US Federal Income Tax

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Sarge_II
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US Federal Income Tax

Post by Sarge_II » Tue Mar 17, 2009 1:08 am

OK, before anyone says, "Sarge, you're a math guy, why are you asking this question," keep in mind that the mathematics and the finance stuff behind determining one's taxes is not some flat tax or some linear thing or whatever.

Now, onto the question ... .

Suppose what I earned in 2008 is about 1.3 times my 2007 earnings.

The federal tax withheld, however, is about 2 times as big this year compared to last year.

Based on what I have calculated (and will double-check before submitting), my refund this year will be about 3 times as big as last year's refund.

Based on the experiences of others here, that are from the US, have you had something like this occur to you as well? Or, do you at least know someone that had such an experience?

Let me know either way. What I want to know is if this sounds too big, to get 3 times the refund as before. If I hear such a thing tonight or tomorrow morning, via this thread, I'll know to look twice as hard when I am double-checking things.

P.S.-for those repaying on student loans for college, does this interest paid work in one's favor or against? Is there a certain amount it can be below where it is just ignored?
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Post by Gavin Shaw » Tue Mar 17, 2009 1:18 am

I have no idea. I can't even work out the Australian system and it is supposed to be simpler than yours.

Every time I try to estimate the tax taken out of a pay slip (prior to receiving it) my numbers are always off.

I suppose it all depends on which bracket you are in now and were in last year. If you went up a bracket, that would explain the increase in tax paid. And if you are not liable for anything more then you should get a bigger refund. But don't quote me on that...
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Post by Sarge_II » Tue Mar 17, 2009 1:31 am

Gavin Shaw wrote:I have no idea. I can't even work out the Australian system and it is supposed to be simpler than yours.

Every time I try to estimate the tax taken out of a pay slip (prior to receiving it) my numbers are always off.

I suppose it all depends on which bracket you are in now and were in last year. If you went up a bracket, that would explain the increase in tax paid. And if you are not liable for anything more then you should get a bigger refund. But don't quote me on that...
LOL! Gavin, that's why I asked others in the US. :)
But, yes, I'm working full-time, making more, so I've moved up brackets.
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Post by MzSnowleopard » Tue Mar 17, 2009 1:38 am

I don't worry about my taxes- I got people. :) My friend Kisha works for H&R Block.
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Post by Labbie » Tue Mar 17, 2009 2:15 am

Your scenario sounds possible, even plausible, Sarge. But without having some specific numbers, it would be hard to tell if it is correct.

But (there's always a "but"), if you really are getting a lot (more than a standard paycheck) back as a refund, you should really adjust how much is being withheld. There's no reason to use the IRS as a non-interest bearing savings account.

I don't know if interest on student loans is deductable or not, but if it is, you should definitely make sure you take it. A quick search on the IRS website should give you the answer.
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Post by MzSnowleopard » Tue Mar 17, 2009 3:03 am

yes, interest on student loans is deductible. However I'm not certain if the loan(s) should be paid in full or not- before the interest can be deducted. If you have more than one - consolidate them - that helps boost your credit score.
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Post by Sarge_II » Tue Mar 17, 2009 3:50 am

Labbie wrote:Your scenario sounds possible, even plausible, Sarge. But without having some specific numbers, it would be hard to tell if it is correct.

But (there's always a "but"), if you really are getting a lot (more than a standard paycheck) back as a refund, you should really adjust how much is being withheld. There's no reason to use the IRS as a non-interest bearing savings account.

I don't know if interest on student loans is deductable or not, but if it is, you should definitely make sure you take it. A quick search on the IRS website should give you the answer.
I'm pretty sure I've never received more than what 1 months of pay has been worth, though I think I can recall some times when it was almost exactly the same. No, currently, the refund would be less than one month's pay. It's about 2/3 of a month's pay (after taxes, of course, lol) but is still significant.

Snow, thanks. I'm pretty sure whether they've been paid off already is not relevant, but based on how much interest has been paid while in re-payment.

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Post by MzSnowleopard » Tue Mar 17, 2009 4:33 am

according to Kisha- in the U.S. your lender should have sent you a 1098E form if you are repaying a student loan or the interest. There is no ignoring a student loan- they must be reported on your taxes. The benefit is that this gives you a credit on your taxes.
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Post by Dark Angel » Tue Mar 17, 2009 6:38 am

Student loan interest is deductible and should be claimed for your benefit however the math does sound odd...I'd check it hard. Basically if you didn't go over the breaking point and into another tax bracket then the tax rate being somewhat constant otherwise should not render a 3X refund on earnings only 1.3X what they were last year...that is unless you are writing off a considerable amount.
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Post by Sarge_II » Tue Mar 17, 2009 2:47 pm

Remember in the first part of 2007 I was in grad school. So my 2007 return contained a mix from measly earnings as a grad student followed by the semi-decent earnings from full-time work in the last 4 months of 2007.

