Could someone expand on this please? I hear everyone saying it. I got money back. I don't know how or why, it just happened. I input the information from my W2 into TurboTax and they said I was getting money back. That's it. I didn't do anything wrong. I don't understand why everyone is mocking me.
If your income is W-2 based (wages/salary), your tax withholding will be based on how you fill out the W-4 allowance form. The more allowances you claim, the less tax will be withheld from your pay check. Ideally, you'd want to have either a very small, or no refund when you file the following year. That means that most of your money is going in
your pocket each pay period and you're not giving an interest free loan to the government. But no one should be mocking you. It's difficult, if not impossible, to get it exactly right, because withholding is also affected by one time income spikes from bonuses, profit sharing plans, overtime, etc.
Let's say that you make $60K a year and get paid once a month (to make this easy for me). So your gross is $5K/month. The more allowances you claim, less money will be withheld - and that's what you want. But let's say that you're an hourly wage earner and there's one month where you work a lot of overtime. And in that same month, your company pays out its annual profit sharing. Let's say that grand total is also $5K. So in that month, your gross is $10K. More than likely, the company's payroll service is programmed to annualize earnings
for each pay period. So it will look at that month as if you're making $120K a year. The withholding from that check is going to (inaccurately) be based on that level of annual income, which is in a higher tax bracket. But W-2 earners pay taxes at the end of the year, not monthly or quarterly. So they're going to take too much out because you're going to have a gross earnings of $65K for the year, not $120K. And all things equal, you're going to get a refund through no fault of your own. Other than
trying to time a massive one time investment in your 401K and/or HSA (nearly impossible to time such things), there's just not much that you'll be able to do to avoid that. And apart from all of that, you also have people who qualify for the many, many credits that the government offers. People with children or who have certain life events may get back MUCH more than was even withheld from their paychecks. Not passing judgement, but net/net, those people don't actually
pay in, they
take out on tax day.
But now, there are also people who think of a tax refund as some sort of yearly bonus or gift, as if the government is giving them something. They take as few allowances on the W-4 as they can, so that more is taken out of their checks and they'll get a bigger refund. That's different. They let the government borrow
their money on purpose. And then some of them will pay a fee to tax prep services, lending companies, used car lots, etc. to get rapid refunds and the like. Yes, that is stupid. Those people allow themselves to be taken advantage of.
As for the message in the OP about how some governments will fill out your tax forms for you, the IRS will do that too... if you want them to. And if you're a woman with a plump rear end, Bill Cosby will let you spend the weekend at his house for free too. He'll even fix you a drink before you go to bed and encourage you to sleep on your stomach. The end result will be the same as when you allow some bureaucrat to fill out your taxes for you.
