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”