So, when talking about "brackets," I'm not sure what that means, precisely, but certainly my AGI has me looking further down the tax table than it did 1 year ago.

Here's what I'm thinking. Double the tax was withheld. 1.3 times the earning. That's sort of close to 1.5. 2 / 1.5 = 3, which is indeed how many times bigger the refund would be.

Plus, when I work out the state refund, the two together might be worth about one month's pay, which is what Labbie and I were discussing earlier.
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Post by Labbie » Tue Mar 17, 2009 3:52 pm

Taking your situation into account (which I did previously) is how I determined that the refund amount seems plausible. I think last year we even discussed having some extra taken out the first year just in case you did get hit with a much higher bracket.

Tax Bracket Calculator: http://www.moneychimp.com/features/tax_brackets.htm
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Post by Sarge_II » Sun Mar 22, 2009 1:41 am

Labbie wrote:Your scenario sounds possible, even plausible, Sarge. But without having some specific numbers, it would be hard to tell if it is correct.
I didn't think it was appropriate to share the specific numbers, as I am neither the best off nor worst off. (Though things were rough last summer. See below.)
Labbie wrote:But (there's always a "but"), if you really are getting a lot (more than a standard paycheck) back as a refund, you should really adjust how much is being withheld. There's no reason to use the IRS as a non-interest bearing savings account.
No, now that I've done both federal and state, the total of the two is within $100 of one month's pay. Also note that the pay is condensed into 9 months, not spread across 12, which may explain my overpayment?
Labbie wrote:I don't know if interest on student loans is deductable or not, but if it is, you should definitely make sure you take it. A quick search on the IRS website should give you the answer.
As Snow found from speaking with Kisha, yes, they're deductible and I've entered the info from the 1098-E's. I also called the IRS 800 number.
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Post by Sarge_II » Sun Mar 22, 2009 1:42 am

MzSnowleopard wrote:yes, interest on student loans is deductible. However I'm not certain if the loan(s) should be paid in full or not- before the interest can be deducted. If you have more than one - consolidate them - that helps boost your credit score.
There was nothing about being paid in full or not. In fact, as I understood it, once it is paid in full (except possibly for the year of the final payment), that's the latest one could claim the interest on student loans as a deduction.
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Post by Sarge_II » Sun Mar 22, 2009 1:46 am

Dark Angel wrote:Student loan interest is deductible and should be claimed for your benefit however the math does sound odd...I'd check it hard. Basically if you didn't go over the breaking point and into another tax bracket then the tax rate being somewhat constant otherwise should not render a 3X refund on earnings only 1.3X what they were last year...that is unless you are writing off a considerable amount.
Since I'm entering this on an online service, they're automatically doing the math. Of course, I double-check it both mentally and with a calculator and I also check the tables they're getting their figures from, etc. ... .

As I said, remember in the first part of 2007 I was in grad school. So my 2007 return contained a mix from measly earnings as a grad student followed by the semi-decent earnings from full-time work in the last 4 months of 2007. My AGI definitely did have me looking further down the tax table than it did 1 year ago. Last, again, the pay is spread over a 9 month period rather than 12.
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Post by Sarge_II » Sun Mar 22, 2009 1:59 am

Labbie wrote:Taking your situation into account (which I did previously) is how I determined that the refund amount seems plausible. I think last year we even discussed having some extra taken out the first year just in case you did get hit with a much higher bracket.

Tax Bracket Calculator: http://www.moneychimp.com/features/tax_brackets.htm
OK, following that link, it looks like I am in the same bracket, but just barely. My taxable income this year is about $10000 higher than last year.

I think our discussion about what amount to have withheld was more recent, around election time. I may have mentioned at that time that the last time I did so, not long before going back to school for the Ph.D., I got hit with owing $1000. It's the only time I've never had a refund. I am pretty sure all I did was take it back one notch, so that I'd get a bit more per paycheck, but it backfired on me. I doubt I'll try that again any time soon, and just let the government save it for me with no interest earned for me. (That was the crux of that convo, IIRC.)

I haven't hit submit yet. But, I still think the total refund, between federal and state, sounds reasonable, because it's within $100 of a month's paycheck and I've had that happen before. Perhaps several times?
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Post by Labbie » Sun Mar 22, 2009 2:04 am

It sounds very reasonable to me.
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