Author Topic: Why do most Americans consider tax refunds "windfalls"?  (Read 10028 times)

Ricky

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Why do most Americans consider tax refunds "windfalls"?
« on: April 15, 2015, 06:48:48 PM »
It someone learns no other financial wisdom in their entire life, why is it still so hard to understand that a tax refund is NOT a windfall and that the ideal "refund" is $0. In actuality, the ideal scenario is to owe the government money to the extent where it doesn't cost penalties. Borrow for free while you can, even if it's only a little bit!

PBS really needs to do some sort of public service announcement.

It's one of THE most common financial pitfalls the generals (my word for the typical American) seem to misunderstand.

Why is nearly everyone incompetent of doing tax planning? Sure, these people would likely blow the extra money they'd otherwise have anyway, but still. They can't grasp the fact that it's their money regardless of when they actually get it and that they can control WHEN they get it.
« Last Edit: April 15, 2015, 06:52:48 PM by Ricky »

teen persuasion

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #1 on: April 15, 2015, 07:05:15 PM »
It someone learns no other financial wisdom in their entire life, why is it still so hard to understand that a tax refund is NOT a windfall and that the ideal "refund" is $0.

PBS really needs to do some sort of public service announcement.

It's one of THE most common financial pitfalls the generals (my word for the typical American) seem to misunderstand.

Why is nearly everyone incompetent of doing tax planning? Sure, these people would likely blow the extra money they'd otherwise have anyway, but still. They can't grasp the fact that it's their money regardless of when they actually get it and that they can control WHEN they get it.

For us, a tax refund of 0 I would consider a failure.  I much preferred our refunds large enough to fund Roth IRAs for DH and myself.  Of course, I'm talking about refundable credits, not a refund of our withholdings.  We have no fed tax withheld, and as close to zero as possible with the state (for some reason they won't let us claim enough exemptions).  There is no way to get refundable credits before filing your taxes, since they removed the advanced EITC option years back.

But I don't view our refunds as a windfall to be spent with abandon.  I plan it and tweak the total to maximize it as best I can with retirement account contributions etc.  I view them as another source of our total family income.

ender

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #2 on: April 15, 2015, 07:19:18 PM »
Well, most Americans are morons when it comes to money?

darkadams00

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #3 on: April 15, 2015, 07:19:39 PM »
Not enough fingers and toes to count the folks I know who don't save 2% of their income regularly, carry "eternity debt," and keep credit cards within 5% of max. For those people, wrapping their hands around a four-digit piece of money at one time is the adult form of Christmas. Unfortunately the people I know who try to live their lives with some financial sense tend to be known by an avatar or they're senior citizens. The flesh and blood "friends" that I have tend to spend most of what they make. We don't talk about that much. It's just too painful and not my concern.

Eric

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #4 on: April 15, 2015, 07:21:44 PM »
When you spend every dime that comes into your possession, this extra amount is a windfall though.  Sure it's your own money and you did a bad job managing your taxes, but if you can't even manage to save a little bit of your income, why would I expect that you can manage your tax witholdings?

But since you brought it up, if I got to pick one tax related thing that the general public should know, it's how the progressive tax brackets work.  Or in other words -- no, dumbass, you aren't going to end up with less money if you get bumped into the next tax bracket.

kpd905

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #5 on: April 15, 2015, 07:22:24 PM »

For us, a tax refund of 0 I would consider a failure.  I much preferred our refunds large enough to fund Roth IRAs for DH and myself.  Of course, I'm talking about refundable credits, not a refund of our withholdings.  We have no fed tax withheld, and as close to zero as possible with the state (for some reason they won't let us claim enough exemptions).  There is no way to get refundable credits before filing your taxes, since they removed the advanced EITC option years back.

But I don't view our refunds as a windfall to be spent with abandon.  I plan it and tweak the total to maximize it as best I can with retirement account contributions etc.  I view them as another source of our total family income.

How much do you end up getting from credits and which credits are they?  That's crazy if you end up getting $11,000.

