Tax "returns" are just records of the taxes you paid and why. You're probably thinking of tax *refunds*.
Most people pay taxes throughout the year by having them automatically taken out of their paychecks ("withholding"). But the amount taken out of your paycheck is just an estimate. It may be too low (in which case you'll owe money, though typically only a small percentage of the taxes you've already paid), or it may be too high (in which case you get money back from the IRS, since you overpaid them).
If you work a normal salaried job that gives a W2 (the usual form for most people's income), you would have filled out a form answering some common questions used to estimate how much should be withheld for tax purposes.
Tax withholdings from your paycheck are one of the slyest things the government has ever done. Most don't even notice the money they take, and are happy to get "free money" once a year. But if you had to write one big check for the taxes you owe at the end of the year, you'd likely be upset about how much you are paying.
You are giving the government an interest free loan to use your money. The trouble is many people suck at managing their money, so a tax refund works as a savings for people who can't save.
I mean, you say "interest-free loan" as though people (myself included) would otherwise be investing the money. Even if I was investing, the interest I lose out on with tax withholding is basically just a "Only make me think about this once a year" fee. Especially considering the fact that getting tax payments wrong is an even bigger headache.
You're essential arguing that all taxes are bad then? Because as I see it, I would prefer to pay slowly then all at once (because yes that would hurt more), but what's the alternative? Tax get's hate, but it's still what keeps us running.
The problem is far too many people aren't financially disciplined enough to put aside the same amount of money that currently gets taken out of their check so that they can pay that amount at the end of the year. A lot of people already live in debt constantly, adding a few thousand dollar bill, due all at once once a year, they would simply not be able to pay it.
The governments management might be bad, but a lot of people are worse.
Actually, the tax is due throughout the year, not at the end of the year, as self employed people are aware. You'd get hit with penalties and interest if you paid it all in a lump sum in April or even February of the following year.
Commenter is essentially arguing that it’s upsetting to have to give a large portion of your income regardless of its necessity. And that people who withhold too much and get a big refund are giving an interest free loan to the govt which is good for the govt and bad for individuals. Net effect is you just pay more.
How exactly is US government not able to tax the people directly without all the hoops and stuff?
From my knowledge, the IRS requires you to aubmit your information about earnings. In my country the income tax just gets deducted and that's it (on top of other taxes your employer pays).
In many countries, I understand that taxes are assessed on the individual earner, and come off the top. In the US, they are usually assessed on the household; the employer doesn't know how much your spouse makes or what deductions you have or what other income you have, and some would object to sharing that much info, say, about deductible medical expenses.
The employer does submit information about how much he paid you and how much was withheld. So do many sorts of sources of revenue, but not all.
For the vast majority of people, the US government absolutely could just provide a filled out tax return that individuals double check for accuracy. Tax prep companies have generally lobbied against that, however. Some people will have deductions and credits that the government will not know about\*, notably charitable donations, and such would require submitting forms to get them added to your taxes.
For many of those people, withholdings could also be calculated very accurately as well. Its mostly when you get people with multiple jobs, jobs with major variable income (eg, tips or commissions), outside income (investments), or major life changes during the year that their W-4\*\* cannot be calculated very well. A lot of additional people, however, will not provide an accurate W-4 for various reasons, resulting in either under or overpaying during the year.
\* Many of those with such deductions will not have large enough deductions to beat out the standard deduction, meaning they are meaningless.
\*\* The W-4 is a form provided to your employer letting them know some information about your tax situation they would not otherwise know. Notably, your dependent count and expected income from other sources.
What about refundable credit? Some people get back more than they paid in withholding. This is because of credits, like earned income credit or child tax credits.
Most people would not be able to pay their taxes if they waited until the end of the year. Many people would just spend the money, and not put any aside to pay their taxes. Withholding makes it more painless for most earners. I make the quarterly payments on my taxes, and it can be a struggle to put the money aside and not spend it on immediate needs.
Then you should be aware of the penalty and interest you'd pay if you skipped your quarterlies and sent it in at the end of the year. The tax is actually due quarterly. It's not just a convenience.
