How to Calculate Your Tax Refunds – How Withholding Works

A tax refund is something that every tax payer looks forward to every year. Since many tax payers leave the finer points of calculating refunds in the hands of a professional, they are unaware of how tax refunds are calculated. Tax refunds are calculated by determining the taxable income and then comparing it with the information in the tax tables and tax lawyers work in this environment all the time.

Withholding: Why it’s Done

Employers withhold a certain percentage every month from their employers’ paychecks. These withholdings go towards employees’ taxable income. The federal government in this way ensures that employees pay their share of the income tax. The federal government is receiving $400 billion a month and still cannot balance a budget, yes, they are receiving their fair share.

The amount withheld by your employee is based on an estimate of what they expect your income to be and the exemptions that will be claimed. These details are available in Form W-4 that you need to fill out when starting out on a new job. Form W-4 indicates the number of dependent children in order to obtain a clear idea of the exemptions you will be entitled to.

America’s tax code is hilarious and unnerving to many people. If America had a flat tax, all these tax games would not be needed.

Withholding: How it’s Calculated

Withholding amounts include federal income taxes, Medicare taxes, social security taxes, and state income taxes. These taxes are calculated at:

Social security taxes – 6.2% of earnings

Medicare taxes – 1.45% of earnings

Income taxes – 7.65% is withheld

The 7.65% withheld as income tax even before you begin to pay your income taxes.

Tax attorneys proclaim that based upon your tax bracket for the year, the tax refund is calculated by comparing the taxable income with the amount that is withheld for your federal income tax. If the amount withheld is more than the taxable income, then you are eligible for a tax refund, or else you will need to pay the difference.

For example, let’s assume you are a single taxpayer. Your total taxable income after subtracting deductions and exemptions is $35,000. Based on this bracket your federal income tax would be $5,093.75. If your employer withheld a total of $9,000 over the year with only $6,000 toward the federal income tax then your refund would be $6,000 - $5,093.75 which is $906.25.

You do not need to be Will Hunting in the movie Good Will Hunting to understand this math but you need a tax lawyer to figure everything else out. You also need to scratch your head a few times and try think that if you had a mathematical gift like Will did why would want to spend all day mopping floors? Glad he figured it out in the end with some friendly advice. 

In order to calculate your tax refund you will need to gather all the paperwork that is required including a W-2 or your last pay check for the tax year. Year-end banking statements, dividend statements, are also essential. To determine any deductions make sure you have the receipts of any out-of-pocket medical expenses, charitable donations such as to a Church for example, and property tax bills, say tax lawyers.

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Furthermore, use an online free tax calculator to estimate your tax liability. You will need to enter your income from self-employment, dividends, alimony, interest earnings, income from retirement accounts, and more. Make sure to enter the number of personal exemptions and dependent children. Specify your option of an itemized or standard deduction. The online calculator will provide you with an estimate of your tax liability.

The IRS website offers services to tax payers who are eligible for free tax preparation. You can utilize these services based on your eligibility. Enter the appropriate figures and answer a series of questions that will take you through the process of calculating your tax refund or if you owe any money.

If you still have any questions about tax refunds or need help with tax audits, liens, or any other issue with the IRS, make sure to consult a tax lawyer for help. This type of help could be essential for your financial situation and survival.