Paul der Krake

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #6 on: April 15, 2015, 07:48:04 PM »
But since you brought it up, if I got to pick one tax related thing that the general public should know, it's how the progressive tax brackets work.  Or in other words -- no, dumbass, you aren't going to end up with less money if you get bumped into the next tax bracket.
Preach. When I first moved to the US, I made the critical mistake of talking about taxes at work. I figured, hey, I work with smart engineering types, and I need help figuring out what the hell this W-4 thing is that HR dumped on me with no explanation whatsoever.

Boy was I misguided in my attempt to foster constructive conversation. Mistruths, soundbites from the sister-in-law's gardener's CPA half-brother's opinion on the EITC, I heard everything under the sun. Tons of very opiniated people regarding the role of government too.

The real lesson here is that people who are smart about taxes are smart enough to not bring the subject up, and keep their mouths shut when it does.

Gin1984

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #7 on: April 15, 2015, 07:55:11 PM »

For us, a tax refund of 0 I would consider a failure.  I much preferred our refunds large enough to fund Roth IRAs for DH and myself.  Of course, I'm talking about refundable credits, not a refund of our withholdings.  We have no fed tax withheld, and as close to zero as possible with the state (for some reason they won't let us claim enough exemptions).  There is no way to get refundable credits before filing your taxes, since they removed the advanced EITC option years back.

But I don't view our refunds as a windfall to be spent with abandon.  I plan it and tweak the total to maximize it as best I can with retirement account contributions etc.  I view them as another source of our total family income.

How much do you end up getting from credits and which credits are they?  That's crazy if you end up getting $11,000.
Child tax credit and EITC are my guesses. 

kpd905

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #8 on: April 15, 2015, 07:59:43 PM »
Child tax credit and EITC are my guesses.

EITC maxed out at $6143 for 2014.  So I think they'd need 5 kids to make up the difference to $11,000.

Gin1984

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #9 on: April 15, 2015, 08:41:45 PM »
Child tax credit and EITC are my guesses.

EITC maxed out at $6143 for 2014.  So I think they'd need 5 kids to make up the difference to $11,000.
Except that she also mentioned state and many states give a percent of EITC as well (and some sort of child related credit).

davisgang90

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #10 on: April 16, 2015, 05:54:50 AM »
I think it has much to do with the magic of withholding.  If average American's had to write a check each month for their taxes vice having them automatically withheld, they might be more upset at the amounts they have to pay.  This is one of the main reasons withholding was implemented.  Out of sight, out of mind.

shotgunwilly

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #11 on: April 16, 2015, 07:54:00 AM »
But since you brought it up, if I got to pick one tax related thing that the general public should know, it's how the progressive tax brackets work.  Or in other words -- no, dumbass, you aren't going to end up with less money if you get bumped into the next tax bracket.

It's incredible the amount of people that believe this...

Ricky

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #12 on: April 16, 2015, 08:07:57 AM »
But since you brought it up, if I got to pick one tax related thing that the general public should know, it's how the progressive tax brackets work.  Or in other words -- no, dumbass, you aren't going to end up with less money if you get bumped into the next tax bracket.

Technically you do end up with less money...just marginally though.

Mississippi Mudstache

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #13 on: April 16, 2015, 08:16:57 AM »
But since you brought it up, if I got to pick one tax related thing that the general public should know, it's how the progressive tax brackets work.  Or in other words -- no, dumbass, you aren't going to end up with less money if you get bumped into the next tax bracket.

It's incredible the amount of people that believe this...

It is amazing. My brother (very smart, very successful) asked me this very question a couple of weeks ago. He and his wife are expecting their second kid, and he was looking into the tax implications if she stays home (she works half-time currently). He astutely noted that it would drop them from the 25% to the 15% bracket, but he was under the impression that the bracket percentage was applied to their entire income, thus thinking that losing his wife's income would have essentially no effect on their take-home pay. I set him straight and offered to review his latest tax filing to calculate exactly what the impact would be, and I'm hoping he takes me up on the offer.