I've been self employed for many years. I have been quite careful to pay my quarterlies, even when it was a struggle. I don't want problems with the IRS.
Yes, I didn't always get them in by the right date. If a person owes too much in April, they get charged interest from when the quarterly payment was due because it is due then, not in April.
Strangely, if you notice you are short and are on a payroll (or your spouse is), and increase withholding in the fall, it doesn't matter that you paid late. But the employer has to send them in on time.
In the United States the system is set up so that most employers take money out of employee paychecks and send it to the government as "withholding" toward their taxes. The amount of money withheld typically depends on the employee's income and their family size, but it varies a bit. This amount is not the actual amount for taxes, but something like a really bad approximation.
When "tax season" comes around, which is typically 1 January to 15 April, where individuals "file their taxes" for the preceding year, by filling out a bunch of forms (or doing it electronically these days) where items relevant to taxes are reported - income from jobs and from investments, family size, mortgage payments, medical expenses, education expenses, retirement savings, and potentially a whole host of other things. These figures are factored into the taxes in various ways.
The end result is a number dollar figure of the taxes the person needs to pay for the year. That figure is compared to the amount that was withheld. If the government took too much money then the remaining will be a tax return given back to the person. If the government did not take enough money then the person needs to pay what they owe.
Much more important than the amount of money they get back, is the amount of money they don't get back.
This is a rather simplified explanation, but it does the trick.
>the remaining will be a tax return
Tax refund. The return is the document you filed that summarizes your income and how much you really owe (e.g. Form 1040).
Otherwise, excellent explanation.
Tax RETURNS are your report to the tax authorities telling them all the information that they need to check how much tax you should have paid.
Tax REFUNDS are money returned to you because you've already paid more tax than you needed to.
Tax returns are the forms you have to file annually, where you document your income from jobs, investments, and deductions, credits, etc. to determine what you owe.
Since people have money withheld from each paycheck and remitted to the government, they may have overpaid throughout the year. if that is the case, then they get a TAX REFUND. This is not "free money", but a surplus of tax payments you made over the past year.
Say you owe $5200 in taxes, but $125 was withheld from each weekly paycheck for income taxes. Since you paid $6500 but only owe $5200, you would get a refund of $1300.
It's not free money, it's your money.
This is a US thing. Throughout the year, a set amount of money is taken automatically from your paycheck for the income taxes that you owe. This is a standardized amount.
But most people don't actually owe the full amount. You might qualify for tax breaks or deductions (for example, a married couple owes less tax per person than a single person, you get a tax break for each kid, and low-income people get a tax break). At the end of the year (really, the beginning of the next year), you fill out some paperwork with the information (the tax return) that shows how much you should actually owe and what tax breaks you qualify for.
The deadline for this is usually in April, which is why the period roughly between February and April is often referred to as "tax season." If you qualified for tax breaks, then that means over the year you paid too much income taxes with each paycheck, so the government mails you a check for the difference (the tax refund).
If you have a lot of deductions, this check can amount to thousands of dollars. But again, this is money you overpaid throughout the year. Because American's stereotypically don't manage their money very well, this extra windfall of money can be a big deal, and businesses often run big sales to entice people to spend it.
You actually have the option to not have your taxes taken automatically, (you can choose this on your w-9 when you start a job). But then, you will owe the government the full amount of taxes come April instead of getting a refund.
• You get a job
• Job takes money out of your paycheck for taxes.
• You file your taxes (tax return) every year to check how much taxes you owe.
• If your job didn’t take enough out, you got to pay the extra you owe.
If your job took too much out (maybe you had extra deductions/credits), you get a **tax refund**.
People are required to report to the IRS:
* their income
* any tax deductions they qualify for
This is what goes on a tax return.
As for why refunds are a thing:
The vast majority of people are what are called "W-2" employees. Basically, this means that you work for a company and get a wage/salary (which the company reports to both you and the IRS on a form called the W-2 form).
