Who doesn’t love a big tax refund? The charge we get when that check comes in the mail is exhilarating and it feels like we just got a bonus from Uncle Sam. So why does the IRS send me money back? It’s a good thing, right? RIGHT???????
Part 1 of a series about income taxes
It isn’t a pleasant or exciting topic but ALL AMERICANS with an earned income have to deal with it every year. Most do not understand what a “Tax Liability” is or how “Withholding” affects the taxes you pay annually. I hope you will take away a better understanding in the basics of “Tax Refunds” and be able to make positive changes with it.
What is Tax Liability?
A “Tax Liability” is the amount of money we should pay in income taxes based upon our income level, allowable deductions, and tax credits.
Example: If you had earned $45,444 in 2009, were legally married, and had no deductions/no pre-tax programs/no dependents then the IRS stated your “Tax Liability” to have been $6,012. In common but incorrect terms, this is what you “owed” in taxes for the whole year.
In other words, it only cost this couple $501 a month to pay their “Tax Liability” ($6,012 / 12 months). It is usually done through payroll check withholding for employees or Quarterly Estimates for self-employed persons.
The next article will address “Tax Withholding”
[…] 1900’s there was no paycheck withholding. The individual or family would have to pay their “Tax Liability” at the end of the year in one lump sum. The Government gave us the “opportunity” to have […]