Johnez

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #14 on: April 16, 2015, 08:24:40 AM »
Quote from: Eric
But since you brought it up, if I got to pick one tax related thing that the general public should know, it's how the progressive tax brackets work.  Or in other words -- no, dumbass, you aren't going to end up with less money if you get bumped into the next tax bracket.

Ashamed to admit I believed that at one time. Amazing how a very tiny amount of reading on how tax code works can dispel this wrong thinking though.

On the topic of refunds, if you want to show how much a person GAINS by structuring taxes for zero refunds, I recommend pulling up a compound interest calculator and plugging in the refund divided into monthly contributions to a returns or interest bearing account. S&P 500 returns 7% historically. If one were to put away their $5,000 return into a brokerage acct with VTSAX for 10 years @ $416 a month, 10 years later one ends up with $72,000. An astonishing $22,000 more than if one decided to loan the gov't the money!

zurich78

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #15 on: April 16, 2015, 08:49:11 AM »
Achieving the ideal refund of $0 is almost impossible it seems to me so I like receiving a small refund.  It gives me peace of mind that I'm not going to have an unexpected tax bill.  It's like a checking account.  Sure, ideally, after all expenses, I'd like to be at $0, but having a little overage just makes it easier for me to manage my funds.

That said, I'm not surprised people view it as a windfall.  It's sort of like a bonus at work -- you know it's coming yes, but you don't know exactly how much (or little) until you get it.  It's an unexpected sum of money since most people can't know ahead of time exactly how much they'll be getting back.  I think where the real mistake it made, is when people get too much of a refund but then again, I understand why some people do that because it forces them to save.

I think what I find silly is when people say they bought something or went on a trip or "celebrated" their refund.  That's weird and annoying to me.  It's like, wait, if you were charged $150 for something that you should have been charged $100, do you go and blow the $50 refund?

terran

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #16 on: April 16, 2015, 08:50:12 AM »
On the topic of refunds, if you want to show how much a person GAINS by structuring taxes for zero refunds, I recommend pulling up a compound interest calculator and plugging in the refund divided into monthly contributions to a returns or interest bearing account. S&P 500 returns 7% historically. If one were to put away their $5,000 return into a brokerage acct with VTSAX for 10 years @ $416 a month, 10 years later one ends up with $72,000. An astonishing $22,000 more than if one decided to loan the gov't the money!

This isn't quite true. You're comparing compounding monthly to not compounding at all. It other words, scenario 1 is: invest your refund monthly, scenario 2 is: don't invest your refund at all. If you add scenario 3: invest your refund when you get it annually, then you get a final value of ~$69k, so over that 10 years you make $3k more by calculating your refund to $0 and investing immediately as compared to not worrying about calculating your refund exactly and investing it when you get your refund instead. This could also vary drastically in either direction depending on actual returns and what the market does during the year.

jeromedawg

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #17 on: April 16, 2015, 09:35:27 AM »
And this issue is only further aggravated by retail corporations who send out mass advertisements around "tax refund day" and posing the question: "how will you spend YOUR refund? spend it all on US!"

wtjbatman

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #18 on: April 16, 2015, 09:40:17 AM »
My coworker/friend is all excited about his "huge" refund. He just filed yesterday and he can't wait to get it. He just bought a brand new 2015 Ford Focus (traded in his 2012 Jeep to buy it) and said he "went a few grand in debt" to purchase it, so he wants the tax refund to get him back on his feet.

Just... so much going on with that. I didn't even try to talk to him about it. At least when I asked about his 401k, he said he's putting in 8%. Better than some people I guess.

Drifterrider

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #19 on: April 16, 2015, 12:35:39 PM »
'cause 'merikins can't math.  Neither can most other people.

rmendpara

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #20 on: April 16, 2015, 02:23:48 PM »
Well, most Americans are morons when it comes to money?

Lol. THis is probably the most accurate response.

I sure don't enjoy writing a check to the govt come tax time, but logically, yes, you are best off if you end up paying rather than receiving anything ( so long as there are no penalties/fees).