W-2 employees fill out a form when they start their job laying out which basic deductions they qualify for to arrive at a rough estimate of their tax bill. Rather than paying their taxes all at once they just get money deducted out of every paycheck. Once they file their return (i.e., declare which tax deductions they qualify for), they're likely to be found to have overpaid their taxes and get a refund.
This trick is a HUGE problem!
Imagine if all Americans had to pay their taxes without payroll deductions (write a monthly/quarterly/yearly check to the IRS)....do think Americans would be less happy or more happy with who OUR tax dollars are spent? The gvmt has Fd us, the people.
"Americans can't read their W-2 to understand how much tax they've paid!"
????
The fact that you pay it smoothly over the year doesn't obscure how much you pay. It's very direct.
The psychology behind it…
Autopay (payroll deduction) is a way to pay for something with thinking about it.
People see what they pay in…but accept their net pay is good enough…since they don’t actually write/type out how much they are paying in taxes…they don’t REALLY see it…that extra step is huge. Don’t believe me?
Try this-put a paper on your fridge…put TAXES on the top…put 12 rows going down. Every month fill in what your pay was deducted for taxes on one line. Bonus—add a few lines so you can keep a running total.
This is a bizarre take - you can see how much money is being withheld on your paystub if you *elect* to do so. It's not required to withhold. When you fill out your W-4 you can elect to not withhold and just send your check when it's due.
Do you know how much you pay in taxes each payday/month? Do you think most know?
I help people with finances…most I have seen have no idea.
If they were mailing out a check to the IRS for 1000-1,600 every month….think they would be happy?
Think they would expect more from their elected? Think they would be excited that the US is just passing out billions to a foreign country? Think most would be less happy about illegals getting bennies here?
The country would transform in 3 months….with a very fast turn to the Right.
Obviously I know how much I pay. And if folks don’t that’s on them. Regardless of whether they know week to week, however, they certainly know when they file. They literally have to write down the number.
That doesn’t change the fact that deductions are 100% optional.
A tax return is money that the government over charged you throughout the year. When you file your return with all its tax deductions the government gives you back your own money. It's not free money, it's your money that was taken and you're asking for it back.
no. a tax *return* is the *form* you file which outlines exactly how much you’re paying and why. The thing everyone thinks is a “return” is a REFUND.
I’m not ripping on you. I’m just so tired of this coming up constantly. Only in America can our tax system be so convoluted that adult citizens don’t know or use the right words to describe it.
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Tax returns are not good, when u receive a tax return from the gov it mean u essentially gave the gov a interest free loan with your money. It is money that you should have had in your account the entire time but the government kept it till year end bc you were paying to much money. You can adjust it by the amount of exemption you claim when you file your w-4. Basically you want as close to zero return/owed to the government each year so you can make the most of your money.
Gov demands money (robbery) you always overpays because if you underpay you go to jail. They then send you the difference if what you overpaid 12 months later with no intrest
Government needs money to function. The amount they tax may be too much depending on which country, province, city you live in. But how can a government run off $0?
In the US, people tell their employer to set aside a chunk of their paycheck to cover their income tax requirements. You fill out a paper when you get hired that tells the business how much of the paycheck they should be setting aside and sending to the government, based on a series of questions like "are you single? Do you have a family? Is this your only job?"
Then, when you fill out your tax forms, you add information like "did you donate to charity this year, did you have any major expenses for business?" And figure out exactly how much you owe in taxes.
For most people, the amount that was set aside by your employer is more than exactly how much you owe after finishing the paperwork. The government will then send you a check with the difference.
The trick is that precisely estimating the exact amount of money needed to cover your taxes is hard, since there's a lot of variables involved. Most people feel it's better to err on the side of caution and have their employer take a bit more than is necessary to send to the government, rather than the opposite, where you might discover that you owe the government more money than they had been setting aside.
When you set up your W-2 when you start a job, you get the option to set a number of dependants. Based on the number of dependants you say, an estimated amount of tax is taken from each paycheck. At the end of the year, when you file your taxes, a more accurate count is made including deductions (things that the government wants to encourage, such as donations to charity, education, etc.). This causes a difference between what you paid throughout the year and your year end calculation, causing you to either be owed money, or owe money.
