Is it possible to get a bigger refund than you pay in taxes?

[AlohaNow]

If I had the choice of making so little money that I got EITC and making what I make now and have to pay taxes, I choose now. Being poor and barely making ends meet Is no fun.

For three tax seasons I volunteered with the VITA program (Volunteer Income Tax Assistance) which primarily exists so that those who qualify for the EITC can get their taxes completed and filed for free. I would spend about an hour or so with each of my clients, entering their info, making sure everything was correct. The very last question to go over was how they wanted to receive their refund - mailed check or direct deposit? It was at this point in the conversation that I would learn that many of my clients were homeless. Some opened up a bank account just before they came in to have their taxes done because direct deposit was a must for them because the check would never make it to them at the shelter where they were staying. Some provided a family member's address because they did not have one of their own. I know a great many people in America have a problem with the EITC, and I don't doubt that there is some abuse of it. But really, it is not a place you would want to be by choice, as wvjules states. Google the income limits for EITC. Again, it is not a place you would want to be.

 

[soccerdad72]

Those that get huge amounts back are essentially giving the U.S. government an interest free loan. Why would anyone want to do that?

Those that I know that do it say it's a forced savings account for them. Not the way I would save, but to each their own, I guess.

 

[sam_gordon]

Those that get huge amounts back are essentially giving the U.S. government an interest free loan. Why would anyone want to do that?

Because they (the tax payer), if they had gotten the money through the year and put it in a savings account would get about the same amount of interest as they're getting from the feds. They are seeing it as a savings account. Or their situation has changed and they didn't change their withholding.

Someone upthread mentioned it, but I can't find it now. The tax rules are too complex. I'd still like to know what would happen if you do away with all deductions (yes, everything... mortgage, college, donations, etc) and simply withhold x% of income. The government would save money because the IRS could slim down. Taxpayers wouldn't have to worry about filing taxes, and the government wouldn't have to withhold as much (meaning you keep more of your paycheck).

 

[3 MEN AND A BOAT]

I don't think a person should ever receive a refund greater than their withholdings.

 

[mi*vida*loca]

Once upon a time I qualified for EIC. I would have MUCH rather paid 32K in taxes instead of only making minimum wage. It's not as glamorous as some think. I used the money to pay off credit cards that I ran up just to live. You know.....groceries, electric bill, gas, etc. Fun times.

 

[smiths02]

I agree that I'd rather be working and making decent money and not qualify for EITC.

However, the first year we didn't qualify at all (because our income had gotten too high), it was by a small amount ($1000 or $2000). The relatively small amount was my DH working OT. So because we lost the tax credit, it felt like that OT money was taxed at 80-90% (even though I know that's not how taxes and credits work)...and then we ended up owing for the first time.

 

[mnrose]

Because they (the tax payer), if they had gotten the money through the year and put it in a savings account would get about the same amount of interest as they're getting from the feds. They are seeing it as a savings account. Or their situation has changed and they didn't change their withholding.

Someone upthread mentioned it, but I can't find it now. The tax rules are too complex. I'd still like to know what would happen if you do away with all deductions (yes, everything... mortgage, college, donations, etc) and simply withhold x% of income. The government would save money because the IRS could slim down. Taxpayers wouldn't have to worry about filing taxes, and the government wouldn't have to withhold as much (meaning you keep more of your paycheck).

It would still be complicated because what is "income" is a very complex question. When it comes to wages, it's easy to see "income." But, if you are running a business, it can get really tricky. What "expenses" are allowable to deduct against your income, etc. How do we treat passive income? All these are also things the IRS audits and manages.

In theory, I'm in favor of flat taxes.....sure would simplify my life. I do think you'd have to have an income level below which you didn't tax anything, or taxed it at a lower rate. Say your flat tax was 15% (most experts agree it would have to be at least this much), and you have a person making 20K per year. To them, $3K is a HUGE amount, because they are left with 17K to live on. To a person making a million bucks, eh, not so much. While 300K in taxes sounds like a lot (and it is), they still have 700K left to live on. I'd like a flat tax, but have it be progressive....5% of the first 20K, 10% of the next 20K (20-40K taxed at 10%), 15% beyond that. (That's just an example, BTW....I'm not sure what the right numbers and wage cutoffs would be). I DO think that everyone should have some skin in the game and that there should be no such thing as a 0% tax bracket. But, have the amount increase as your income increases.

I'd also wonder about creating certain limited exceptions to the "no deductions" rule for catastrophic losses not covered by insurance....and by that I mean natural disasters which destroy your home or catastrophic medical expenses. I sure as heck don't mean that the market went south one year and you "lost" money in the stock market or you "lost" money gambling.

