i always see so many people talk about tax returns or tax season around this time and its so confusing. to me it seems like free money
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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’.
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.
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.
When you start working at a job you fill out a form called a W2. This is a tax form. And it tells the government how much money (roughly) you’ll be making, and how much they should take out of your paycheck.
The government would rather take too much of your money than not take enough, so typically they overestimate how much to tax you.
When tax time comes and you file your taxes there will be a discrepancy between how much you were supposed to pay this year and how much you actually paid this year. So the government will give you the money back.
Now keep in mind, the government took you money that you never owed them. And they didn’t pay you interest on it. So essentially it’s just a way for the government to get an interest free loan. Sure your $1,000 isn’t much. But over 100,000,000 working Americans, that’s $100 billion dollars of interest free money for the government.
Also, if your only income is W2 income. There’s no reason you should have to file your taxes. But you do if you want your tax return. But that’s a whole different issue.
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.
• 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**.
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.
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.
What country? Every country is different.
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