How's that tax cut working out?

[JSt0rm]

Based on some of the interviews in these recent tax articles there are a lot of people who don’t have a clue how withholding works “I noticed that my paycheck went up but I didn’t know why and now my refund is less”. Duh.

well to be fair trump told everyone the extra money was a tax cut.

 

[BonzaiDuck]

You're talking about someone who spent decades in a government provided/union protected job. It shouldn't be at all surprising. No intelligence required.

Hey, A*****e! F*** you down! You don't know s***!

Let's get back to Jhnnn's statement. It is very likely, given the average brain capacity of the average citizen, they THINK it is a way of saving money.

But the proper strategy is to assure that Withholding + Estimated Tax Payments = Tax owed at year's end. The target should be zero (0). It is inconvenient to adjust the W1 frequently, so people are not likely to do it. A combination of withholding and estimated tax payments makes it possible.

People who make estimated tax payments are likely to be sole-proprietor business owners, people with variable income or income that is more transitory (such as a car salesman on commission with only part or no fixed salary). I was doing it because I was a civil service careerist by day, and a consultant at night, then an adjunct college professor by night. It then continued as a practice because I have a rental property, which is sometimes vacant, or sometimes requires deductible repairs. So I can adjust my estimated payments during the year according to the ongoing income during the year.

But zero should be the target, whether you have a stable and reliable salary, or a variable income.

 

[Chocu1a]

Based on some of the interviews in these recent tax articles there are a lot of people who don’t have a clue how withholding works “I noticed that my paycheck went up but I didn’t know why and now my refund is less”. Duh.

My withholding has always been married but at HIGHER SINGLE RATE with ZERO deductions, same as my wife, so they WITHHOLD THE MAXIMUM AMOUNT. So now you are telling me I have to ask the government to withhold an extra amount OVER THE MAXIMUM so I don't have to pay in again? GFYS.

 

[Paratus]

He's not wrong though. Tons of people treat it as passive saving. It's not the absolute worst financial decision that people can make by any stretch even if it's a sub optimal strategy. People do value the certainty of not owing and getting something back.

This is not my financial strategy but I can see the attraction of certainty to people with little room for error.

Agree with this. It’s kind of like the folks who very earnestly tell you that they will only use a debit card so they don’t go into debt.

That’s not the best idea. Forgoing the credit card means forgoing points, a free 30 day loan, and the simple protection of it not being your money if someone gets your card number.

But if you can’t keep from running up credit card debit it’s hardly a bad choice for that circumstance.

Same way with tax withholding. If you can’t make sure to have enough on hand to pay in April using it as a non interest bearing savings account isn’t the worst idea.

 

[fskimospy]

Agree with this. It’s kind of like the folks who very earnestly tell you that they will only use a debit card so they don’t go into debt.

That’s not the best idea. Forgoing the credit card means forgoing points, a free 30 day loan, and the simple protection of it not being your money if someone gets your card number.

But if you can’t keep from running up credit card debit it’s hardly a bad choice for that circumstance.

Same way with tax withholding. If you can’t make sure to have enough on hand to pay in April using it as a non interest bearing savings account isn’t the worst idea.

Yes, for lots of (most?) people saving is as much about psychology as it is about math. The most important part of a savings plan is if it actually makes you save money.

 

[vi edit]

I had 10k sitting in my bank savings account as a highly liquid emergency fund. You know what my earned interest on that was for the year? $1.29.
It's not like people getting a couple grand back are going to be easily rolling that into some high interesting earning vehicle otherwise. If they take it and pay off a loan lump sum at the end of the year they instead of spending it on stupid stuff throughout the year more power to them.

 

[Jhhnn]

Based on some of the interviews in these recent tax articles there are a lot of people who don’t have a clue how withholding works “I noticed that my paycheck went up but I didn’t know why and now my refund is less”. Duh.

That's because the Trump admin twiddled the withholding tables to make the "tax cut" look bigger than it is. It's just another of their myriad forms of deception. I figure some people who worked their withholdings to achieve a slight positive balance in the past have to write a check this year. They'll be thrilled, I'm sure.

 

[glenn1]

I had 10k sitting in my bank savings account as a highly liquid emergency fund. You know what my earned interest on that was for the year? $1.29.
It's not like people getting a couple grand back are going to be easily rolling that into some high interesting earning vehicle otherwise. If they take it and pay off a loan lump sum at the end of the year they instead of spending it on stupid stuff throughout the year more power to them.

You should look around a bit as better rates are available. Your rate is a fraction of a basis point which is terrible even in today's relatively low interest rate environment. Not intended as a product endorsement, but even in my Capital One 360 Savings account (formerly ING 360) I'm getting 1.0% APR which would mean $100 annual interest for you on a deposit base of $10k. I'd be surprised if basically any other financial institution could beat the rates you're being paid by yours even if you stick with a passbook savings account. And $10k balance should enable you to put it in a MMA or other account type (non passbook savings) which is basically just as liquid but will pay significantly better rates.