 

[sam_gordon]

It would still be complicated because what is "income" is a very complex question. When it comes to wages, it's easy to see "income." But, if you are running a business, it can get really tricky. What "expenses" are allowable to deduct against your income, etc. How do we treat passive income? All these are also things the IRS audits and manages.

In theory, I'm in favor of flat taxes.....sure would simplify my life. I do think you'd have to have an income level below which you didn't tax anything, or taxed it at a lower rate. Say your flat tax was 15% (most experts agree it would have to be at least this much), and you have a person making 20K per year. To them, $3K is a HUGE amount, because they are left with 17K to live on. To a person making a million bucks, eh, not so much. While 300K in taxes sounds like a lot (and it is), they still have 700K left to live on. I'd like a flat tax, but have it be progressive....5% of the first 20K, 10% of the next 20K (20-40K taxed at 10%), 15% beyond that. (That's just an example, BTW....I'm not sure what the right numbers and wage cutoffs would be). I DO think that everyone should have some skin in the game and that there should be no such thing as a 0% tax bracket. But, have the amount increase as your income increases.

I'd also wonder about creating certain limited exceptions to the "no deductions" rule for catastrophic losses not covered by insurance....and by that I mean natural disasters which destroy your home or catastrophic medical expenses. I sure as heck don't mean that the market went south one year and you "lost" money in the stock market or you "lost" money gambling.

I agree with everything you posted. I've heard the 15% number before, but I have a hard time believing it. I think it would be lower. Simply because if you look at all the deductions people take now and compare their tax burden to their gross income (not the adjusted), most are probably paying less than 15%.

 

[3 MEN AND A BOAT]

It would still be complicated because what is "income" is a very complex question. When it comes to wages, it's easy to see "income." But, if you are running a business, it can get really tricky. What "expenses" are allowable to deduct against your income, etc. How do we treat passive income? All these are also things the IRS audits and manages.

In theory, I'm in favor of flat taxes.....sure would simplify my life. I do think you'd have to have an income level below which you didn't tax anything, or taxed it at a lower rate. Say your flat tax was 15% (most experts agree it would have to be at least this much), and you have a person making 20K per year. To them, $3K is a HUGE amount, because they are left with 17K to live on. To a person making a million bucks, eh, not so much. While 300K in taxes sounds like a lot (and it is), they still have 700K left to live on. I'd like a flat tax, but have it be progressive....5% of the first 20K, 10% of the next 20K (20-40K taxed at 10%), 15% beyond that. (That's just an example, BTW....I'm not sure what the right numbers and wage cutoffs would be). I DO think that everyone should have some skin in the game and that there should be no such thing as a 0% tax bracket. But, have the amount increase as your income increases.

I'd also wonder about creating certain limited exceptions to the "no deductions" rule for catastrophic losses not covered by insurance....and by that I mean natural disasters which destroy your home or catastrophic medical expenses. I sure as heck don't mean that the market went south one year and you "lost" money in the stock market or you "lost" money gambling.

I'm for a flat tax, no graduated scale, just a flat percentage.

 

[MrsCobraBubbles]

I only made $15,000 last year, and I'm looking at getting a tax refund of about $5000, according to the HR Block tax calculator. What little I paid in taxes will be returned to me, plus I qualify for EIC and have two kids so I'll get child tax credits. I won't get nearly so much next year though, this was just a bad year.

 

[OhMari]

You make under 134,000 net and pay 67,000 in taxes?

$20,000 in payroll taxes on 134,000 net?

No, sorry, I should have stated it is 1/3 of our pay goes to taxes. Sorry I got caught in the heat of the discussion.
And we also raised 4 kids in the 80's and 90's and only got a small portion of the child tax credit that was implemented in 1999. We basically raised all of them without the credit and we never qualified for the Earned Income Credit, since we were both working parents.
We are ready to retire and sell our home in Wisconsin. You cannot afford to live in Wisconsin with the high Property Taxes, and income taxes on top of the Federal taxes.

 

[Vijoge]

No, sorry, I should have stated it is 1/3 of our pay goes to taxes. Sorry I got caught in the heat of the discussion.
And we also raised 4 kids in the 80's and 90's and only got a small portion of the child tax credit that was implemented in 1999. We basically raised all of them without the credit and we never qualified for the Earned Income Credit, since we were both working parents.
We are ready to retire and sell our home in Wisconsin. You cannot afford to live in Wisconsin with the high Property Taxes, and income taxes on top of the Federal taxes.

LOL I adopted 3 children-way before the adoption tax credit or the child tax credit. Never qualified for EIC, either.