3 ms·

Then why do people get tax refunds? Clearly the government and your employer get withholding wrong, so why would we trust them to calculate our bill? They have

Then why do people get tax refunds? Clearly the government and your employer get withholding wrong, so why would we trust them to calculate our bill? They have absolutely no incentive to minimize your taxes and every incentive to maximize them.

kingosticks 8y ago
It's right most of the time. Most people do not get refunds. It's when abnormal payroll events occur. Everyone's job here is to absolutely pay the correct amount of tax. If either side get it wrong, they must correct it (with the appropriate interest).
- sokoloff 8y ago
  The IRS (really the US Treasury) does not pay interest on (within tax year) over-withholding.
  - kingosticks 8y ago
    And that is not surprising, another thing they need to fix on their journey to a modern tax collection system. I was describing HMRC.
piyush_soni 8y ago
Yes, a lot of people get tax refunds, but a lot of them have exactly zero refund or due amount. It will at least help those.
spc476 8y ago
There's a form the employee fills out detailing how much to withhold during the year. Most people use the default, which is to withhold the most, thus those that get a refund are overpaying their taxes over the year. Prior to WW-II, everybody had to file quarterly income tax payments. It was during WW-II that withholding became a thing (maybe something to do with increasing monetary flow towards the government or something). It remained a thing afterwards. Because of the withholding, most people are unaware of exactly how much they are actually paying in taxes, especially given the "windfall" every year of refunds. "Woo hoo! Gubment gave me money!" and all that.
icebraining 8y ago
You write as if withholding was an error in calculation. Maybe it is, don't know how it works in the US, but here withholding follows a different, very simple formula, since it's impossible to know the real amount ahead of time anyway. I disagree that the IRS has an incentive to maximize taxes. They have an incentive not to lose time with disputes. But even if you don't trust them, so what? You can still check the numbers yourself, and file your own if you disagree.

kingosticks 8y ago

It's right most of the time. Most people do not get refunds. It's when abnormal payroll events occur. Everyone's job here is to absolutely pay the correct amount of tax. If either side get it wrong, they must correct it (with the appropriate interest).

sokoloff 8y ago
The IRS (really the US Treasury) does not pay interest on (within tax year) over-withholding.
- kingosticks 8y ago
  And that is not surprising, another thing they need to fix on their journey to a modern tax collection system. I was describing HMRC.

piyush_soni 8y ago

Yes, a lot of people get tax refunds, but a lot of them have exactly zero refund or due amount. It will at least help those.

spc476 8y ago

There's a form the employee fills out detailing how much to withhold during the year. Most people use the default, which is to withhold the most, thus those that get a refund are overpaying their taxes over the year. Prior to WW-II, everybody had to file quarterly income tax payments. It was during WW-II that withholding became a thing (maybe something to do with increasing monetary flow towards the government or something). It remained a thing afterwards. Because of the withholding, most people are unaware of exactly how much they are actually paying in taxes, especially given the "windfall" every year of refunds. "Woo hoo! Gubment gave me money!" and all that.

icebraining 8y ago

You write as if withholding was an error in calculation. Maybe it is, don't know how it works in the US, but here withholding follows a different, very simple formula, since it's impossible to know the real amount ahead of time anyway. I disagree that the IRS has an incentive to maximize taxes. They have an incentive not to lose time with disputes. But even if you don't trust them, so what? You can still check the numbers yourself, and file your own if you disagree.