For me, investment income has started creeping higher in the past few years, so I've had to steadily reduce exemptions/deduction on withholding forms. No fun. :(

okits

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #21 on: April 16, 2015, 07:41:10 PM »
Well, most Americans are morons when it comes to money?

Agree, though even the most logical person can suffer from "out of sight, out of mind", where it feels like found money because you didn't have it in your possession before (even though if was yours all along.)

I'll owe this year. Even though the money wasn't ever really mine it'll still feel lousy, paying it back.  It was nice to be in possession of it. :)

teen persuasion

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #22 on: April 16, 2015, 08:03:10 PM »
Child tax credit and EITC are my guesses.

EITC maxed out at $6143 for 2014.  So I think they'd need 5 kids to make up the difference to $11,000.
Except that she also mentioned state and many states give a percent of EITC as well (and some sort of child related credit).

Correct on all counts: 5 kids, EITC (and 30% state match), CTC (and 33% state match).  The refunds are no longer 5 figures, since several kids have moved out, but college credits have been in there, too, and other state credits (volunteer EMT).

sol

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #23 on: April 16, 2015, 08:44:17 PM »
Technically you do end up with less money...just marginally though.

No you don't.  Crossing from one tax bracket into another only applies the higher tax rate to the income above the cutoff, not all of your income.

Example:  A single person who makes $9225 after deductions/exemptions wholly in the 10% bracket and will pay $922.50.  If he instead makes $9226 he is only into the 15% tax bracket by $1, so he pays the 15% on the extra dollar (=15 cents) and now he owes $922.65 but has made an extra dollar, so he's 85 cents better off.  He still has more money by crossing the tax bracket cutoff.  Not less.  Not marginally less.  Mathematically and incontrovertibly more.

Unless when you said "less money" you meant "less money than he would have if there were no tax brackets" but that seems pretty far fetched.  Hmmm, nope even in that case he'd have more by earning more.

There are some exceptions, here and there, for unusual circumstances like ACA subsidies, LTCG taxes, and the EITC.  Those are all cases in which you can be denied a separate tax break due to crossing into a new tax bracket, and maybe end up netting less.

Mr FrugalNL

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #24 on: April 17, 2015, 03:43:03 AM »
Technically you do end up with less money...just marginally though.

No you don't.  Crossing from one tax bracket into another only applies the higher tax rate to the income above the cutoff, not all of your income.

I think what Ricky was getting at is that, even though your net income increases in absolute terms as you explained, your net income as a percentage of your gross income decreases when you move into a higher tax bracket.

sol

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #25 on: April 17, 2015, 08:49:55 AM »
I think what Ricky was getting at is that, even though your net income increases in absolute terms as you explained, your net income as a percentage of your gross income decreases when you move into a higher tax bracket.

So you think he's saying that you have proportionally less income than if you hadn't crossed the tax bracket cutoff?  Since you only cross the cutoff by earning more income, isn't that the same as saying "I would have had more income if all of my income had been taxed at the lowest tax bracket rate"?

How is that different from just saying "I don't support having tax brackets"?

Complaining about taxes is a wildly popular hobby that I just don't get.  It's a bandwagon I avoid, I guess.

frugalnacho

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #26 on: April 17, 2015, 09:06:26 AM »
Technically you do end up with less money...just marginally though.

No you don't.  Crossing from one tax bracket into another only applies the higher tax rate to the income above the cutoff, not all of your income.

I think what Ricky was getting at is that, even though your net income increases in absolute terms as you explained, your net income as a percentage of your gross income decreases when you move into a higher tax bracket.

That's not what "marginally" means though.  Your tax rate on that last dollar is marginally higher than your overall tax rate, that's why it's called a marginal tax rate.  But you actually end up with marginally more money by earning more.  Barring certain deductions and credits as Sol already mentioned (which I would add the tax savers credit to that list).

teacherwithamustache

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #27 on: April 17, 2015, 09:35:15 AM »
It is shameful when I have dirt poor students who do not have a pot to piss in or a window to throw it out that get sooooo excited about tax day.  It is the day that the government is going to send them a check.  Oh Mr Teacherwithamustache my mom got her tax check so I get a new iphone, and each one of my sisters are gettting new $100 jeans, so I have to leave early from class.

