exactly how do tax refunds work?

Question

I’ve only recently joined the working force, and I am still not sure of this entire concept.

I know I am supposed to go to an accountant and show him a slip from my job for the returns, and also slips from my stocks that show all the net changes.

What I don’t understand is \*why\* I receive a certain amount after doing all of that.

In: 8

Answer 1

You go to a bar and hand the bartender a $100 bill.

You tell the bartender, “Here’s $100. Keep pouring me drinks, and we’ll square up the bill at the end of the night. If I drink more than $100 worth of booze, I’ll pay you the difference. But if I drink less than $100 worth of booze, you’ll give me a refund of the difference.”

Now, instead of giving the bartender $100 upfront for a single night’s worth of drinking, let’s say you give the bartender a portion of your paycheck every other week for your bar tab, and then you’ll square up the bill with the bartender at the end of the year.

Taxes work in the same way.

Every time you get a paycheck, some of your earnings are held back by your employer and paid to the government.

Every year, by April 15, you “square up your tab” with the govt.

You calculate your income, subtract your deductions, and then you’ll ultimately arrive at your tax bill. You take the total amount due, minus the amount you already paid in over the last year, and if you overpaid over the last year then you’ll get a refund.