Consumerism Commentary - Latest Comments in Is it Better to Receive a Tax Refund or Owe the IRS?

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

Dove — Thu, 13 Mar 2008 22:48:36 -0000

I prefer to get a refund, since I am retired, divorced, and only work part-time. The price of gasoline, food, and everything else keeps increasing, yet my retirement check remains the same. The eight year old car that I drive is in good shape, but it will not last forever.

When I re-joined the world of singles after a fourteen year marriage, I had to pay extra taxes, because I was told that my marital status changed in the middle of a tax year, which placed me in a different tax bracket. Meaning what - that singles are taxed higher than married people?

However, since I work part-time in an intermittent capacity (maybe nine days out of the month), that my salary was added to my retirement income, and I was charged not only last year ($305), but this year as well ($151). I do not understand this kind of rationale, and it was not explained to me in a way I can understand it. I was advised, last year, to have my employer to change my W-4 to reflect zero. I discovered that it was not done, and I am handling that again. I am not old enough to receive Social Security, yet I had enough years served, to be able to retire.

It is my opinion, that I am being overcharged. It appears that I am being penalized because

a)I am divorced, with no children or grand children
b)I am retired
c)I have the drive to go out and work
d)I have no desire to go on welfare, and be a burden to society
e)my retirement check is not enough to live on.

For all the blood I shed getting to retirement, I deserve to be able to live comfortably, without fear of not being able to keep a roof over my head. Can someone please help me to figure out and to understand why I have to pay so much in taxes?

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

Harlan Landes — Tue, 04 Mar 2008 21:54:30 -0000

G.E.: Thanks.

These are the links G.E. refers to, which he could have left in the comment above:

Turbo Tax's Tax Tools
H&R; Block Withholding Calculator
IRS Publication 919 [pdf]

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

G.E. Miller — Tue, 04 Mar 2008 21:47:10 -0000

This past year I ended up getting about $170 from the feds, and owing $70 to the state, which was absolutely ideal. Some of your readers have been interested in withholding allowance calculators. I have links to the Turbotax and H&R Block calculators in this article: link

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

moonimus — Tue, 04 Mar 2008 11:06:24 -0000

I'm getting a big refund from Federal and State this year but I'd rather owe them a little at the end. Ideally, between $500 and $1,500. The extra cash flow would have helped us out in 2007. I am making sure that we lower our withholdings for this year for both state and federal. This will allow me to increase contributions to my company's 403b and even further lower my taxes!

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

bestdivx — Mon, 03 Mar 2008 16:43:24 -0000

Refunds=a loan to the Government with no interest does not apply to everyone, I have a superintendent in my building, we were talking and he mentioned after hes done with his shift, he'll head over to H&R to get his taxes done, but first the bank to withdraw money to pay the fee they charge, and I asked him about his tax situation to see if it was complicated, he said no, just 1 W-2, and 2 dependents his kids, wife does not work, so I said to him I'm no expert, but I do my own taxes, and since your situation is not complicated I can do yours for you, this way you don't have to pay H&R, he was grateful to have saved that money, and even more grateful 2 days later, when I showed him he was going to be receiving over $7000, now they call this a refund, but he did not pay anywhere near $7000 in taxes during the year, this was free money he was getting, and this was done by taking the standard deduction.

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

JohnR — Mon, 03 Mar 2008 16:34:29 -0000

Correction. That one just went down today. Was working Saterday

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

JohnR — Mon, 03 Mar 2008 16:32:38 -0000

The IRS just moved the withholding calculator on their site. This one works now.

http://www.irs.gov/individu...

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

Harlan Landes — Mon, 03 Mar 2008 13:44:12 -0000

Bryan: This calculator may help you out.

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

The Happy Rock — Mon, 03 Mar 2008 13:35:07 -0000

@Bryan - We had the same experience when we got married. I had always heard that married couples get tax breaks, but we both went from getting refunds to owing about $3500. The next year we owed $3000, even after claiming 0 plus $50 a week out my paycheck!!!!

Things are much better now with kids and mortgage interest, but we also now pay quarterly.

If we owe less than $2000 at the end of the year I am ecstatic. We have about $5000 saved for taxes, so anything left after paying goes into circulation!

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

Anca — Mon, 03 Mar 2008 13:05:55 -0000

Earlier this year I adjusted my witholding because I didn't want to give the government an interest-free loan. But given that this is my first year with a real post-college job and filing my own taxes, that I didn't have the info required for that witholding calculator. Come December I started worrying that I was going to owe too much, and adjusted it back to compensate. Hopefully I didn't mess things up too bad, but I'll find out when I do my taxes this week.

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

paidtwice — Mon, 03 Mar 2008 12:40:05 -0000

I prefer to owe just a tiny bit.

But, that being said, because my own income is so variable, I tend to overwithhold "just in case". So I end up getting a small refund.

The only year we got a very large refund was the year we had my daughter. She was born at the end of October, and we didn't adjust withholding until after she was born. Better to get $2000 back (in our eyes) than have underwithheld and something happened to her in utero or delivery and she wasn't okay. But she came out alive and well so she was indeed a tax deduction that year.