The whole windfall thing upsets me a lot also.  I used to have someone at work that refused to do his taxes until the last day to teach the govt a lesson

Bob W

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #28 on: April 17, 2015, 09:40:22 AM »
For many, many US workers tax time is a windfall.   In the past I had many years where the government paid us a huge chunk.  One year it was close to 10K.  That year included the home buyers incentive credit.   Typical years were zero taxes paid and 4-6K in credits.

I have one daughter who just received 5K in workers and child credits on one child.  She worked maybe 5 months in 2014.   

So yeah, a great percentage of the population gets a huge Uncle Sam bonus at tax time.   

Even the poor population I work with can receive $800 in rental credits when they submit their rent receipts.     Older folks often receive all their property taxes back in Missouri.

For moderate to low income people tax season is a mini lottery as that is when the earnings from the upper middle wage earners is actually transferred to them.


I'm a red panda

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #29 on: April 17, 2015, 09:44:13 AM »
By definition, a windfall is an unexpected amount of money.

Most people (myself included, honestly) don't know if they will be getting a refund (and how much) or having to pay until they do the taxes.

So, by that respect- it is a windfall, it is unexpected.


Now the question is- why do most Americans believe that a windfall should be spend frivolously and immediately?

Bob W

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #30 on: April 17, 2015, 11:57:05 AM »
I'm sure there is a great deal of frivolous spending at tax time but around here folks tend to buy cars, furniture, washers,  TVs etc.   I don't see a lot of people buying trips to Cancun with their tax credits.

I think we have to understand that the working lower income people receive their bonus income (Uncle Sam tax credits) annually and that they are now conditioned to this as part of their pay package.   

In many cases it is 30-50% of a families annual income.  It is tax and social security free income with no capital gains.   

It is really a shame that working people are paid so little by their employers; who are charted by the US government to do business in this country.  But it is a shell game that people are comfortable with.   If all retail and restaurant workers were paid 35K with health insurance, retirement plans and generous leave,  middle income tax payers would not like that because prices would go up.    In an ideal world the prices would go up but taxes used to support SNAP,  Medicaid, Welfare and tax credits would go down.   

Except that federal spending never goes down.  Well except recently of course --http://www.politifact.com/truth-o-meter/statements/2013/oct/08/dennis-ross/rep-dennis-ross-says-us-spending-has-fallen-two-st/

Mr FrugalNL

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #31 on: April 17, 2015, 12:37:58 PM »
So you think he's saying that you have proportionally less income than if you hadn't crossed the tax bracket cutoff?  Since you only cross the cutoff by earning more income, isn't that the same as saying "I would have had more income if all of my income had been taxed at the lowest tax bracket rate"?

Yes, that is what I think he was saying. No way to be sure until Ricky denies/confirms that, though.

How is that different from just saying "I don't support having tax brackets"?

How is it the same? Note that I observed that, as you move into a higher tax bracket, you have proportionally less income. I didn't say that's a bad thing. In fact, I think it's a good thing.

So why make the observation at all? Let's say I work part time and am near the top of the 42% tax bracket. If I were to start working full time, the additional income I earned would fall into the 52% tax bracket. To make a rational decision about working more or less, I need to keep in mind the additional 10 cents per euro that don't reach my wallet for the additional work. In other words, I need to remember the marginal utility of more work.

Complaining about taxes is a wildly popular hobby that I just don't get.  It's a bandwagon I avoid, I guess.

If that was directed at me rather than a general observation, let me assure you you're preaching to the choir. I don't look forward with glee to tax time, but I much prefer paying taxes to living in a country without a working government.

Ricky

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #32 on: April 18, 2015, 05:23:12 AM »
Quote from: Bob W
For many, many US workers tax time is a windfall.   In the past I had many years where the government paid us a huge chunk.  One year it was close to 10K.

