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If you underpay on withholding, then you have to pay penalties and interest at effective total interest rates of 6%-9%. It doesn't necessarily make sense to pay this type of rate in order to avoid the opportunity cost of not earning 2% on your savings. In practice, getting your withholding exactly right is nearly impossible, so you're always going to be a little bit over or a little bit under.
Best practice is to try to get a small refund rather than a large one, but trying to get no refund at all is rather silly and often doesn't work in your favor.
I've owed taxes several times over the years and never had to pay any interest or penalties. Are you sure you don't mean if you are late paying when due?
noooo .. if you go over a certain limit in what you owe there is interest .
you must have tax withholding equal to at least 90 percent of your tax liability when you file your return, or 100 percent of your tax liability from the prior year. You also meet the requirements if you owe less than $1,000. If you don’t have enough income withheld during the year to meet the minimum requirements, you will owe interest and penalties when you file your tax return.
This is an example of the pervasiveness of financial illiteracy in our society. These people claim they did not get a tax cut... well, they did, in terms of a bigger paycheck. If they noticed a much bigger paycheck why did they not save that extra money? These ignoramuses are equating a refund to how much they are taxed, when one does not know how to do basic math that is how it is I assume
Correct, no argument from me on the incompetence of 80% of the American public with regards to finances. The lack of financial education in our left wing schools is part of the problem, but anyone with some ambition can learn on their own. People just choose not to.
noooo .. if you go over a certain limit in what you owe there is interest .
you must have tax withholding equal to at least 90 percent of your tax liability when you file your return, or 100 percent of your tax liability from the prior year. You also meet the requirements if you owe less than $1,000. If you don’t have enough income withheld during the year to meet the minimum requirements, you will owe interest and penalties when you file your tax return.
OK. I actually knew that. I was just responding to the "having" to pay penalties and interest if you owe.
Your next question will be why I didn't have enough withholding taken out. A question I posed to payroll different times and never got an answer.
They recently forgot to apply the correct code to disburse direct deposit paychecks so no one got paid until the next week. Those people receiving paper checks also had an issue that pay.
Over the course of 31 years my check bounced more than once, including my very first one. This was a school system by the way.
I've owed taxes several times over the years and never had to pay any interest or penalties. Are you sure you don't mean if you are late paying when due?
If what you owe is over a certain percentage of what was actually withheld, you have to pay a penalty for "under withholding". If you actually owe $25K in taxes based on AGI and your employer only withheld $10K, you owe $15K. The IRS will penalize a percentage of the $15K. I disagree with this. As long as all taxes are paid by April 15, there should be no penalty.
wow, tons of assumptions
So I'm not going to call these folks "ignoramuses" maybe I am one too. I admit I most definitely do not understand our tax code.
As to why they didn't save, again I'll go back and re-listening but I didn't hear any thing about no savings.
well my refund went down, I'm not making anymore money and I'm pretty sure I have a savings
Quote:
Originally Posted by k374
well, it is technically better to owe money than to get a refund. A refund is your own money coming back to you that you loaned freely to the government. It's a bad idea. At a minimum you could've taken that money and put in high yield savings and got a few bucks interest. $2000 at 2% is 40 bucks, may not be much but you can go and have a nice dinner with it instead of donating it to Uncle Sam.
Also, these people act like it's free money that they are "relying" on... which is ridiculous. It's money that they already earned that's being returned to them. It's not a grant from the government. Whether they get it upfront or in the end makes no difference whatsoever which makes them financially ignorant.
Don't feel bad, I used Tuition Assistance to take a 3 credit hour tax class from UMUC and still don't have a good handle on much beyond individual income taxes with either the standard deduction or simple itemizing. I struggled once they got into small business tax issues.
There is a caveat to tax returns; in some cases a portion of the return is a grant of sorts. The common term I've heard used is 'tax expenditures' (https://www.taxpolicycenter.org/brie...hey-structured), such as the Child Tax Credit and the Earned Income Credit. It's not difficult for a two kid household making the median income to get back slightly more than they paid in income tax.
Best practice is to try to get a small refund rather than a large one, but trying to get no refund at all is rather silly and often doesn't work in your favor.
No, the best practice is to first understand the simple IRS rules about the withholding/estimated taxes compared to tax liability, and to then make sure that the amount withheld or paid is within the safe harbor described in those rules. I've never incurred a payment penalty and haven't received a refund in the last couple of decades.
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