 

[UNCjigga]

I had 10k sitting in my bank savings account as a highly liquid emergency fund. You know what my earned interest on that was for the year? $1.29.

The most annoying thing about doing my taxes is tracking down all these 1099s with $1-$3 amounts.

 

[fskimospy]

You should look around a bit as better rates are available. Your rate is a fraction of a basis point which is terrible even in today's relatively low interest rate environment. Not intended as a product endorsement, but even in my Capital One 360 Savings account (formerly ING 360) I'm getting 1.0% APR which would mean $100 annual interest for you on a deposit base of $10k. I'd be surprised if basically any other financial institution could beat the rates you're being paid by yours even if you stick with a passbook savings account. And $10k balance should enable you to put it in a MMA or other account type (non passbook savings) which is basically just as liquid but will pay significantly better rates.

Yes, I think you are right. With a $10k balance he should be able to put that in a money market and make at least something for his money that will broadly keep pace with inflation.

 

[s0me0nesmind1]

I had 10k sitting in my bank savings account as a highly liquid emergency fund. You know what my earned interest on that was for the year? $1.29.

That's great. I have a liquid emergency fund savings account that earned me $650 in interest last year - because it's a bank that is worth a shit.

Yours sounds like a typical Chase, BoA, or Wells Fargo. So.. yea.... I never understand why people continue to use these mainstream shit banks.

Personally I recommend Discover Bank - they have some good sign on bonuses for large initial deposits. Either that or Ally bank. Both seem to stay toe to toe with eachother and consistently raise their interest rate. Currently @ 2.10%

 

[s0me0nesmind1]

The most annoying thing about doing my taxes is tracking down all these 1099s with $1-$3 amounts.

Pretty sure they don't send a 1099 unless its $10 or more.

I recommend having accounting software like Quicken - I can see all my interest for the year in one place and check them off one by one to make sure they are all in TurboTax.

 

[UNCjigga]

Pretty sure they don't send a 1099 unless its $10 or more.

I recommend having accounting software like Quicken - I can see all my interest for the year in one place and check them off one by one to make sure they are all in TurboTax.

I use Mint instead of Quicken...I don’t understand why Intuit doesn’t just charge for a premium version of Mint that does all the fancy TurboTax integration.

 

[vi edit]

Yeah it's Chase. And it's just there mostly for convenience. We've had some issues with our employers messing up their ach runs for payroll and payroll deposits not hitting on time and then auto pays for mortgage or other things tried to overdraft. Keeping those two tied and it just pulls from savings and we move it back once payroll goes through. Plus we travel a lot and Chase blankets most of the places we travel to so no atm fees. Convenience and access is worth a couple bucks a month in interest.

 

[s0me0nesmind1]

I use Mint instead of Quicken...I don’t understand why Intuit doesn’t just charge for a premium version of Mint that does all the fancy TurboTax integration.

One of the problems there is that Mint simply isn't proper accounting - it's just categorization of transactions. If say - you have a deposit the system has no idea if it's a taxable amount or not. It just sees Paycheck. In Quicken everytime I get a paycheck I have to fill out the exact amounts from my paycheck, otherwise it will just has the net amount of the deposit. It has no idea how much is withheld for taxes, how much went to tax exempt (401k, cafeteria healthplan, etc.)

I honestly only use Mint to monitor my transactions (pending ones in particular) to make sure nothing fraudulent or unexpected is being charged.

 

[s0me0nesmind1]

Yeah it's Chase. And it's just there mostly for convenience. We've had some issues with our employers messing up their ach runs for payroll and payroll deposits not hitting on time and then auto pays for mortgage or other things tried to overdraft. Keeping those two tied and it just pulls from savings and we move it back once payroll goes through. Plus we travel a lot and Chase blankets most of the places we travel to so no atm fees. Convenience and access is worth a couple bucks a month in interest.

I get it, I have a BoA account - and at most I keep maybe $500 in it. It's strictly for if I need something from the bank - which is very rare.

But I would never keep any significant amount of funds there.

In the RARE occasions that I need cash, Discover actually has a good amount of ATMs around everywhere that wont charge me a fee. On top of that, I can also just go to a store and get Cashback with my Debit if need be.

But ultimately, I just never use cash anymore... ever.

 

[Jhhnn]

It's fair to say that different people employ different withholding strategies that work for them. A lot of people figure it's better to be safe than sorry when dealing with the IRS. They just don't need the aggravation. This year, people who squeeze out the most from every paycheck are the most likely to experience some unpleasantness. What worked in the past doesn't necessarily work as well this time around. What amounted to a few hundred either way can easily become a few thousand the wrong way given the dishonesty involved in formulating the new withholding tables & the other heretofore hidden aspects of the GOP tax plan.

OTOH, anybody whose enormous income is based on investment makes out like a bandit. If you make enough money you can just buy a private jet to reduce your taxable income to zero.

