[MenhirMike]

> my friend the tax accountant gets downvoted for clarifying how taxes actually work.

Let me guess: Tax brackets? That's the one thing that most regular workers in the US just don't seem to understand (and arguably, many people knowingly spread falsehoods to further some agenda).

[speff]

Decent guess, but nah. Something to do with corporate tax accounting. Can't remember the details because that's out of my element.

[tpmoney]

Tax write offs would be my guess. Every employee of charities that partner with retail locations for PoS donations must die a little inside each time some fool confidently asserts that they never give to those charities because it's all a scam. The money, they will assert with the confidence only someone so wrong can muster, is just used for write offs so the executives can have a big bonus and the company gets to claim they donated all the money. Bonus points if they assert that the charity doesn't even get the donated amount.

[PopAlongKid]

I think the basic thing about taxes that is least understood is the difference between gross income and taxable income (the latter is the amount that tax brackets apply to). A close second is the difference between tax liability, and refund/balance due on the tax return.

[sgerenser]

Just try to convince the average person that “getting a big refund” is a bad thing, since it means you gave the U.S. government an interest free loan.

[MenhirMike]

Oh yes, that's another fun one! Your yearly tax return should be as close to 0 as possible, otherwise you're either over- or under-withholding. Then again, I met some people that use it as a kind of piggy bank because they wouldn't be disciplined enough to save up for bigger purchases otherwise and... well, I can't even, but if it works for them, there are worse things to spend money on.

[demondemidi]

I have income from multiple sources and they are not aware of each other. For example, they will all keep paying social security even when I’ve exceeded the max deduction. It is far too complicated to correct the finance departments of multiple companies. I just reconcile it all at the end of the year and get a refund. Got a better strategy I can use?

[dcow]

Woah, it’s okay to have different tax situations. I started a business one year and got a pretty big refund. But we’re not out there bragging about how we get big refunds every year like it’s some goal to aim for and accomplishment to be proud of if achieved. That’s the mentality people are criticizing.

[lcnPylGDnU4H9OF]

It sounds like you’re not one of the people they met who use it like a piggy bank. From my perspective, they’re just describing the habits of people who are used to not having any money: gotta spend this windfall quick because money doesn’t last long. It’s irrational and ultimately harmful but it’s borne from the practice of spending all of your money every month on non-trivial things and still being required to increase debt in order to stay in your apartment, e.g., credit card spending.

[sfink]

It's not necessarily irrational. For example, for some people if they ever have any extra money, someone else will immediately spend it for them. If the earner wants to make a larger purchase, perhaps something that will cost short term but pay off in the long term, they need some mechanism to save, outside of the regular controls that apply to daily life.

You may think this situation is still irrational, that the other person is being irrational. But again, there are many life situations out there. Perhaps they have lived in situations where they had to fight for what they needed. Perhaps they lived with an earner who would spend their money on drugs if it wasn't taken away, and yet if the non-earner saved it up themselves, the earner would find it and spend it.

The supposedly rational thing may depend on everyone around you to also be rational, and everyone around them, etc. And given that we are human, and humans are not fully rational...

[positr0n]

If your separate income streams are pretty predictable and so is the overwitholding, and if you care enough: you can put a negative number in the "extra witholding" box on your W-4.

I wouldn't say this is a better strategy, but you can definitely min/max this even if your income is not stable by extrapolating out your expected income and expected witholding a few times a year and adjusting your W-4 based on your calculations.

[lupire]

Wow I wouldn't trust that. I'd add extra exemptions plus a positive withholding if needed.

[loeg]

You can file a W-4 with exemptions and avoid overwithholding! This is a fixable problem.

[demondemidi]

How do I use a w4 to fix the social security problem without incurring underpayment of state and federal? Exemptions apply to all the taxes, no?

[phonon]

FICA cap is per employer, not total. Is that what you're referring to?

[sgerenser]

FICA cap is not per employer. Well, it is from a withholding perspective (only because it would be impractical to make employers monitor withholding outside their control), but once you do your taxes for that year, you’ll get everything you paid in over the cap refunded.

[dcow]

By the interest free loan logic, you should have your employer withhold zero and then you put your taxes in a high yield savings account and pay them all as late as possible.

[xur17]

The IRS already thought of this - they charge you interest on the money you owed them (with some exceptions, like waiving it the first year it happens, only charging you if you withheld less than last year, etc).

[sgerenser]

The interest rate is also much higher than you can earn on anything risk free (8% right now) plus there’s penalties on top.

[MenhirMike]

Yeah, it sucks that the IRS is such a buzz-kill here, with 4-5% HYSA's, it would be nice to just let all the taxes sit there and pay one lump sum in April.

[dcow]

Not sure I understand. Taxes are due in April. You don’t get charged a year of interest on the amount you own when filing…

[YZF]

Try convincing a tech person that the shares they get as compensation from their employer are equal to getting money and buying those shares at the time they get them. I also think tech workers tend to over-estimate what "average person" really is because they mostly know "above average people".

[sgerenser]

Yes, this is another example of irrational money behavior that is common in the tech world. According to a poll on our company slack, only about 50% of the employees plan to sell any of their RSUs and maybe 15% sell all.

[phonon]

That's not how the Earned Income Tax Credit works....

[rvnx]

(Not from the US) Why is it a good thing to lend for free to the US gov ? Because the regional banks aren’t that stable ?

[loeg]

People like getting the big lump sum and some don't even realize it was their money all along that they just overpaid throughout the year. It's not a good thing for individuals to overpay.

[LegitShady]

Nah, because for people with poor financial skills, the ability to save is very difficult (even if they had the "Extra" money in their account each pay period instead of paying extra taxes). So even though you're technically getting your money "back", for some people they would not have been successful to 'save' so much without it being forced on them.

[tomoyoirl]

“Look! I filed my taxes and I got money back! Yay money!” (Could have had that money all along.)

[dylan604]

The people that enjoy a tax refund would not really even notice the small amount they "could have had all along" by adjusting their withholding amounts.

[minkzilla]

It is not a good thing because it is interest free and inflation exists. If you would have had that money earlier you could have put it in high yield saving account or payed down debt.

[loeg]

It is not interest free. E.g., I was paid $480 in interest on overpayments last year.

[dmoy]

It is interest free if the IRS pays you within N days of you filing. If they're slower, then they pay interest.

Where N is some value between like .... 30 and 90? I forget.

[bombcar]

You pay tax on those overpayments.

But they only pay that if they don’t return it that year (for normal W-2 employees).

[anonymouskimmer]

I never understood why people think that giving an interest free loan to our government is a bad thing.

[datavirtue]

The average person is a financial train wreck of dumpster fires.

[fortran77]

And yet here you are trying to spread an agenda in a thread about mouse pointers that taxes are too low because the majority of people are too stupid to understand tax brackets.