Tax Credits
See information tax credits HERE.
Progressive Tax
Our system is a progressive tax, which means, a larger percentage of the income is taken from high income earners than is taken from low income earners. As your income increases in the U.S., the higher the rate you pay on personal income. The lowest and highest tax rates are 10% and 39.6%.
Pay as you go
The federal income tax system is a pay as you go tax. Restated, we have to pay taxes on the income as we earn it. There are two ways to pay as you go:
Federal Taxes
Two types of federal level taxes are normally withheld from the paycheck you earn, income taxes and payroll taxes.
The income tax on your personal income is used to support federal programs such as national defense, highways, community development, and law enforcement.
The payroll tax, commonly known as Social Security (also the FICA--Federal Insurance Contribution Act-Tax), is a tax for medical coverage for retirees after reaching age 65 and some benefits (income) for retired and disabled workers and their dependents.
When you file your income tax, essentially you are settling your tax bill with the federal government, that is, you get a refund if you have overpaid them or you send in more money if you have underpaid federal taxes based on your income. Self-employed individuals usually send in their required taxes on a quarterly basis, but will also settle their bill when filing the income tax return.
When to expect your refund
The first question that taxpayers who expect to get a refund ask is "When can I expect to get the refund?" The answer depends on how you filed and if the return was accepted as filed, i.e., no errors caused a delay in the IRS accepting the return. Generally, taxpayers who e-filed returns and requested direct deposit in a checking or savings account will get their refunds faster than taxpayers who filed a paper return and requested a paper check.
Visit the IRS's Where's My Refund? Site .
Are large refunds a good thing?
Nearly everyone likes surprises and gifts of money. However, a large refund of your own money is not a gift! If you routinely get a large refund, you are in essence, letting the federal government serve as the keeper of your money for free--because the federal government does not pay interest on overpaid taxes (your money). You are giving the government an interest free loan. Think of this another way--no one would agree to work for an entire year and receive the paycheck at the end of the year. If you routinely get large refunds from overpaid taxes, that is exactly what you are doing.
Could you and your family use the additional dollars during the year? Even placing the dollars in a bank savings account will earn some interest or additional money that could be used to pay routine bills or make payments on long term debts.
Strategies to help you break even with taxes owed and taxes paid
Use the IRS withholding calculator to adjust the amount being withheld from your paycheck, then contact your payroll office at work and make the necessary changes using a Form W-4 . Your payroll office can assist you in making this adjustment also. Keep in mind that the allowances on the W-4 are not the same as number of exemptions or dependents.
More allowances decrease the taxes withheld from your paycheck. Fewer allowances increase the taxes withheld from your paycheck.
Ways to make your refund work for you
If you are getting a tax refund, remember it's your money being returned to you WITHOUT any interest. So don't blow it! Use the refund to improve your financial well-being. Plan how the money will be used before it arrives. Below are some suggestions that may work for you.
Making the Case for using Form 1040 exclusively
The IRS provides a number of forms for filing income tax returns, (1040A, 1040-EZ and the 1040). While the 1040A and the 1040EZ may be easier to complete and to get the dreaded chore of filing your return off you desk and mind, there are reasons you should use the Form 1040 exclusively.
IRS no longer mailing paper income tax packages
Due to the dramatic increase in the number of taxpayers using paid income tax preparers or efiling their returns the IRS has stopped mailing tax packages.
For the 2009 income tax filing season, just 8% of individuals completed and returned traditional paper income tax returns. About 96 million income tax returns were e-filed and another 20 million paper returns were completed and submitted by paid preparers on behalf of taxpayers. As a cost cutting measure to improve efficiency the IRS sent postcards in October 2009 to individuals who filed paper returns for 2008 and did not use a paid preparer.
The postcard provided information on filing alternatives There are numerous free options available for taxpayers: • Taxpayers can still get the necessary forms and instructions online at IRS.gov, or by visiting local IRS offices or participating libraries and post offices. • Individuals who meet the Earned Income Tax guidelines can use the Volunteer Income Tax Assistance program for free tax preparation and, in many cases, free electronic filing. • Individuals aged 60 and older can take advantage of free tax counseling and basic income tax preparation through Tax Counseling for the Elderly. • IRS Free File provides options for free brand-name tax software or online fillable forms plus free electronic filing. Everyone can use Free File to prepare a federal tax return. Taxpayers who make $58,000 or less can choose from approximately 20 commercial software providers. There’s no income limit for Free File Fillable Forms, the electronic version of IRS paper forms, which also has free e-filing.
See information tax credits HERE.
Progressive Tax
Our system is a progressive tax, which means, a larger percentage of the income is taken from high income earners than is taken from low income earners. As your income increases in the U.S., the higher the rate you pay on personal income. The lowest and highest tax rates are 10% and 39.6%.
Pay as you go
The federal income tax system is a pay as you go tax. Restated, we have to pay taxes on the income as we earn it. There are two ways to pay as you go:
- Employee - If you are an employee, your employer probably withholds income tax from your pay and pays the IRS in your name.
