Posted on 12/23/2015 8:36:17 AM PST by Maceman
OK. So you're a hard-working employee, and naturally your employer withholds your payroll taxes and sends the money to the feds.
So then at tax time, you fill out your return and you write in the amount of taxes you owe. If you've overpaid, you get a tax refund.
Now if you're overpaying the withholding tax, and due a tax refund, then aren't you in effect making a loan to the federal government for the amount of your tax refund.
Now isn't that actually an interest-free loan to the Feds? They get to use your money, which you didn't owe and to which they had no legitimate in the first place.
So why aren't they required to pay your refund back with interest?
This has puzzled me for years.
Any thoughts? Or is the answer just: "The gov't doesn't have to pay you interest because screw you anyway"?
Because they make the rules and the rules say they don’t have to.
Kind of funny. They just don’t — and what would you get? zero interest?
I hate to be crude, but the reason is because those in that position are stupid enough to let the government use that money for nothing all throughout the year. There is such a thing as a calculator and a W-4 that would prevent this.
I had considered not paying taxes for the year until filling out my return. I planned to keep the money in an interest bearing account and then pay my share at the end of the year.
I was told that I could be penalized for “under-withholding”
That’s why I love it when folks think they are somehow “scamming” the government when they get their tax refund check.
No, what they did was to essentially give the government an interest-free loan.....so who is the sucker?
I think you answered your own question in your last sentence. Merry Christmas
Study the rates, your situation and make a better claim on deductions. It isn’t that hard.
You should always try to work it so you owe the government around 100 bucks. Painless at tax time, no free loans!
I suspect it has something to do with the fact that you determine how much is held back by the number of dependents you claim, and the timing of your refund is based on when you file.
I have made errors in the government’s favor, and after receiving my regular refund, received another check later if I overpaid, and those payments did include interest from the original refund date.
We still need to eliminate the IRS, but this is the least of IRS abuses.
Why isn’t Hillary in Jail, why hasn’t Obama been impeached?
We live in a dysfunctional society.
Probably because the law doesn't require it. A different question is why shouldn't they be required to do so, and most people, I expect, would agree that they should be.
If your are self employed, you can do that, but yes, you might be penalized for under withholding. The rule is...you pay as you go. Hence quarterly estimated payments for the self employed. Your employer pays your withholding for you. You could change your W-4 to a high allowances number so no withholding is taken out, but I would advise against that. That pesky penalty when filing time comes around. It’s pretty much the IRS can do as they please.
it might have something to do with that on paper the federal reserve was supposed to control currency such that there would be neither inflation nor deflation. the irs is old enough that they might have chosen to take that at face value whenever withholding came into being (1950s?).
Why are our property taxes based upon the government appraisers and when the value goes down they don’t reflect that on the taxes?
I realized early in my work years that getting a big tax refund, while nice, was actually getting MY own money back that I have overpaid in.
I realized that my money was more valuable to me than letting the IRS use it for several months.
I changed my deductions so that it was almost break-even. I may have had to pay in a few dollars. But, the money that would have been overpayments to the IRS was now sitting in MY money market savings account.
I assume the policy reasons include 1) there is no requirement to overpay your taxes and 2) if they did pay interest they would be competing with banks, credit unions and other borrowers.
To avoid a refund keep your total tax paid in of the lesser of
a) 100% of last years tax (higher AGI 110%) or
b) 90% of the current year tax
and you will not overpay.
You would be amazed at how many people don’t understand the purpose of the form W-4. I would love it if high schools had classes in preparing for employment. W-4 especially. Countless times I have explained not to necessarily equate allowances with dependents. Basically the purpose of the W-4. One example was years ago, one young man had to pay. He used 3-4 allowances -equating that number of his children, but his ex wife took the kids as the dependents. I explained to him what was happening on his tax return, suggested he submit an updated W-4 to his HR department ASAP. I felt so bad for the guy, but hopefully he left my office a little wiser. Better to know basic living skills, then some stupid global warming crap.
Every year my blood boils as my lower-income, low-information in-laws post on Facebook about “Yay, I’m getting my taxes this week!” Yep, somehow we’ve managed a cultural shift in which those most dependent on government see taxes as something you get, rather than something you pay.
I gave up trying to explain it to them, because all they know is they now have money to shop with. Even the simple, “you just gave the government an interest-free loan” is met with deaf ears, because it destroys the government-as-provider mentality.
This is entirely preventable.
Fill out your W-4 form so that the correct amount is withheld.
OTOH if you are required to pay estimated tax there is a penalty for not paying this on time, which is really just an interest rate on the money they think you should have sent them.
The feds have a long tradition of charging you interest on the money you owe them, but not paying you interest on the money they owe you.
The most egregious examples are the social security calculations they publish on when to take SS, always showing that the longer you wait, the better off you are. This is not always the case. If you take into account a real interest rate on the money you get in the early years, it may well be better for you (and worse for them) to take SS as early as possible.
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