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
**TL;DR:**
-The government bills you for taxes once at the END of the year
-Most people don’t want to pay one big bill at the end of the year, so they pay a little bit of their tax bill out of each paycheck, based on the estimate of what they should probably owe at the end of the year.
-Most people OVERPAY on those paychecks, just to be safe, because they’re rather have paid a few dollars over and get it back at the end of the year, than pay a few dollars under, and get a bill at the end of the year.
-There are also lots of little life events or special programs that the gov will give you a discount on your taxes for.
-“Doing your taxes” at the end of the year is sending in the forms to show What you paid already, and what you should actually owe for the year.
**IF**
What you paid = MORE what you should actually owe (including any discounts you claimed) then the government sends you a REFUND for the amount you paid that was more than you actually needed to pay.
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Longer answer:
Everyone pays a portion of their taxes to the government.
Instead of paying a big bill at the end of the year (which would not be practical) almost all people pay the taxes out of every pay check.
If you look at your paystub every pay check, this is whats listed as taxes.
But this number is just an ESTIMATE of how much you owe. The government actually does the math at the end of the year for how much you really owe. You are paying every check based on how much you THINK you will probably owe. (That’s why this is called tax “withholdings” They are taking your pay and holding some back, to cover what you will owe at the end of the year)
Its based on flat percentages, so the math should almost always be even, except there are some things that change over the year that the didn’t get predicted, that will make you owe less money than you expected to owe.
-Did you have certain expenses come up that year, that the government lets you reduce your tax payment for? (charity, medical bills, car expenses, work expense?)
-Did you do something the government WANTS you to do that lets you claim a special credit? (college? buying a house in an area they want people to buy in, installing solar on your house, etc)
-Did the government just decide they WANT to give everyone some money back? (sometimes, the gov looks at how much total money they are going to get for the year and how much they are going to spend, and decides “ok, we’ll have a little extra, and it would be good for the economy if we passed that out to all the families in America so they can go spend it, so it will help the sales numbers)
Finally, *MOST* people choose to pay their paycheck by paycheck taxes estimating slightly OVER what they’ll probably owe, not under. By default this is how most places set it up. Because again, its an ESTIMATE on how much you need to pay, and most people would rather overpay a little every 2 weeks and get money back at the end of the year, than under pay every 2 weeks, and get stuck with a big unexpected bill at the end of the year.
So at the end of the year you have the amount you actually have been paying (withholdings) and you have the amount you actually owe minus any discounts, credits, rebates you qualify for.
Doing taxes at the end of the year is filing all numbers so the gov can see them. If the amount you paid is more than the amount need to pay for the year, they send you a refund for the rest.
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