I think the basic thing about taxes that is least understood is the difference between gross income and taxable income (the latter is the amount that tax brackets apply to). A close second is the difference between tax liability, and refund/balance due on the tax return.
Oh yes, that's another fun one! Your yearly tax return should be as close to 0 as possible, otherwise you're either over- or under-withholding. Then again, I met some people that use it as a kind of piggy bank because they wouldn't be disciplined enough to save up for bigger purchases otherwise and... well, I can't even, but if it works for them, there are worse things to spend money on.
I have income from multiple sources and they are not aware of each other. For example, they will all keep paying social security even when I’ve exceeded the max deduction. It is far too complicated to correct the finance departments of multiple companies. I just reconcile it all at the end of the year and get a refund. Got a better strategy I can use?
Woah, it’s okay to have different tax situations. I started a business one year and got a pretty big refund. But we’re not out there bragging about how we get big refunds every year like it’s some goal to aim for and accomplishment to be proud of if achieved. That’s the mentality people are criticizing.
It sounds like you’re not one of the people they met who use it like a piggy bank. From my perspective, they’re just describing the habits of people who are used to not having any money: gotta spend this windfall quick because money doesn’t last long. It’s irrational and ultimately harmful but it’s borne from the practice of spending all of your money every month on non-trivial things and still being required to increase debt in order to stay in your apartment, e.g., credit card spending.
If your separate income streams are pretty predictable and so is the overwitholding, and if you care enough: you can put a negative number in the "extra witholding" box on your W-4.
I wouldn't say this is a better strategy, but you can definitely min/max this even if your income is not stable by extrapolating out your expected income and expected witholding a few times a year and adjusting your W-4 based on your calculations.
By the interest free loan logic, you should have your employer withhold zero and then you put your taxes in a high yield savings account and pay them all as late as possible.
The IRS already thought of this - they charge you interest on the money you owed them (with some exceptions, like waiving it the first year it happens, only charging you if you withheld less than last year, etc).
Try convincing a tech person that the shares they get as compensation from their employer are equal to getting money and buying those shares at the time they get them. I also think tech workers tend to over-estimate what "average person" really is because they mostly know "above average people".
Yes, this is another example of irrational money behavior that is common in the tech world. According to a poll on our company slack, only about 50% of the employees plan to sell any of their RSUs and maybe 15% sell all.
People like getting the big lump sum and some don't even realize it was their money all along that they just overpaid throughout the year. It's not a good thing for individuals to overpay.
Nah, because for people with poor financial skills, the ability to save is very difficult (even if they had the "Extra" money in their account each pay period instead of paying extra taxes). So even though you're technically getting your money "back", for some people they would not have been successful to 'save' so much without it being forced on them.
The people that enjoy a tax refund would not really even notice the small amount they "could have had all along" by adjusting their withholding amounts.
It is not a good thing because it is interest free and inflation exists. If you would have had that money earlier you could have put it in high yield saving account or payed down debt.