 

[snoopy7548]

That's great. I have a liquid emergency fund savings account that earned me $650 in interest last year - because it's a bank that is worth a shit.

Yours sounds like a typical Chase, BoA, or Wells Fargo. So.. yea.... I never understand why people continue to use these mainstream shit banks.

Personally I recommend Discover Bank - they have some good sign on bonuses for large initial deposits. Either that or Ally bank. Both seem to stay toe to toe with eachother and consistently raise their interest rate. Currently @ 2.10%

Ally's online savings, which I've been using for maybe five years for my emergency fund, is currently at 2.20% APY on any balance.

 

[Zorba]

I haven't done all the calcs to compare yet, but my total tax went up about 1K on an AGI increase of 31k. I'm in Oklahoma.

Other than increasing income nothing changed yoy for me.

FWIW, most of my income is wages and I never itemize. So the jump in standard deduction, child credit and lower marginal rate all helped.

All in I had a 12.9% rate vs total gross income of about 250k.

 

[Lanyap]

My withholding has always been married but at HIGHER SINGLE RATE with ZERO deductions, same as my wife, so they WITHHOLD THE MAXIMUM AMOUNT. So now you are telling me I have to ask the government to withhold an extra amount OVER THE MAXIMUM so I don't have to pay in again? GFYS.

That's what it's looking like in your case. You need to go back and look at your paycheck to see how much more you received in 2018 because of the lower withholding your company implemented (assuming it did) then calculate how much you need to add each pay period to add to withholding to bring it back to where it was if that's what you want to do. I used to have to do what you did when I was working to make sure I didn't owe too much because of investment dividends and gains and such.

The GAO should have just recommended to leave the tax withholding tables the same and most everyone who has simple taxes would think they were getting the same or more back as a refund. Trump and his admin and the repubs are probably scrambling now to figure out how to give more money back to people. What a CF.

 

[Lanyap]

Here is a pretty good article that sums up the issues including people using withholding to save up for a tax refund. It's kinda of a forced discipline for them. The Tax Policy center provided some good information about what's happening.
https://www.tampabay.com/business/f...n-for-smaller-tax-refunds-heres-why-20190211/


EDIT: Here is the IRS website discussing the new lower withholding tables.
https://www.irs.gov/newsroom/2018-withholding-tables-now-available

The new law makes a number of changes for 2018 that affect individual taxpayers. The new tables reflect the increase in the standard deduction, repeal of personal exemptions and changes in tax rates and brackets.

For people with simpler tax situations, the new tables are designed to produce the correct amount of tax withholding. The revisions are also aimed at avoiding over- and under-withholding of tax as much as possible.
To help people determine their withholding, the IRS is revising the withholding tax calculator on IRS.gov. The IRS anticipates this calculator should be available by the end of February. Taxpayers are encouraged to use the calculator to adjust their withholding once it is released.

The IRS is also working on revising the Form W-4. Form W-4 and the revised calculator will reflect additional changes in the new law, such as changes in available itemized deductions, increases in the child tax credit, the new dependent credit and repeal of dependent exemptions.

The calculator and new Form W-4 can be used by employees who wish to update their withholding in response to the new law or changes in their personal circumstances in 2018, and by workers starting a new job. Until a new Form W-4 is issued, employees and employers should continue to use the 2017 Form W-4.

 

[Jhhnn]

Here is a pretty good article that sums up the issues including people using withholding to save up for a tax refund. It's kinda of a forced discipline for them. The Tax Policy center provided some good information about what's happening.
https://www.tampabay.com/business/f...n-for-smaller-tax-refunds-heres-why-20190211/


EDIT: Here is the IRS website discussing the new lower withholding tables.
https://www.irs.gov/newsroom/2018-withholding-tables-now-available

That bit from the IRS about avoiding both over *and* under withholding is bullshit, of course. They did it the way they did to pump sunshine up America's skirt for a whole year about the honest effects of the the tax changes.

I mean, when was the last time leaving your W2 the same cut into your refund, anyway? Like never, which is what most people figured would happen plus the extra in their paychecks. Surprise! It's not as good as they led you to believe. If you've always cut it close, you might even have to pay.

 

[SlowSpyder]

Asked for a raise, got a raise. Just found out I'm all but assuredly working from home full time in the near future (I spend $50/week in fuel all told, work commute being the biggest part of that by far). My taxes are lower thanks to Trump. Owning liberals here daily. 2019 is off to a great start.

 

[snoopy7548]

I spend ~$13/week for gas with my commute to work (I fill up every other week). So yeah, Error 404: Liberal Ownage Not Found. BOYEEEEEEEEEEEEEEEEEEEEE.

 

[Zorba]

Neither, sound engineer and road manager, at the time. You asked why anyone would be itemizing making under $50K, I gave you your answer.

Writing off business expenses isn't the same as itemizing vs standard deduction.