So I did my taxes today, the last weekend day before 15 April. And, if you follow along my Twitter, you know it didn’t end terribly well. Short story, we owe a big chunk to Uncle Sam, mitigated by a small refund from the lovely state of Colorado. It was enough that we actually ended up with a small penalty for underpayment during the year. First time that’s ever happened.
Most of the numbers involved are fairly close to where things were last year. The biggest difference, looking at the numbers, was that the mortgage interest payment this past year was a lot smaller this year than last. That would be part of the APR combined with the prime being held at zero. The down side to low interest rates — we ended up paying a lot more principle in the fixed amount we pay than interest.
So we paid more taxes, and nobody likes paying taxes. And I don’t mind if my deductions reduce my overall tax rate, since those deductions are all for useful things (no hiding my income offshore). But I also don’t feel some terrible personal outrage that The Revenooers are taking all my money. I have as much dislike for government waste and stupid spending as the next guy, but I also know that a lot of money goes to a lot of worthy causes — causes I support, people who need supporting, government functions I think are important. And that spending is controlled by people that I elect (or who are picked in elections I vote in and agree, as a citizen, to abide by).
So, no, of course I’m not happy about paying more in taxes this year. But any real irritation I feel is less toward Uncle Sam (as convenient a target as he may be) as with folks who have a lot but who manage to get out from under their fair share of the load.
And I think that’s the fundamental problem with our tax system — not that people are paying too much in the way of taxes, but that people aren’t paying their fair share. And I’m not talking here about poorer folks who end up paying no taxes — they’re folks who can use every cent they have. I’m talking about the rich (individuals and corporations) who game the system, not even by taking deductions and seeking shelters that were put in place to serve some social purpose, but hiding their money overseas and coming up with obscure tax exemptions to just exempt money you want exempted.
I am well off. Not rich, but in the upper percentiles. And I realize that to those whom much is given, much is expected. So if I’m paying more taxes than someone less well off — well, that’s part of the cost of living in a society that’s made it possible for me to have what I have, and part of my duty as a citizen, giving as I’m able to.
I wouldn’t mind paying less. But I don’t mind paying more as long as all those who are able to pay more do the same. Nobody minds playing fair … as long as everyone else is playing fair.
Hear, hear!!!
*clapping and cheering* Well said, sir!
I finished our taxes this weekend as well. We made enough more this last year that we got bumped up a bracket and didn’t QUITE get back everything we paid in over the year. I have no issue giving the government a no interest loan with my tax dollars, either!
The US system does seem incredibly complex just to make payment. We are always being told how we must simplify our tax laws, but just to pay over yours seems a struggle.
In the UK we have PAYE for employees (Pay As You Earn), and only those who receive income not fully taxed at source have to fill out a Return- generally Self Employed people, and those with investments who are themselves in the upper band (tax is automatically deducted at Basic Rate from all interest etc by bank/payers)
Its actually quite simple, especially now everyone can buy a computer, though the paper tables looked daunting until you understood them (a bit like D&D!)
Lets imagine (to make the maths easy) the ‘Tax Free’ allowance is £6000, equals £500pm. April, as it happens is the first month of the tax year, and you get paid £2000.
So Income so far this year = £2000.
Cumulative free pay = £500 (1st month at £500pm)
Taxable amount = £1500.
20% of £1500 is £300, so the company pays you £1700, and sends the £300 to HM Revenue and Customs
Month 2 is the same pay, so Cum Income= £4000
Cum Free pay = £1000 (2 x £500)
Taxable income to date = £4k-£1k = £3000.
20% of £3k = £600.
Tax already paid = £300, thus £300 owing
Month 3 Pay is £3000 (well done you)
Total for year = £7000
Cum Free Pay = £1500
Taxable pay to date = £7000-£1500 = 5500
20% of £5500 = £1100.
