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
Assuming you live in the United States:
The government doesn’t trust you to pay all your taxes at once at the end of the year. It’s nothing personal; they don’t trust anyone. So every time you get a paycheck, your employer “withholds” some money for taxes. If you look at your paycheck, you’ll see how much they are taking. They send it to the IRS.
When you first got a job, you filled out a sheet saying things like whether or not you were married. Your company then used a formula to guess how much money you would owe in taxes, and they try to withhold about that much.
However, that formula is sometimes wrong. Say your job withheld $5000 in taxes last year. At the start of the next year, you file your taxes and figure out you only owe $4500. The IRS then says “thanks, buddy, here’s your $500 back.” Your refund is basically getting back money you already gave them.
If you make very little money, you might also qualify for bonus money from “refundable” tax credits. The big one is the [Earned Income Tax Credit](https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc). Basically, you can make so little money that you owe negative taxes. So if your job withheld $1000, but you end up owning -$500 after the tax credit, you get a check for $1500. That’s the $1k you paid them plus $500 from Uncle Sam.
Latest Answers