Even though a credit is not the same thing as a refund, Iíd still disagree that a credit is a windfall. You still have access to the tax code - and can see that, given your situation, you should be receiving a credit at the beginning of the next year. Itís not a windfall if itís something you can plan for.

Even those that receive credits can still receive a refund.

Quote from: iowajes
Most people (myself included, honestly) don't know if they will be getting a refund (and how much) or having to pay until they do the taxes.

Most people work fairly steady W2 jobs, even if itís in retail. Unless they just have a horrible boss who randomly changes their schedule and hours, most anyone could roughly calculate what they will owe. Plus, history is the best indicator of the future, so they could just go by last years returns as long as their situation didnít change.

Even for a small business owner, itís still not technically a windfall since you can calculate the amount of taxes owed at any given time based on any income youíve made thus far.

Quote from: sol
So you think he's saying that you have proportionally less income than if you hadn't crossed the tax bracket cutoff?  Since you only cross the cutoff by earning more income, isn't that the same as saying "I would have had more income if all of my income had been taxed at the lowest tax bracket rate"?

How is that different from just saying "I don't support having tax bracketsĒ?

I didnít explain myself well, but yes, Mr. FrugalNL understands my gist. Youíre making marginally less per hour if the more hours you work or a raise causes you to go up a bracket. Call it marginally less per hour or just "marginally less", whatever you want. Are you going to deny a raise on the basis of this? Of course not. Are you going to go against working extra hard for a raise when you know there is a marginal utility of work? Maybe. The incentive to work more or less knowing you're getting paid "less" is a very real thing.

No one has advocated against a marginal tax rate system. I'm simply acknowledging facts. Saying "it's there and that's all you can do" is fine, but that doesn't mean there aren't inherent facts within that system.

Quote from: sol
How is that different from just saying "I don't support having tax brackets"?

I think it's very different, and irrelevant. The question of "do you make proportionately less as you move through the brackets" and "do you support the brackets" are two totally different things. This isn't a political discussion and I'd rather it not turn into one.

Quote from: sol
Complaining about taxes is a wildly popular hobby that I just don't get.  It's a bandwagon I avoid, I guess.

No one here has complained about taxes yet. I think anyone educated enough on the tax code would agree that it needs to be simplified. But no, Iím not inherently against paying taxes in any shape or form.

Villanelle

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #33 on: April 19, 2015, 12:23:56 PM »
TurboTax gives us a 5% bump on our refund if we take it in the form of Amazon credit.  This thrills me, and I am happy when we get money back.  I can't do better than 5% guaranteed on that money. 

Due to an increase in income and improvements on the numbers for our rental, we are worried that next year we won't get a refund and are even considering changing our withholding.

We don't consider it a windfall, but due to living overseas, we do a *lot* of shopping on Amazon.  But we do consider it attractive.

frugalnacho

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #34 on: April 20, 2015, 11:27:51 AM »
Quote from: sol
So you think he's saying that you have proportionally less income than if you hadn't crossed the tax bracket cutoff?  Since you only cross the cutoff by earning more income, isn't that the same as saying "I would have had more income if all of my income had been taxed at the lowest tax bracket rate"?

How is that different from just saying "I don't support having tax bracketsĒ?

I didnít explain myself well, but yes, Mr. FrugalNL understands my gist. Youíre making marginally less per hour if the more hours you work or a raise causes you to go up a bracket. Call it marginally less per hour or just "marginally less", whatever you want. Are you going to deny a raise on the basis of this? Of course not. Are you going to go against working extra hard for a raise when you know there is a marginal utility of work? Maybe. The incentive to work more or less knowing you're getting paid "less" is a very real thing.

You are incorrectly using the word marginally though.  You said...

But since you brought it up, if I got to pick one tax related thing that the general public should know, it's how the progressive tax brackets work.  Or in other words -- no, dumbass, you aren't going to end up with less money if you get bumped into the next tax bracket.

Technically you do end up with less money...just marginally though.

