How come some people OWE the IRS and some people Get Back from them during tax season?

Answer 1

After you calculate your taxes, you compare your total tax liability to the amount that was withheld. If extra was withheld, then you get the extra refunded to you. If you didn't have enough withheld, then you owe the rest.

Suppose two people go to Pizza Hut and each buy a pizza costing $12. One person pays with a $20 bill - that person gets $8 back in change. The other person hands the cashier a $10 bill. The cashier will expect another $2. Same theory with taxes and refunds.

Answer 2

This is easy, some people owe the IRS, because they didn't pay enough during the year from payroll deductions, or, maybe they had other income and didn't pay every three months...called quarterly payments. Other people get a refund because they overpaid during the year, maybe time off between jobs, or they had too much withheld from their paychecks. Some people think of this refund as a type of savings program. In any case, it all works out so we each pay what we owe, and get back what we don't owe. Best wishes

Answer 3

Because if you are employed, your employer is deducting taxes out of your paycheck every week. Those deductions are only an estimate, based on what you filled out on your W-4.

When you file your tax return, if you have a lot of deductions and no other income, you likely overpaid the IRS all year long so you'll get a refund.

If you had income from investments or interest or some other means, you probably have not paid taxes on that income so when you add that income to the income you made at your job, you'll likely owe the IRS more money.

Answer 4

People who are paid as W-2 employees usually have their taxes automatically withheld by their employer. Unless they make a ton of extra money in the stock market, in real estate, or otherwise the money that is withheld is usually enough to cover their tax liability and then some (so that the extra money is returned as a refund.)

People who are self-employed or 1099 contractors don't have their money automatically withheld (though technically they're supposed to pay their taxes every quarter.) Because of this they actually owe the IRS the money that would have been withheld by an employer. (Including double what a W-2 employee pays to Social Security and Medicare because there is no employer to match the employee's contributions.)

Answer 5

It all depends on how much as been paid into the IRS during the year. If you pay in more tax than you owe, you get that amount back. If you didn't get enough paid into the IRS, you have to write them a check for the difference.

Answer 6

It is based on how much is withheld from your paycheck by your employer. Ask your employer how many exemptions you are claiming on your Form W-4. You can have more deducted from your check by reducing the number of exemptions on form W-4 and giving it to your employer. Of course your take home pay will be lower by the extra amount of taxes withheld, but you may not miss $5 per week in order to get a $260 refund when you file your tax return. It's sorta like forced savings. I have clients that finance their vacations this way.

Answer 7

Based on your w4 (wage witholdings) you can underpay or overpay your taxes. The best option is to only pay the required amount so you can keep the overage and invest it instead of giving the government a "intrest free loan".

Other people have difficulty with saving money and find that overpaying during the year is the best way to get a lump sum of cash for large items each year.