Why do my wife's coworkers get large tax refunds and we don't?
One of my wife's coworkers (with 4 kids, both parents working) just got a $10,000 tax refund. Another coworker (single with no kids) got $3,000. All three of these people and my wife earn about $25,000 each.
I told my wife that we won't get much of a refund, if any, this year because we made a combined income of almost $60,000 and have only one child. She had about $700 withheld for federal taxes. I'm self employed and so I send in estimated taxes to the IRS.
My wife can't understand how her coworkers can get such large tax returns (every year!) yet she and I don't. I use TurboTax to prepare our tax return. She said that I must not know how to prepare tax returns because if I did we would be getting large tax returns like her coworkers do.
I explained to her that if a person doesn't claim enough exemptions on their W4, the employer will withhold an excessive amount. And the person will get that excess back in their refund.
She said she was sure that not much was being withheld from her coworker who is single and childless. Yet he got a $3000 refund. I said that the guy must be cheating to get so much money back... much more than what was withheld from his paycheck. The only way I know for an average person to get such a large amount of free tax money is through an earned income tax credit. For someone without children, his income is way too high to qualify for an EITC.
I explained that the couple with four kids could be getting quite a large amount due to the EITC on their larger number of kids. However, I just used the EITC calculator on irs.gov and found that their combined income was way too high to get the credit. If, however, they counted the income from only one parent, they would get almost $5000. They are not legally married and I'll bet that they exploited that fact to get the credit.
None of these people, including my wife and I, are eligible for any of the other refundable tax credits, like for adoption or new homeowners. And we all rent, and so without the large deduction for mortgage interest payments, taking the standard deduction makes sense for all of us.
(One thing I forget to mention to my wife is that there is a $1000 per child tax credit. I forgot about that because we just had our first child a couple years ago, so I've taken it only once, for 2010. Anyway, that would explain $4,000 of the $10,000 the couple got back.)
If you can think of any way my wife's coworkers could be getting such large tax returns without having an excessive amount withheld and without cheating on their tax forms, please let me know.
Frankly I'm a smart person and I know how to prepare a tax return form, especially when simply taking the standard deduction. What I'm hoping for here is that the answers to my question will persuade my wife that we're not losing $3k to $10k per year because I don't know how to prepare a tax return.
For the record, I've done my own taxes every year for the last 25 years. When I owned a home, I itemized. Now that I rent, I take the standard deduction. And I've used TurboTax to do my business taxes since the program came out. (I can do it without TurboTax, but find the convenience of using the program worth its $80 price. Plus it reminds me when there are relevant changes in the tax code. And it tells me how to do unusual things like carrying a net operating loss forward or backward. Stuff like that.)
Sorry for the long post.
@Towanda - Thanks for your answer. The reason I don't use Turbo Tax Basic is because it isn't capable of doing business forms, like Schedule C. I wish it did!
@A G - Had you read my question you would 1) know the reason I asked the question (obviously not out of jealousy, sheesh.), 2) know that the couple with three kids earns $50k, not $25k as you put it, and 3) realize that, in spite of your folly, one thing you said agrees precisely with one of my main points. I might even choose yours as the best answer, regardless of your ignorant tone.
- JudyLv 79 years agoFavorite Answer
If the couple isn't legally married, then they can't file as married, must file as single (or one as HofH, one single) and ridiculous as it seems, would be eligible legally for EIC for the parent who claimed the kids - or split them each claiming two, and get even MORE EIC.. The single coworker with a child would have gotten EIC legally. But you are right, the one without kids wouldn't have gotten that much unless he either had way too much taken out, or lied about something. Even a $1000 refundable portion of AOC education credits wouldn't explain that large of a refund.
By the way, if you didn't amend your 2009 return to get the forgotten child tax credit, you can still do it and get the money.
- TowandaLv 79 years ago
First off try Turbo Tax Basic for much less. You are correct. People that get large refunds are having too much deducted every week. And it's true that many people just lie and take deductions they don't deserve. I use Turbo Tax and have used other tax software and find it does a good job. People that get large refunds are frankly pretty stupid if they are truthful on their return. Uncle Sam has their money until the end of the year and then you get yours back. I understand the frustration. Just a decade or so as a very much older returning college student, all the young girls that lived with their parents and had children were asking how much I was getting back. I said I don't have children.
- LoisLv 45 years ago
You are giving the government an interest-free loan of quite a lot of money each year. He would accomplish the same thing if he claimed the amount on his W-4 that he's allowed to, then put $500 a month into a savings account -except that with the savings account, he'd end up with more money because he'd get interest on it. Could the money be used more wisely? Yes. You have no retirement fund or long-term savings? How about putting half (or more) of that big refund into those?
- 9 years ago
Simple answer is you make to much to qualify for things like the EIC and having multiple refundable child tax credits is how these people most likely get huge refunds. Plus I'm not sure how you know all these peoples info to be sure exactly what and how they file but I bet they are claiming these credits.
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- 9 years ago
Not getting a large tax refund is a GOOD thing! It means that you had your money throughout the year, instead of giving the government a free loan in the form of having excess taxes above your liability withheld.
Your combined income puts you in a higher tax bracket which could also have something to do with it when compared to a single mother making $25000.
There are other factors, as well, not only how much you made.
If I were you, I would look into having your return reviewed by an accountant. They can analyze it to make sure you are saving all you can, and can even go over prior returns and amend them if they discover errors you made. It may be worth the investment. My FIL has his own business, as well, and he uses an accountant to do his taxes.
- 9 years ago
You sound really jealous honestly to take that much time out of your night for this!
Seriously if you make 25k have 3 kids
Eic actc 7 8 9 k refund is normal
You need to quit your job that way once a year you can get a refund.
- Linda RonskiLv 69 years ago
maybe her co workers ask for the Maximum deductions to be taken off all pay earned. if they got allot of kids they clam them as dependents..that why people with a bunch of off Spring always get more. also they might be getting paid more then your wife and they might even clam their husbands as a dependantSource(s): i have no children i dont get much back. my brother and his wife keep making off spring and they always get the benafits of it.. put the kids infront and get all the brakes