Total to date £600, so deducted this month £500
If you ten dont work for 4 months, and Earn £1000 month 8
Total Pay £8000
Free pay (M8) £4000
Taxable £4000
20% is £800
BUT you have already paid £1100, so along with your pay you get a refund of £300 (assuming you didn’t apply while not working).
Of course it is a little more complex than this- eg if you are in the 40% band, because then you have to work out the amount over the threshold, but it was always done in the ‘old days’ by hand, so PCs make it a breeze.
Employers get a Code Number, which tells them the free play, so if you have two sources of income the free pay is apportioned correctly.
2/3rds of our working population never fill in a ITR
Well, we supposedly pay as we earn, too — Federal (and State) withholding at recommended levels (filed with your payroll department on a W4). The problem is, the tax code is baroque (or broke) enough, and there are sufficient ways of deducting from the taxes or special credits you might get or ways of making income not subject to taxation, that the recommendations are rarely adequate and need to be adjusted by odd amounts to try to “break even” when tax day arrives (the Feds actually penalize you if you are significantly over or under; they would actually prefer that you file returns quarterly, but only folks who really have irregular income really need to do so). There are also quite a few folks with income beyond wages (investment, self-employed, etc.) that the tax with-holding is inadequate.
That all said, yes, the advent of TurboTax and other PC-based tax programs make figuring this out relatively trivial compared to the Bad Old Days of poring over arcane forms and instructions (or hiring a tax accountant or preparer to do it for you). Except for people with particularly difficult taxes (e.g., people who make a lot more than me, from a variety of sources, and are trying to figure out what they owe and how to avoid paying it), it’s definitely the way to go.
For myself, the basic income and withholding stuff was done in about 30 minutes. I actually had a lot of charitable contributions this year that needed some research and entry (the down side to all those Blogathon donations I made), and that probably chewed up 90 minutes or so. Add in a couple of hours to gather all my documentation together and/or print it, sift through check registers to make sure I had everything covered — yeah, that was about the size of it. I was less organized this year than in the past few, and that caused its own problems.
We don’t get to discount our charity gifts, but registered charities qualify for gift-aid, where they get the equivalent of the tax back- ie if you are a tax payer, and give 80p, they get the 20p tax from the gross £1 back from the government. I don’t think people think of it from a point of view of Tax- they give £1, not 80p and they get the tax back.
Also we only have national income taxes. We pay council tax to the local authority, loosely based on relative local house value, but local authorities get approx 75% of income from Westminster.
There is another kind of Income Tax- National Insurance. Some people call for this to be made ‘honest’ and put into the main tax, but it works slightly differently- its not ‘cumulative’ so you always pay if you exceed the weekly/mothly limit with no offset for ‘unused’ weeks. However this is capped, and actually determines whetehr you qualify fior certain benefits, such as state pension (Special rules for women and ‘jobseekers’ to be able to boost notional contributions).
The fact the US hasn’t managed to get a working system is gob-smacking
Well, for better or worse, we’re a bit bigger (geographically and population-wise) nation, so, for historic and political reasons, we end up with both federal taxes and state taxes. Oh, and some local income taxes, too. Not to be confused with local and state property taxes, special service district taxes, state and county and local and special sales taxes …
We have a working system. For some sets of “working.”
Oh- They PENALISE YOU for OVERPAYING. Sorry, which one of us lives in a granny killing socialist hell-hole?
Well, like any business, they hate giving substantial refunds …
In Britain if you over pay then you get ‘Repayment supplement’- basically interest. It’s half the rate that HMRC charges on late payments, but at least its something (obviously it has to be a genuine o/p- you cant just send spare money to use the HMRC as a kind of bank).
That’s certainly a viable approach, but since overpayments screw up someone’s budget (i.e., the government has to give back the money), I’m sure they came up with this to encourage people to figure out the right amount to deduct or to file quarterly.
The penalty for over/under doesn’t kick in until you hit a certain percentage.
I like your arrangement on this better, of course, but it’s not something that affects a lot of people I don’t think.