As I pointed out you don't end up with less money.  Your rate of earning/pay is marginally less (assuming you don't also get OT for it) because of the tax rate.  Your actual pay, and the actual amount of money you earn, is actually more.  Either marginally more, or substantially more, depending on just how far into the tax bracket you go, but it is undoubtedly more unless you run into one of the credit/deduction cliffs, which is a separate topic. 

I think the confusion lies with your use of terminology.  If I worked 100 hours and made $100, and then worked 1 additional hour and my overall pay actually dropped my check to $99, then I end up with marginally less money.  $99 is marginally less than $100.  If however that extra hour changed my check to $100.80, then I have earned marginally less for that additional hour, but still more money. 

frugalnacho

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #35 on: April 20, 2015, 11:29:01 AM »
TurboTax gives us a 5% bump on our refund if we take it in the form of Amazon credit.  This thrills me, and I am happy when we get money back.  I can't do better than 5% guaranteed on that money. 

Due to an increase in income and improvements on the numbers for our rental, we are worried that next year we won't get a refund and are even considering changing our withholding.

We don't consider it a windfall, but due to living overseas, we do a *lot* of shopping on Amazon.  But we do consider it attractive.

Turbotax gave me a 10% bonus for my 2014 refund.

Raislin

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #36 on: April 20, 2015, 08:00:09 PM »
I'd like to think I'm very ntelligent, but I'm also very new to the world of finances.

My wife and I got a 5.5k refund this year on about 50k combined gross income. It was bumped up due to tuition paid last year and was ultimately 4k more than I was hoping for. I absolutely considered it a windfall. It was, almost to the dollar, the exact amount of money I needed to pay the difference on what I owed for my 2014 Accord over what it was worth.

Four years ago, I had to walk four miles to work everyday. I figured getting a bike and going two miles wouldn't hurt me now. Between insurance, taxes, gas and car payments, I took back $750 of my monthly income. Two weeks later, I discovered this blog.

Am I wrong in considering that refund a windfall? I never could have afforded that ~6k to sell the car anytime soon. My bills took my entire monthly income. My mentality on finances has changed entirely since selling the car (even more since joining this community), and I'm educating myself.  Even so, that was a windfall. I can't think of it any other way, even if I'm able to better optimize my future tax withholdings.

Villanelle

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #37 on: April 21, 2015, 01:05:45 PM »
I'd like to think I'm very ntelligent, but I'm also very new to the world of finances.

My wife and I got a 5.5k refund this year on about 50k combined gross income. It was bumped up due to tuition paid last year and was ultimately 4k more than I was hoping for. I absolutely considered it a windfall. It was, almost to the dollar, the exact amount of money I needed to pay the difference on what I owed for my 2014 Accord over what it was worth.

Four years ago, I had to walk four miles to work everyday. I figured getting a bike and going two miles wouldn't hurt me now. Between insurance, taxes, gas and car payments, I took back $750 of my monthly income. Two weeks later, I discovered this blog.

Am I wrong in considering that refund a windfall? I never could have afforded that ~6k to sell the car anytime soon. My bills took my entire monthly income. My mentality on finances has changed entirely since selling the car (even more since joining this community), and I'm educating myself.  Even so, that was a windfall. I can't think of it any other way, even if I'm able to better optimize my future tax withholdings.

If you put $10 per day in a savings account and then withdraw $3650 at the end of the year, is it a windfall?

You could have afforded that, in fact slightly more quickly, had you kept a little bit of that $6000 every paycheck, instead of letting the government hold on to it all year and return it with no interest. 

Raislin

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #38 on: April 21, 2015, 02:29:57 PM »
I absolutely agree, but in my case, getting it all at once was the trigger I needed to go from how I was pre-MMM to how I am now.  A psychological windfall, if you will.  I guess it's not entirely related to the topic at hand.

FatCat

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Re: Why do most Americans consider tax refunds "windfalls"?
« Reply #39 on: April 21, 2015, 02:35:37 PM »
I think a better question would be why do most Americans feel that windfalls should be spent as frivolous funny money?