How can this be fair???

chery2April 7, 2005

Just got the bad news that we owe twice as much to IRS as last year's bad news. Why? Because my social security disability income, which is "untaxable," is added to my piddly VA disability retirement income and to DH's income, putting us in the 28% tax bracket. NOT FAIR!!!

chery-va

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aikidokap

Well, bumping tax brackets can't result in a doubling of your tax.

We have a graduated tax system in the U.S. That means, it works like this:

$0-10,000 = 5%
$10-20k = 7%
$20-30k = 9%

Now, if these were the tax brackets and you made $26k, your tax is NOT $2340 (9% of $26K).

It would be: 5% of the first $10,000
7% of the second $10,000
9% of the final $6,000

for a total tax of: $1,780

Obviously our real tax system has different brackets, butit works the same.

So, by bumping into another bracket cannot double your tax!

There's gotta be something else to blame!

aiki

    Bookmark   April 7, 2005 at 3:39PM
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cowboyind

That's true, the total tax liability wouldn't double, but the check Chery2 has to write to the IRS could double compared to last year, since that check would only represent a portion of the total tax liability. Apparently what is happening is that the withholdings from Chery2's husband's paychecks are falling pretty far short of the total tax due. This can be avoided next year, of course, by having him fill out a new W4 with his employer and increasing the amount withheld.

    Bookmark   April 9, 2005 at 2:24AM
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liketolearn

" ... Because my social security disability income, which is "untaxable," is ..."

Something alot of people don't realize is that social security is "sometimes partly taxable" ... meaning once your income (or joint income) is over a certain amount the social security income begins to be taxed. The amount that they tax is gradual based on your income (or joint income). It is possible to have up to 85% of your social security be considered taxable income.

If you owed last year and this year then as suggested your DH should have more tax withheld from his paycheck or you should have more tax withheld from your VA disability income.

It's OK to owe in some each year but if you owe more that a $1000 the IRS adds penalties to the amount you owe. Better to get closer to even or a few bucks back.

    Bookmark   April 9, 2005 at 2:56AM
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gandbb

I should be so lucky as to be in the 28% bracket

I'm sorry, I have trouble feeling sorry for people who complain about their high tax rate - it just means that they are making a lot of money

    Bookmark   April 9, 2005 at 2:39PM
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jlhug

chery,

VA (as in Veterans Administration) disability isn't taxable and shouldn't be included in the calculation of taxable Social Security benefits. If your disability is from Virginia, then it might be taxable and is included in the calculation of taxable Social Security.

Remember that Virginia does not tax Social Security no matter how much other income you have.

Good Luck

    Bookmark   April 10, 2005 at 11:18AM
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joyfulguy

As I'm unfamiliar with your system I don't know the specifics, but in our tax system, sometimes one must add certain items of income to the various other types, then deduct the "non-taxed" kind, later in the return, after one's net and taxable income is calculated.

So the taxable income could be substantially higher than last year's, resulting in substantially more tax.

Especially if, as someone said, part of the income has tax withheld.

Usually, as long as your tax liability at year end is under a certain figure, you don't incur penalties.

Up our way, if you had to pay over $2,000. at year-end, you must pay part of your tax in quarterly instalments, next year.

Furthermore - amounts owing rack up interest by daily compounding, so it doesn't pay to carry balances unpaid.

However, I counsel my clients to avoid having large tax refunds, if they can, for a tax refund of $1,200. means that you loaned the government $100. at the end of January last year, another $100. at the end of February, and so on to $1,200. at the end of December, which carries through till April.

Interest that they pay on that loan? Zero - don't be silly!

Up here, they used to begin to pay interest on balances that they owed you beginning at the end of April, deadline date for tax filing - but now they don't begin to pay till mid-June (which is about the time that most refunds are paid out).

By the way - some people pooh-pooh working overtime, as they say that their gross income for a period that they worked overtime was quite a number of dollars more than usual - but theirtake-home was just a little more than the usual amount. So they claim that they made very little from the overtime work.

I tell them that their paymaser deducted tax from that period's income as though they were earning at that rate all year, but as their annual income will be much lower than that, part of the tax that was deducted during that higher-income period will be refunded.

Not many believe me. But that's the way a graduated tax system works - as regular earnings increase, the rate of tax on each extra dollar increases.

Supposedly - except that wealrthy folks have accountants and tax lawyers sitting up late at night figuring ways that they can reduce the tax load. Sometimes to zero.

It pays to have friends in high places.

Good wishes for making your dollars - and your life as a whole - work more effectively.

joyful guy (happily retired: every day is holiday)

    Bookmark   April 12, 2005 at 4:59PM
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joyfulguy

After all ...

... who said that life is fair?

'Twould be nice if it were.

joyful guy

    Bookmark   April 14, 2005 at 4:37PM
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clg7067

To avoid any April 15th suprises, I estimate my taxes for the upcoming year in January and make sure I have the appropriate witholding from my paycheck. Midyear, I review my estimate and see if I'm on track with my estimated deductions and make adjustments to withholding, if necessary. Last year I came out with a $206 refund. Mostly due to last minute charitable contributions I decided to make. I know it's hard to guess what kind of earnings you will make on investments, or expected medical expenditures, but everything else is pretty predictable.

    Bookmark   April 28, 2005 at 3:06PM
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