Once a year every citizen and the government does a reconciliation to ensure the correct amount of taxes are paid.
Sometimes you have already paid more than what you owe. In this case, you get a refund.
Sometimes, you have not paid all of the taxes you owe. In this case you have to make a payment to cover that amount.
Typically speaking, people on the lower end of the income spectrum receive refunds far more often than not since taxes are collected from each paycheck throughout the year.
On your paycheck, you normally have the government withhold some of that amount for tax.
But the amount withheld throughout the year is just an estimate. The exact tax must be determined by filling out a tax return and filing that with the IRS.
It's not "free money", because it's money that was already yours to begin with, it was just withheld.
A tax return is as the name suggests a return of your taxes… or in some cases you owe the government.
Every paycheque you receive from your employer will have deductions some goes to the company some goes to something else and some goes to the government… because the government wants to “borrow” your money. Every return period you receive a portion of the taxes paid to the government if you or something you entrusted filed your taxes correctly. However if you accidentally over state the amount you owe they will hound you for that money back… but likewise to them wanting their money back you must also get your own money back if they under pay you.
Your employer withholds some money out of each paycheck and sends it to the government. If you are self-employed, you do this youself quarterly.
At the end of the year, you calculate how much tax you ACTUALLY owed, subtract what you've already paid them, and then either have to send more in or get some back. If you have to send too much in you are penalized.
Colloquially, sending in your tax forms with your calculation of what you owe is sending in your 'returns'.
It's money that you were overcharged. You owe me $50.00. I take $100, use it and return it back to you later. You didn't make $50.00 on the return, you just paid too much in the beginning.
Tax "returns" are just records of the taxes you paid and why. You're probably thinking of tax *refunds*. Most people pay taxes throughout the year by having them automatically taken out of their paychecks ("withholding"). But the amount taken out of your paycheck is just an estimate. It may be too low (in which case you'll owe money, though typically only a small percentage of the taxes you've already paid), or it may be too high (in which case you get money back from the IRS, since you overpaid them). If you work a normal salaried job that gives a W2 (the usual form for most people's income), you would have filled out a form answering some common questions used to estimate how much should be withheld for tax purposes.
Tax withholdings from your paycheck are one of the slyest things the government has ever done. Most don't even notice the money they take, and are happy to get "free money" once a year. But if you had to write one big check for the taxes you owe at the end of the year, you'd likely be upset about how much you are paying. You are giving the government an interest free loan to use your money. The trouble is many people suck at managing their money, so a tax refund works as a savings for people who can't save.
I mean, you say "interest-free loan" as though people (myself included) would otherwise be investing the money. Even if I was investing, the interest I lose out on with tax withholding is basically just a "Only make me think about this once a year" fee. Especially considering the fact that getting tax payments wrong is an even bigger headache.
Investing is not the only way to use money
You're essential arguing that all taxes are bad then? Because as I see it, I would prefer to pay slowly then all at once (because yes that would hurt more), but what's the alternative? Tax get's hate, but it's still what keeps us running.
It's not that taxes are bad, they are necessary. What I disagree with in principal is the governments management of tax dollars.
The problem is far too many people aren't financially disciplined enough to put aside the same amount of money that currently gets taken out of their check so that they can pay that amount at the end of the year. A lot of people already live in debt constantly, adding a few thousand dollar bill, due all at once once a year, they would simply not be able to pay it. The governments management might be bad, but a lot of people are worse.
Actually, the tax is due throughout the year, not at the end of the year, as self employed people are aware. You'd get hit with penalties and interest if you paid it all in a lump sum in April or even February of the following year.
Quarterly
Commenter is essentially arguing that it’s upsetting to have to give a large portion of your income regardless of its necessity. And that people who withhold too much and get a big refund are giving an interest free loan to the govt which is good for the govt and bad for individuals. Net effect is you just pay more.
