Quote:
Originally Posted by HarryT
Why does one receive a "tax refund"? The way that the British tax system works is that, unless you run your own business, or something like that, income tax is simply deducated automatically from your salary by your employer, so you automatically pay the right amount of tax.
How does it work in the US to result in so many "refunds" being given?
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Harry,
There are a couple of issues. First, as others have already stated here... the "refunds" they are talking about are probably the Economic Stimulas (but will make things worse in the long run) refunds. (Although some will be getting there normal filing refunds in May too. I filed back in February due to needing to apply for financials aid for my college bound son and have already recieved, and spent my refund.)
But, in general the calculation of your tax liability is extremely complicated. The US tax code is about the size of 7 bibles. There are thousands of deductions, credits, and all types of rules as to what is table income, etc.
So, while we do have a payroll deduction taken from each pay check it doesn't necessarily equate to your tax liablity. Also, many people "like" getting refunds so they purposly have extra tax taken from their check either by specifing an additional amount or claiming less exemptions on they payroll document (known as a W-4) than they claim when they file their return.
This is also why many people here favor a "flat tax" or a "sales tax" (reform). Not that anyone thinks it will reduce the taxes, but it will reduce the taxing compilance that we all have to go through... such as the keeping of reciepts for tax deductable purchases or donations and keeping track of all taxable income, etc., plus the preperation time each spring needed to file.
Hope this expalains it.
BOb