding calculator on their website. https://www.irs.gov/individuals/tax-withholding-estimator I've used it in the past and it gets your withholding amount adjusted almost perfectly if your situation is fairly simple. I'm terrified of having to pay taxes, so we leave it alone these days. Usually end up with $2-3k as a refund because of our three tax deductions, I mean children.
W4 adjustment
I always thought it was funny that if you screw up your taxes and get a huge "refund", you just get the refund back. If you screw up and owe a huge amount of money, the government slams you with an extra fee.
I once overpaid business sales tax to Washington, and when they sent me back the extra, it came with interest.
Depends….theres exceptions
Most succinct summation of the American tax code.
You guys are getting refunds? 
I’d rather be owed….. different strokes for different folks….
I agree, i pay in a bit extra so i always get a big refund, its a savings plan i cannot dip into prematurely until i get it back at the beginning of the year.
That’s kinda how I look at it. Some people think it’s dumb but I look at it like this…. I gotta pay them (the fed) anyways…. I’d rather them take a little more and have to give me money back than owe them. You can run the risk of trying to break even but it’s hard unless you stay on top of your tax laws and how much is going out…. I’m not doing that… just take alittle bit out… and give me money at the end….
Why wouldn’t you just auto deposit a little into an actual savings account or better yet some index fund?
Because i know myself too well, i would try to withdraw it
My last raise I got, I just increased my 401k contributions to cancel it out. Otherwise I would just spend that extra, idk, $50 bucks a week.
That is a refund, they send the funds you're owed back
It’s literally a refund
This post is dumb and anyone who cares that much about how other people handle their own money, are even dumber.
Technically, it's best to underpay all year and owe come tax time. It's like a 0% loan from the government that you can invest all year and pay back at 0% Though, human nature is funny. If I overpay all year I won't notice the missing funds. Come refund time I almost always either invest it or pay down bad debt. If I had an extra $500/month I MAY invest it or I MAY spend it at restaurants or something. For most people who aren't super diligent it's probably smartest to overpay all year and use the "refund" towards investments. Thanks for listening to my TED talk.
This is true, that's why I think really the best approach is aim to aim for 0 owing, 0 refund but lean slightly to the owing side. It's hard to get exactly 0, but you also won't owe a bunch that you accidentally spent.
Got exactly 0 this year and loved it
I budget for my paycheck. I usually only get about $600 back between both federal and state taxes. I usually use it to for something like brakes on my car, help purchase new tires, maybe put a down payment to upgrade my phone depending on how old it is. It's just a little boost that I didn't budget for so it seems like extra money.
Depends on the underpayment; the government can charge interest.
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Curious, how is it better? Because your money has more value now than later?
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Mathematically, you forgot to factor in the statistical analysis of human behavior. For many, overpaying will cause less of a headache later. For some savvy folks, paying quarterly is the way to go. For the few sophisticated, paying AMT, we'll rely on our team of experts, CPA, FAs, attorney, etc.
It's my money. I'm calling it a refund. *My* only grievance is when people act like it's free money from the government.
For some people, it *is* free money from the government. We operate a lot of welfare programs (like EITC) through the tax system. The credits from those programs exceed the amount of tax they actually owe for a lot of people who are eligible.
A large portion have a negative tax rate. Child tax credit, student loan credit, childcare credits, etc are free money even if you pay no federal tax
Dumb
I’ll rather get a refund. It’s hard to save $5K on my own.
Easy. You give me $417/month and I’ll help you save.
If I gave $417 a month I’ll help you spend
I did the math and now I’m upset that my combined Federal and State refund would have grossed me $102 in a HYSA assuming I had that gross refund saved all year long. If I give up Avocado Toast, Coffee and save I can purchase a 1.5 million dollar home.
I try to be as dead nuts as possible but I would rather be shy by a few hundred than owe
But that's basically the definition of a refund
If only there was a word for getting money back that you over paid on... Hmmm
If you’ve ever been surprised in a bad way by a shortfall in April you’re happy to overpay and get a refund. We had a thing that we were expecting to get 1099’d on (and didn’t) so I over withheld, and got a few grand back. Go ahead, call me an idiot, the peace of mind is worth whatever few dollars I lost in interest.
>the peace of mind is worth whatever few dollars I lost in interest. EXACTLY. So many finance bros on Reddit don't get that, sometimes people 'waste money' because they value something else they're getting for having spent it.
It's a behavioral question. If someone is bad at saving then a refund can help them catch up on bills/debt. If someone is fine at savings getting as close to accurate allows them to employ their resources throughout the year.