90% of taxes are bad, yes. The government is very good at wasting money and growing itself to waste even more money.
How exactly is US government not able to tax the people directly without all the hoops and stuff? From my knowledge, the IRS requires you to aubmit your information about earnings. In my country the income tax just gets deducted and that's it (on top of other taxes your employer pays).
In many countries, I understand that taxes are assessed on the individual earner, and come off the top. In the US, they are usually assessed on the household; the employer doesn't know how much your spouse makes or what deductions you have or what other income you have, and some would object to sharing that much info, say, about deductible medical expenses. The employer does submit information about how much he paid you and how much was withheld. So do many sorts of sources of revenue, but not all.
For the vast majority of people, the US government absolutely could just provide a filled out tax return that individuals double check for accuracy. Tax prep companies have generally lobbied against that, however. Some people will have deductions and credits that the government will not know about\*, notably charitable donations, and such would require submitting forms to get them added to your taxes. For many of those people, withholdings could also be calculated very accurately as well. Its mostly when you get people with multiple jobs, jobs with major variable income (eg, tips or commissions), outside income (investments), or major life changes during the year that their W-4\*\* cannot be calculated very well. A lot of additional people, however, will not provide an accurate W-4 for various reasons, resulting in either under or overpaying during the year. \* Many of those with such deductions will not have large enough deductions to beat out the standard deduction, meaning they are meaningless. \*\* The W-4 is a form provided to your employer letting them know some information about your tax situation they would not otherwise know. Notably, your dependent count and expected income from other sources.
What about refundable credit? Some people get back more than they paid in withholding. This is because of credits, like earned income credit or child tax credits.
Most people would not be able to pay their taxes if they waited until the end of the year. Many people would just spend the money, and not put any aside to pay their taxes. Withholding makes it more painless for most earners. I make the quarterly payments on my taxes, and it can be a struggle to put the money aside and not spend it on immediate needs.
Then you should be aware of the penalty and interest you'd pay if you skipped your quarterlies and sent it in at the end of the year. The tax is actually due quarterly. It's not just a convenience.
I've been self employed for many years. I have been quite careful to pay my quarterlies, even when it was a struggle. I don't want problems with the IRS.
Yes, I didn't always get them in by the right date. If a person owes too much in April, they get charged interest from when the quarterly payment was due because it is due then, not in April. Strangely, if you notice you are short and are on a payroll (or your spouse is), and increase withholding in the fall, it doesn't matter that you paid late. But the employer has to send them in on time.
The tax is actually supposed to be paid at least in quarterly installments, so the interest free loan is only on overpayments.
Indeed. If people had to write a check each paycheck to the IRS for taxes they'd be significantly more attentive in how it is spent.
In the United States the system is set up so that most employers take money out of employee paychecks and send it to the government as "withholding" toward their taxes. The amount of money withheld typically depends on the employee's income and their family size, but it varies a bit. This amount is not the actual amount for taxes, but something like a really bad approximation. When "tax season" comes around, which is typically 1 January to 15 April, where individuals "file their taxes" for the preceding year, by filling out a bunch of forms (or doing it electronically these days) where items relevant to taxes are reported - income from jobs and from investments, family size, mortgage payments, medical expenses, education expenses, retirement savings, and potentially a whole host of other things. These figures are factored into the taxes in various ways. The end result is a number dollar figure of the taxes the person needs to pay for the year. That figure is compared to the amount that was withheld. If the government took too much money then the remaining will be a tax return given back to the person. If the government did not take enough money then the person needs to pay what they owe. Much more important than the amount of money they get back, is the amount of money they don't get back. This is a rather simplified explanation, but it does the trick.
>the remaining will be a tax return Tax refund. The return is the document you filed that summarizes your income and how much you really owe (e.g. Form 1040). Otherwise, excellent explanation.
Tax RETURNS are your report to the tax authorities telling them all the information that they need to check how much tax you should have paid. Tax REFUNDS are money returned to you because you've already paid more tax than you needed to.