- Self-employed - People who are in business for themselves usually pay estimated income taxes each quarter to the IRS. They also pay the total amount of the self-employment tax (Social Security and Medicare tax).
Federal Taxes
Two types of federal level taxes are normally withheld from the paycheck you earn, income taxes and payroll taxes.
The income tax on your personal income is used to support federal programs such as national defense, highways, community development, and law enforcement.
The payroll tax, commonly known as Social Security (also the FICA--Federal Insurance Contribution Act-Tax), is a tax for medical coverage for retirees after reaching age 65 and some benefits (income) for retired and disabled workers and their dependents.
When you file your income tax, essentially you are settling your tax bill with the federal government, that is, you get a refund if you have overpaid them or you send in more money if you have underpaid federal taxes based on your income. Self-employed individuals usually send in their required taxes on a quarterly basis, but will also settle their bill when filing the income tax return.
When to expect your refund
The first question that taxpayers who expect to get a refund ask is "When can I expect to get the refund?" The answer depends on how you filed and if the return was accepted as filed, i.e., no errors caused a delay in the IRS accepting the return. Generally, taxpayers who e-filed returns and requested direct deposit in a checking or savings account will get their refunds faster than taxpayers who filed a paper return and requested a paper check.
Visit the IRS's Where's My Refund? Site .
Are large refunds a good thing?
Nearly everyone likes surprises and gifts of money. However, a large refund of your own money is not a gift! If you routinely get a large refund, you are in essence, letting the federal government serve as the keeper of your money for free--because the federal government does not pay interest on overpaid taxes (your money). You are giving the government an interest free loan. Think of this another way--no one would agree to work for an entire year and receive the paycheck at the end of the year. If you routinely get large refunds from overpaid taxes, that is exactly what you are doing.
Could you and your family use the additional dollars during the year? Even placing the dollars in a bank savings account will earn some interest or additional money that could be used to pay routine bills or make payments on long term debts.
Strategies to help you break even with taxes owed and taxes paid
Use the IRS withholding calculator to adjust the amount being withheld from your paycheck, then contact your payroll office at work and make the necessary changes using a Form W-4 . Your payroll office can assist you in making this adjustment also. Keep in mind that the allowances on the W-4 are not the same as number of exemptions or dependents.
More allowances decrease the taxes withheld from your paycheck. Fewer allowances increase the taxes withheld from your paycheck.
Ways to make your refund work for you
If you are getting a tax refund, remember it's your money being returned to you WITHOUT any interest. So don't blow it! Use the refund to improve your financial well-being. Plan how the money will be used before it arrives. Below are some suggestions that may work for you.
- Add the money to your emergency fund or start an emergency fund. Experts recommend having 3 to 6 months of living expenses tucked away for that rainy day or unexpected expense that is sure to come.
- Pay off bills--regular monthly bills or long term debt.
- Add money to your retirement account.
- Save for a child's college education.
- Put the money towards a large purchase for the family (new washer, refrigerator, etc.).
Making the Case for using Form 1040 exclusively
The IRS provides a number of forms for filing income tax returns, (1040A, 1040-EZ and the 1040). While the 1040A and the 1040EZ may be easier to complete and to get the dreaded chore of filing your return off you desk and mind, there are reasons you should use the Form 1040 exclusively.
- Regardless of how simple or how complicated your return is for a given year every possible situation will be covered by the Form 1040. Form 1040 covers every possible opportunity for adjustments, deductions, and credit. Using this form means you leave no stone unturned or the chance of overlooking an opportunity to save on taxes.
- You become familiar with the form through repeated use thereby making it quicker for you to complete your return the more years you use it. When you switch forms each year or periodically, you must spend time learning the form and its changes.
- Selected lines on the Form 1040 may change but essentially, the form is nearly the same from year to year.
IRS no longer mailing paper income tax packages
Due to the dramatic increase in the number of taxpayers using paid income tax preparers or efiling their returns the IRS has stopped mailing tax packages.
For the 2009 income tax filing season, just 8% of individuals completed and returned traditional paper income tax returns. About 96 million income tax returns were e-filed and another 20 million paper returns were completed and submitted by paid preparers on behalf of taxpayers. As a cost cutting measure to improve efficiency the IRS sent postcards in October 2009 to individuals who filed paper returns for 2008 and did not use a paid preparer.
The postcard provided information on filing alternatives There are numerous free options available for taxpayers: • Taxpayers can still get the necessary forms and instructions online at IRS.gov, or by visiting local IRS offices or participating libraries and post offices. • Individuals who meet the Earned Income Tax guidelines can use the Volunteer Income Tax Assistance program for free tax preparation and, in many cases, free electronic filing. • Individuals aged 60 and older can take advantage of free tax counseling and basic income tax preparation through Tax Counseling for the Elderly. • IRS Free File provides options for free brand-name tax software or online fillable forms plus free electronic filing. Everyone can use Free File to prepare a federal tax return. Taxpayers who make $58,000 or less can choose from approximately 20 commercial software providers. There’s no income limit for Free File Fillable Forms, the electronic version of IRS paper forms, which also has free e-filing.