Taxes-one big refund or bigger paycheck?

[Moxie]

Yeah, but with interest rates at 1/10th of a percent it hardly matters. We opt for the bigger paycheck, but I don't know that it means much more money in the end.

 

We have a high yield (HAHAHAHA) savings account that I think is at 1% now.

 

But if you have a debt at 20% interest and you use the monthly check to pay that off, isn't that the same as making 20%?

[lisamarie]

Right. This is the main reason why people claim all the deductions they are allowed lately, and still get a big refund. The child tax credit. There is no legal way around that that I know of.

 

I started the calculator linked here to see how we could get our refund down to almost zero and I had DH look up his current paycheck to see how much we've paid to date in federal taxes. To date, we've paid a total of $92. So in a year, we pay in about $200 and get back $5000. I looked at my tax return and our effective tax rate was -3.64% meaning they pay us. We're a drain on society. Wow. :001_huh: I didn't expect that. I mean, I did our taxes the past 2 years so it shouldn't be a shock, but I didn't connect the dots that we don't pay ANY federal taxes after all the credits we qualify for. For the last year I've been bugging DH to adjust his withholdings so we'd get less back, thinking we were paying too much in, but we're not.

 

So I assume based on what I found out, there's no way we could get a larger paycheck short of asking the government to pay US early. Right?

[nukeswife]

You can claim as many exemptions as you want. If you use the IRS' withholding calculator instead of the form employers give you, you will be able to get an accurate number of exemptions for little to no refund. It takes into account the child tax credit, as well as any itemized deductions. Because of taxes, a rental loss, the child tax credit, and our itemized deductions, we would get a huge refund if we used the standard form, but using the calculator lets me get it down to the $100-200 range.

 

I must not have used it correctly then. I tried it last night and it told us to claim 4, but we now claim 8 and still got a huge refund last year.

[DawnM]

I think part of the problem is that he (dh) does this annually and comes as close as he can, but there are variables like mid-year raises and bonuses that we don't always know exact amounts.

 

He hates messing with it every time something comes up as he doesn't care to do it every few months. He does review it annually.

 

I would rather get a couple thousand back than owe though, so if he wishes to be a bit conservative in his estimate, that is fine.

 

Dawn

 

You can claim as many exemptions as you want. If you use the IRS' withholding calculator instead of the form employers give you, you will be able to get an accurate number of exemptions for little to no refund. It takes into account the child tax credit, as well as any itemized deductions. Because of taxes, a rental loss, the child tax credit, and our itemized deductions, we would get a huge refund if we used the standard form, but using the calculator lets me get it down to the $100-200 range.

[profmom]

My sister and I were discussing this tonight. DH claims he has taken more deductions than we actually have and we still have ended up with $5-6K refunds the last 3 years. My sister has hers to the point that she cancels out and doesn't pay or get a refund so she has more all year. I kinda like the big check once a year so we have money to fund major projects. She likes having more money all year long.

 

What approach do you take? Is one way better than the other?

 

Technically, one way is better, and that is it's better to not make an interest-free loan to the government all year. However, if you can make it on a smaller paycheck (if not, I'd definitely adjust) and you'd have trouble saving all year, I can definitely see the draw of receiving the refund!

[kamom]

:confused:

 

This has been the most confusing thread I've ever read. Why would someone pay in tax they don't owe? Just to get it back the end of the year? Why not put it in a savings acount?

 

I couldn't vote because we don't get a big check because we don't pay in money we don't owe. Quite the opposite, we usually owe a hefty amount. Dh is self imployed and even though we have a lot of deductions, we still owe.

 

lisamarie said "DH claims he has taken more deductions than we actually have and we still end up with a $5-6K refunds the last three years."

 

Could someone kindly explain what that means?

[milovany]

 

This has been the most confusing thread I've ever read. Why would someone pay in tax they don't owe? Just to get it back the end of the year? Why not put it in a savings acount? ...........

 

lisamarie said "DH claims he has taken more deductions than we actually have and we still end up with a $5-6K refunds the last three years."

 

Could someone kindly explain what that means?

 

I can't answer for lisamarie, but for us (we're also mostly self-employed), the money we get refunded is usually several thousands dollars in credits (so it's not tax money that we previously paid in that we're now getting back, it's money the government gives us for different reasons when we submit our yearly income tax return). In our situation, we have seven kids and so at this point have a LARGE child tax credit every year (we don't even make quarterly estimated payments because we get so much back -- the credit/refund more than covers any taxes we would otherwise owe). This past year we were also able to take the repeat home buyer's credit, so we are getting that as well. Again, this is money the government is crediting to us -- even though we didn't pay anywhere near that much in taxes.

 

I would prefer the system be changed so that we're not taxed on income at all, and certainly not under the current system <cough>vote for Ron Paul<cough>, but it is what it is right now and this is how it plays out for our family.

[cindergretta]

Off - topic:

 

Please forgive me for this totally off - topic question, but since we are discussing taxes, I thought I might ask.

 

Our oldest ds is 17 this week. So, in terms of the child tax credit, we no longer can claim that for him, yes? (It says "under 17.")

[lisamarie]

:confused:

 

This has been the most confusing thread I've ever read. Why would someone pay in tax they don't owe? Just to get it back the end of the year? Why not put it in a savings acount?

 

I couldn't vote because we don't get a big check because we don't pay in money we don't owe. Quite the opposite, we usually owe a hefty amount. Dh is self imployed and even though we have a lot of deductions, we still owe.

 

lisamarie said "DH claims he has taken more deductions than we actually have and we still end up with a $5-6K refunds the last three years."

 

Could someone kindly explain what that means?

 

I updated that after reviewing DH's paycheck that I realized we only pay in about $200/year in federal taxes and get back around $5k/year, so I was wrong. I thought we were paying a large amount every paycheck and getting it refunded after all our credits, etc, were taken into account. Nope.

[Katiebug_1976]

I voted for one BIG check. I think it would be harder to designate if it became a normal part of the paycheck.