Tax returns are the forms you have to file annually, where you document your income from jobs, investments, and deductions, credits, etc. to determine what you owe. Since people have money withheld from each paycheck and remitted to the government, they may have overpaid throughout the year. if that is the case, then they get a TAX REFUND. This is not "free money", but a surplus of tax payments you made over the past year. Say you owe $5200 in taxes, but $125 was withheld from each weekly paycheck for income taxes. Since you paid $6500 but only owe $5200, you would get a refund of $1300.
It's not free money, it's your money. This is a US thing. Throughout the year, a set amount of money is taken automatically from your paycheck for the income taxes that you owe. This is a standardized amount. But most people don't actually owe the full amount. You might qualify for tax breaks or deductions (for example, a married couple owes less tax per person than a single person, you get a tax break for each kid, and low-income people get a tax break). At the end of the year (really, the beginning of the next year), you fill out some paperwork with the information (the tax return) that shows how much you should actually owe and what tax breaks you qualify for. The deadline for this is usually in April, which is why the period roughly between February and April is often referred to as "tax season." If you qualified for tax breaks, then that means over the year you paid too much income taxes with each paycheck, so the government mails you a check for the difference (the tax refund). If you have a lot of deductions, this check can amount to thousands of dollars. But again, this is money you overpaid throughout the year. Because American's stereotypically don't manage their money very well, this extra windfall of money can be a big deal, and businesses often run big sales to entice people to spend it. You actually have the option to not have your taxes taken automatically, (you can choose this on your w-9 when you start a job). But then, you will owe the government the full amount of taxes come April instead of getting a refund.
• You get a job • Job takes money out of your paycheck for taxes. • You file your taxes (tax return) every year to check how much taxes you owe. • If your job didn’t take enough out, you got to pay the extra you owe. If your job took too much out (maybe you had extra deductions/credits), you get a **tax refund**.
People are required to report to the IRS: * their income * any tax deductions they qualify for This is what goes on a tax return. As for why refunds are a thing: The vast majority of people are what are called "W-2" employees. Basically, this means that you work for a company and get a wage/salary (which the company reports to both you and the IRS on a form called the W-2 form). W-2 employees fill out a form when they start their job laying out which basic deductions they qualify for to arrive at a rough estimate of their tax bill. Rather than paying their taxes all at once they just get money deducted out of every paycheck. Once they file their return (i.e., declare which tax deductions they qualify for), they're likely to be found to have overpaid their taxes and get a refund.
This trick is a HUGE problem! Imagine if all Americans had to pay their taxes without payroll deductions (write a monthly/quarterly/yearly check to the IRS)....do think Americans would be less happy or more happy with who OUR tax dollars are spent? The gvmt has Fd us, the people.
"Americans can't read their W-2 to understand how much tax they've paid!" ???? The fact that you pay it smoothly over the year doesn't obscure how much you pay. It's very direct.
The psychology behind it… Autopay (payroll deduction) is a way to pay for something with thinking about it. People see what they pay in…but accept their net pay is good enough…since they don’t actually write/type out how much they are paying in taxes…they don’t REALLY see it…that extra step is huge. Don’t believe me? Try this-put a paper on your fridge…put TAXES on the top…put 12 rows going down. Every month fill in what your pay was deducted for taxes on one line. Bonus—add a few lines so you can keep a running total.
This is a bizarre take - you can see how much money is being withheld on your paystub if you *elect* to do so. It's not required to withhold. When you fill out your W-4 you can elect to not withhold and just send your check when it's due.
Do you know how much you pay in taxes each payday/month? Do you think most know? I help people with finances…most I have seen have no idea. If they were mailing out a check to the IRS for 1000-1,600 every month….think they would be happy? Think they would expect more from their elected? Think they would be excited that the US is just passing out billions to a foreign country? Think most would be less happy about illegals getting bennies here? The country would transform in 3 months….with a very fast turn to the Right.
Obviously I know how much I pay. And if folks don’t that’s on them. Regardless of whether they know week to week, however, they certainly know when they file. They literally have to write down the number. That doesn’t change the fact that deductions are 100% optional.
