Can someone please explain income tax to me?

It is up to each tax payer and their employer to make sure the employer is withholding the appropriate amount of taxes. If you have a lot of deductions, you can have your employer adjust your withholding so that you do not overpay and end up with a huge refund.

Also, if you underpay your taxes, you can end up owing money at the end of the year that you may not have. The IRS is very, very powerful. The IRS is not subject to being discharged in bankruptcy and are not limited by many state debt collection limitations. So, it is better to err on the safe side and pay in a little too much than to end up owing the IRS at the end of the year.

It's based on the "pay as you go" concept, the idea being that most people are not equipped to manage their finances well enough to pay a lump sum after the tax year ends. Basically few people know exactly how much tax they will owe until after the completion of their return, so approximate amounts are generaally witheld/paid in advance. If too much was witheld/paid in advance, you get a refund. If not enough, you owe.

Also, if you do not have enough witheld/paid during the tax year, you will be subject to penalties over a certain threshold.

I'm not joking, you guys are actually the first people that have explained this cohesively. Thank you.

What??? How did you not understand this?

You pay throughout the year, then at the end of the year you do a calculation to figure out if you paid the right amount. Maybe you overpaid - refund! Maybe you underpaid - now you owe some more money.

It's obvious.

If the withholding system works then you should come close to breaking even every year. Some years you may owe a few hundred dollars and other years you have to pay a few hundred dollars.

However, if you choose to itemize deductions you may see a much bigger refund, in the thousands, like me this year.

sure bert wrote:

If the withholding system works then you should come close to breaking even every year. Some years you may owe a few hundred dollars and other years you have to pay a few hundred dollars.

However, if you choose to itemize deductions you may see a much bigger refund, in the thousands, like me this year.

Well, of course this depends on your investment portfolio. I usually end up owing a good chunk of change if the economy is doing well b/c of investment gains. Even quarterly payments make it difficult to be spot on with cap. gains.

Why doesn't the government just put out a tip jar?

Because no one tips for bad service.

Wrong.

for whatnow wrote:

What??? How did you not understand this?

You pay throughout the year, then at the end of the year you do a calculation to figure out if you paid the right amount. Maybe you overpaid - refund! Maybe you underpaid - now you owe some more money.

It's obvious.

What would prevent you from paying the "right amount"? Aren't the amounts taken out of your cheque's by %?