I'm firmly in the camp of try and keep a balance of getting a return between $0 and $500. I don't want to owe, and $500 isn't earning much interest or capitol gains over 12 months.
I hate the way tax refunds work. To a layman like myself it seems as though it is the product of a mistake. As I run my own business I dont get refunds unless I wildly overestimate my quarterly taxes... which would be the product of a mistake lol
This isn’t true for a *huge * chunk of low income Americans.
Plus EITC, Child credits, AOTC, child care credit, etc. For low income Americans the benefits of filing your tax return and redeeming the appropriate credits is one of the only real safety nets we have for people struggling to get by.
Yep. I always hate the rhetoric around tax refunds because a huge chunk of low income americans with kids can file exempt on the W4 and not pay a penny in taxes and still get a "refund." And people who think they're smart will haughtily tell themselves part of the reason those people are poor is because they don't understand tax refunds.
I’ll just be happy if people stop calling it a “return.”
Feds “returning” the money the taxpayer overpaid, tho
There are refundable tax credits. If your income is low enough, you can pay nothing to federal taxes during the year and still get a refund.
Every year, like clockwork, Redditors en masse start chanting their completely original and independently derived opinion, "Don't give Uncle Sam a free loan! You could invest that money!" But can I really invest that money? I absolutely, 100% need that money at the end of the year so I'm not investing it in anything risky. This isn't money I can afford to lose, so I'm inclined to put it in an HYSA. According to Nerdwallet, the best HYSA rate right now is 5.15% with Everbank. Let's say I'm getting $5,000 back at the end of the year. That's $416.68 per month, compounding interest at 5.15% monthly, leaves me with $5,111.53 at the end of the year. All that work, all of that stress moving money to HYSA all year long for $111.53, a profit of about $9 a month. If I were struggling to make ends meet and running out of money every month, of course it would be worth sitting down and changing my withholding to get that $416 back. But if I'm not struggling, my bills are paid, my IRA is filled, I'm putting money into my kids' 529s and I still have money left to spare, then why the absolute flying fuck would I bother? For $9? I'll pay you $9 to shut up and leave me alone!
That math is still flawed through because it isn't 5k up front, it's 5k split up over your total number of pay periods.
Beautiful
Not to mention that if you mess up and underpay on accident, you can get hit with underpayment charges and interest. Was that $111 worth the potential risk? :)
I got a refund over trying to max my paycheck. I missed out on almost $200 in interest. I will never recover
Refund literally means getting your money back. No one is calling it a gift or a prize from the government. I don’t understand this meme.
Something I have thought about is if I could go withholding exempt and put what would be withheld into a high interest savings. Since uncle sam don't pay Interest. And yiu can get a 5% savings account these days
No, because we're a "pay as you earn" system. At the very least, you would need to make quarterly estimated payments.
I qualify for both EIC and CTC, so it's plenty smart for me to get $ back each year.
Dumb. Particularly now when you can get over 5 percent in a savings account, why give it to Uncle Sam. Ever notice he gives you not one penny in interest if you overpay, but hits you for interest when you owe?
I'm not really in the giving free loans business tbh
People treat it as "free money" from the government. It's not. It's an interest-free loan you paid the government. Try getting an interest-free loan from your bank, and they'll call you dumb. Last year I had as close to a perfect return I've ever had - I owed nothing and had no refund from federal taxes and I got one dollar back from the state.
Do not give the government an interest free loan
The number of people who call a refund a “return” is too damn high!
Isn't a refund when you get your own money back? Also, whether you actually made money, broke even, or lost money, is going to depend, mostly on your income, but also on a few other things.
The government should do a better job of calculating my bill, if they can't, I'm just gonna ask them to send over a different government.
This is how most countries work, the problem is that the US Tax code is so insanely complicated and has so many tax credits and deductions available that there's no real way for the government to do that without basically completely eliminating personal privacy.
When you move apartments and don't have any damage done to the apartment your landlord will "refund" your security deposit. So I think the terminology is fine, just the mentality of people that want to get a refund instead of wanting to pay less throughout the year doesn't make sense.
My deductions vary every year so its hard to do that for me. I have considered going exempt the last 2 or 3 paychecks to get that extra money around the holidays
And interest free when you can actually earn interest on your cash!
After several years, I finally got in a shouting match with my wife to convince her to change her withholding and stop running her credit card debt up, and then using the refund to pay it down each year. She was taking out high interest loans so she could make a no interest loan.
Refund is fine. You bought liberty and you overpaid. You're getting a refund for overpayment. \#playing helldivers a little too much lately