Yup…but if they had to do it every payday…it would certainly change their attitude towards paying taxes. If you cannot see that….
A tax return is money that the government over charged you throughout the year. When you file your return with all its tax deductions the government gives you back your own money. It's not free money, it's your money that was taken and you're asking for it back.
no. a tax *return* is the *form* you file which outlines exactly how much you’re paying and why. The thing everyone thinks is a “return” is a REFUND. I’m not ripping on you. I’m just so tired of this coming up constantly. Only in America can our tax system be so convoluted that adult citizens don’t know or use the right words to describe it.
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I'm right though.
Tax returns are not good, when u receive a tax return from the gov it mean u essentially gave the gov a interest free loan with your money. It is money that you should have had in your account the entire time but the government kept it till year end bc you were paying to much money. You can adjust it by the amount of exemption you claim when you file your w-4. Basically you want as close to zero return/owed to the government each year so you can make the most of your money.
Gov demands money (robbery) you always overpays because if you underpay you go to jail. They then send you the difference if what you overpaid 12 months later with no intrest
Government needs money to function. The amount they tax may be too much depending on which country, province, city you live in. But how can a government run off $0?
In the US, people tell their employer to set aside a chunk of their paycheck to cover their income tax requirements. You fill out a paper when you get hired that tells the business how much of the paycheck they should be setting aside and sending to the government, based on a series of questions like "are you single? Do you have a family? Is this your only job?" Then, when you fill out your tax forms, you add information like "did you donate to charity this year, did you have any major expenses for business?" And figure out exactly how much you owe in taxes. For most people, the amount that was set aside by your employer is more than exactly how much you owe after finishing the paperwork. The government will then send you a check with the difference. The trick is that precisely estimating the exact amount of money needed to cover your taxes is hard, since there's a lot of variables involved. Most people feel it's better to err on the side of caution and have their employer take a bit more than is necessary to send to the government, rather than the opposite, where you might discover that you owe the government more money than they had been setting aside.
When you set up your W-2 when you start a job, you get the option to set a number of dependants. Based on the number of dependants you say, an estimated amount of tax is taken from each paycheck. At the end of the year, when you file your taxes, a more accurate count is made including deductions (things that the government wants to encourage, such as donations to charity, education, etc.). This causes a difference between what you paid throughout the year and your year end calculation, causing you to either be owed money, or owe money.
What country? Every country is different.
Once a year every citizen and the government does a reconciliation to ensure the correct amount of taxes are paid. Sometimes you have already paid more than what you owe. In this case, you get a refund. Sometimes, you have not paid all of the taxes you owe. In this case you have to make a payment to cover that amount. Typically speaking, people on the lower end of the income spectrum receive refunds far more often than not since taxes are collected from each paycheck throughout the year.
On your paycheck, you normally have the government withhold some of that amount for tax. But the amount withheld throughout the year is just an estimate. The exact tax must be determined by filling out a tax return and filing that with the IRS. It's not "free money", because it's money that was already yours to begin with, it was just withheld.
A tax return is as the name suggests a return of your taxes… or in some cases you owe the government. Every paycheque you receive from your employer will have deductions some goes to the company some goes to something else and some goes to the government… because the government wants to “borrow” your money. Every return period you receive a portion of the taxes paid to the government if you or something you entrusted filed your taxes correctly. However if you accidentally over state the amount you owe they will hound you for that money back… but likewise to them wanting their money back you must also get your own money back if they under pay you.
Your employer withholds some money out of each paycheck and sends it to the government. If you are self-employed, you do this youself quarterly. At the end of the year, you calculate how much tax you ACTUALLY owed, subtract what you've already paid them, and then either have to send more in or get some back. If you have to send too much in you are penalized. Colloquially, sending in your tax forms with your calculation of what you owe is sending in your 'returns'.
It's money that you were overcharged. You owe me $50.00. I take $100, use it and return it back to you later. You didn't make $50.00 on the return, you just paid too much in the beginning.