Others have suggested that some Americans use the income-tax withholding and refund system to force themselves to save, at least for the year. That is, some households purposely over-withhold as a way to keep money out of their checking accounts where they might be tempted to spend it on smaller, daily purchases.
When you get a tax refund, the government is returning some of the money that your employer withheld from your paycheck on your behalf throughout the year. That's right — the federal government collected too much money from you all year long, and when it sends you a refund, it's just giving back the difference.
The big benefit of owing money to the IRS
All that's happening is you are getting back money that you overpaid and didn't actually owe. You're getting your own money returned to you after you've been without that cash for months as you waited to file your tax return.
The Cons of Tax Refunds
Tax returns aren't gifts. They're refunds you get because the IRS withdrew too much from your paychecks or had withdrawals from other investment accounts. While it may seem like a great thing to have a tax return come each April, you pay for it the other 11 months of the year.
Depending on what amount of income and which credits you specify on the W-4, the more or less tax will be withheld. Having less taken out will give you bigger paychecks, but a smaller tax refund (or potentially no tax refund or a tax bill at the end of the year).
The average federal income tax refund as of April 8 is $3,226, up from an average of $2,893 at the same point in 2021, according to the Staten Island Live website, which cited IRS data. Over 63 million refunds were distributed by the same date, a slight gain from the previous year.
Ramon Christopher Blanchett, of Tampa, Florida, and self-described freelancer, managed to scoop up a $980,000 tax refund after submitting his self-prepared 2016 tax return. He also allegedly claimed that he earned a total of $18,497 in wages — and that he had withheld $1 million in income taxes, according to a Jan.
A larger refund, however, is more problematic. When you get a giant sum back from the IRS, it means you really overpaid your taxes the previous year. If your most recent refund was large -- say, $2,000 or more -- then you may want to make one key change for the rest of 2022.
Answer: The most likely reason for the smaller refund, despite the higher salary is that you are now in a higher tax bracket. And you likely didn't adjust your withholdings for the applicable tax year.
Many will be getting smaller-than-expected refunds, tax preparers say. Under the American Rescue Plan passed last year, two types of payments ended up in many folks' mailboxes or bank accounts: The 2021 tax credit was enhanced and paid partially in advance to 36 million families.
If you've moved to a new job, what you wrote in your Form W-4 might account for a higher tax bill. This form can change the amount of tax being withheld on each paycheck. If you opt for less tax withholding, you might end up with a bigger bill owed to the government when tax season rolls around again.
It all comes down to how many "allowances" you claim. The more allowances you claim on your W-4, the less income tax will be withheld. If you claim zero allowances, you will have the most tax taken out.
The big tax deadline for all federal tax returns and payments is April 18, 2022. The standard deduction for 2021 increased to $12,550 for single filers and $25,100 for married couples filing jointly. Income tax brackets increased in 2021 to account for inflation.
The average refund so far is worth $3,263 — a bump of more than $300 over the average refund of $2,902 during the same week in 2021. For the entire 2021 tax filing season, the average refund was $2,815.
The top 1 percent (taxpayers with AGI of $546,434 and above) earned 20.1 percent of total AGI in 2019 and paid 38.8 percent of all federal income taxes. In 2019, the top 1 percent of taxpayers accounted for more income taxes paid than the bottom 90 percent combined.
What is the average tax refund for a single person making $60,000? A single person making $60,000 per year will also receive an average refund of $2,593 based on the 2017 tax brackets.
If you make $20,000 a year living in the region of California, USA, you will be taxed $2,687. That means that your net pay will be $17,313 per year, or $1,443 per month. Your average tax rate is 13.4% and your marginal tax rate is 21.7%.
If you make $32,000 a year living in the region of California, USA, you will be taxed $5,488. That means that your net pay will be $26,512 per year, or $2,209 per month. Your average tax rate is 17.2% and your marginal tax rate is 25.2%.
Simply put, if you owe a large sum in taxes, it's likely because you kept too much of your paycheck during the year and had too little withheld automatically. If you owe more than $1,000, you also have to pay a penalty to the IRS.
If you're questioning “Why is my tax refund so low in 2021?” There's a reason for it. It's the combination of several changes that will affect your overall outcome, including the tax impacts of the coronavirus pandemic.
If you were overpaid, the IRS says it's likely you may owe money back. Payments in 2021 were based on previous years' returns, so some situations — like an increase in income during 2021 or a child aging out of the benefit — might lower the amount owed to the taxpayer.
Essentially, the number of allowances you claim relates to your filing status and the number of dependents you anticipate claiming. If you over estimate your dependents or choose a filing status that you are ineligible for, then your withholding will always be less then the amount of tax you owe.
You may owe taxes even if you claim 0. This occurs when you set your relationship status as “married,” giving the impression that you are the only one who works. Combined, the income surpasses the tax bracket, resulting in a higher tax.
If I understand you correctly, you claimed zero allowances on your W-4, yet you still owe tax. The W-4 is only a crude estimate of how much tax needs to be withheld from your paycheck.