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

Bryan — Mon, 03 Mar 2008 12:28:50 -0000

It turns out that filling out the W-4 form if you're part of a working couple needs a lot more finesse than if you're working just for yourself.

I didn't know this, and didn't read all the "fine print", so we were very shocked to learn that we now owe the IRS $6,000, which we'll probably be paying off for two or three years.

The IRS has a withholding calculator that is theoretically useful. So far, it's been unavailable for the last week, so I haven't been able to try it out.

If you know of a similar calculator that exists, please link to it!

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

budgetsaresexy — Mon, 03 Mar 2008 11:29:08 -0000

I'm in the same boat as That One Caveman, in a perfect world i'd get a small amount back at the end of the year.

It's a little somethin' somethin' that wasn't accounted for (on purpose, not that you even COULD account for as this post shows), but not TOO much where you could have invested it the entire time.

Having recently purchased my first house, i tried to get as close as break even as i could. I changed my claims from 1 to 6 i believe, but still no luck. At least, however, it was a freakin' awesome surprise! Instead of the $500 or so i was planning on, i received a whopping $3800 :)

Sure i did the math wrong, but for giving it a shot for my first time, i'm def. not complaining...i could have made an opposite mistake!

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

Yana — Mon, 03 Mar 2008 11:16:44 -0000

I prefer owing. We like to have our earned income when it is earned, and we don't have a problem having and saving money. I don't understand the penalty thing, and in fact tried to do our taxes online but got confused when estimated taxes and penalties were mentioned. For the first time, we paid H&R Block to do our taxes this year. I'd rather not do that again, but thought it would be the best thing to do since we had to use different forms this time that I'm not familiar with. Our tax bill was just under $2,000, and even though I know we could have kept it and paid at the last minute, I don't like the feeling of having an unpaid bill. So we filed and paid right away.

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

KC — Mon, 03 Mar 2008 10:53:26 -0000

I'd rather pay through the nose - cause I have the discipline to save the money owed and not spend it. But of course after a certain point the IRS makes you pay quarterly. But I still prefer to owe something. I'd rather have their money until 4/15 than be receiving money in May.

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

savvy — Mon, 03 Mar 2008 09:40:38 -0000

I prefer to underpay and owe a small amount. However, I created a spreadsheet that estimates how much I should have had withheld vs what I have had withheld. I update it whenever my situation changes (i.e. raise at work or other unexpected income). This allows me to be proactive and make changes to my withholdings if necessary.

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

Lily — Mon, 03 Mar 2008 09:04:32 -0000

Luckily I have this decision made for me. I fill out my W-4 based on facts I know for sure (my salary). But annual bonuses at my firm are completely unpredictable - and usually taxes on bonuses result in over-withholding. I end up getting a little money back each year - not enough to make me sweat about interest-free loans to the government.

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

broknowrchlatr — Mon, 03 Mar 2008 08:42:37 -0000

I like to owe a small ammount but also know what I will owe. I use the IRS' withholding calculater which can get your estimate pretty close. But each year I also use that based on my previous year's actual results so I know by what factor I should adjust the IRS' suggectiosn each year.

This year I ended up owing $404 which is just about where I want to be.

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

fathersez — Mon, 03 Mar 2008 08:32:05 -0000

For Malaysians, I think the answer is easy. Better to owe the IRS. The M'sian IRS seems pretty tightfisted when it comes to refunds.

I just got my 2004 and 2005 refund.

They have announced that they are getting better etc., but I prefer to err on the side of I owing them.

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

Cinder — Mon, 03 Mar 2008 08:29:20 -0000

Just remember, when you underpay TOO much (I always did when was W2'd), those penalties definitely offset the standard interest you'd get on that money underpaid in a high yield savings account or CD (Sorry, only going on guaranteed returns for this one). If you just do it one year or there's a drastic change in income, there are ways of avoiding the penalty though (in case you just want to give it a try).

Just wanted to note that, but in general, I would always prefer to underpay and owe. In fact, in my quarterlies now I even pay at the 90% rate even (though there's always the hope that I'll have so many deductions that I'll still get money back... Hey, I can dream, can't I?).

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

Saving Freak — Mon, 03 Mar 2008 07:46:51 -0000

I have $0 withheld from my paycheck for income taxes. I pull out the tax tables every month and calculate how much should be withheld. I then take that amount out of my budget and put it into high interest savings until tax time. A little extra interest never hurt anyone.

Re: Is it Better to Receive a Tax Refund or Owe the IRS?

That One Caveman — Mon, 03 Mar 2008 07:45:13 -0000

I prefer to receive a small refund, but it hasn't been that way for the last two years as I've gotten back nearly $3000 both times. It just shows that I need to tweak my calculations.

If I receive a small refund, the interest-free loan didn't cost me all that much throughout the year since anything less than $1000 won't generate significant interest income over the course of one year. And with receiving a refund, I don't have to worry about my financial state come the following April; I don't have to worry where the money will come from to pay the government.

I have no need for a "forced savings plan" but the unexpected "income" generated by a surprise refund definitely goes a long way to boost morale and help the household the next year. And, this year, it helped me buy a much-needed washing machine.