I realize there are still a bunch of political things going on right now, but I feel compelled to shift gears a bit, if only because I am forced to realize there is life outside the Burghosphere, by job #2.
I don’t mean tax policy, although I am keenly interested in that. I suppose I mean tax incidence. What I really mean is how taxes affect you, or them, the people who come into tax offices. By this time, almost April 1st, there is a better than even chance that they waited this long because they knew something bad was going to happen. There is a better than even chance they knew something bad was going to happen and they want to avoid it. There is some chance they will blame the tax preparer, they will not want to file, they will walk out, trying (desperately) to stave off the inevitable. By the way, by tax preparer, I mean me. God knows I’ve done that kind of thing, but the government will not care whether you are a good person or that your employer did not explain tax liability to you (or understand it themselves). IRS agents are not bad people, they can be sympathetic, but they see the bigger picture, that the rules must be obeyed (understand, all my experience with IRS agents is indirect, but I think I understand the position they are in, and the kind of people who go into that kind of work).
The point being … If you are a single person with no kids, if you just have wages, and someone gave you good advice or no one gave you bad advice or you are able to read and understand, you could be all right. The government gives you no special favors for being unmarried and childless, they take what they want. Your only control is whether they take it during the year or when you file your taxes.
Your only control is whether they take it during the year or when you file your taxes.
I repeat that because people do not understand that when they owe, they just need to pay money the government meant to take during the year. Economists will tell you they are ahead in the tax game, but I know nobody cares about that. There are people who are unluckier than that. There are single people with two or three jobs, who maybe take a few dollars from the YWCA to watch kids or take a graphic design assignment for a non-profit for $750 because they can draw or run the computer. A person who is told by Social Security that if they charge their mom who lives with them rent (even if she doesn’t pay), their mom could get the Pennsylvania rent rebate. These are not rich people (although they could be, but where I am working now, an IRS VITA site, they wouldn’t be). If they have kids and a low-ish income, they may be OK. They won’t get back the refund they were hoping for or (if experienced) expecting, but they won’t have a nasty surprise. Their thousand dollar child tax credit, their child and dependent care tax credit and/or their earner income credit will help compensate for their tax missteps.
If you are single, the government doesn’t tax you on the first $8450 you make when you are working. If you have one job, fine, everything is understood, you should owe or get anything back when you file. But if you have two jobs, both jobs are likely to think they are your only job (especially depending on how you fill out your W-4’s). Both jobs will with-hold as if the government will not tax you on the first $8450 *they* pay you, but the government will not tax you on only *one* $8450, no matter what your jobs thinks. This applies whether you work a main job and a side job, or whether you change jobs during the year. At a 10% tax rate, we could be talking about $845. At 15% …
Last year or the year before, when I worked at Block, I had some reasonably well off people, both of whom had changed jobs during the year. Their W-4’s were probably Married Filing Joint, with two exemptions. So they each had 16,000 worth of income sheltered, twice. Of the four 16000’s, the government was willing to give them one. I think it was $45oo they owed. They left the office, never to return. I guess they went to someone who could find a way to lie for them, convincingly.
If you do an ad for a non-profit, a one time shot where they don’t put you on the payroll, or if you answer an ad to watch kids part time for the YWCA, you are not an employee. You receive a 1099 and you are being treated as if you have your own business. But as any self employed people who have been working for more than a year can tell you, the government still expects you to pony up for your own Medicare and Social Security taxes; in addition to your regular federal income tax. We’re talking about 15 to 20 percent of the payment for that ad, or of what the YWCA gave you all year. There is nothing you can do about it, you got the money without tax being taken out. The most you can do is limit your liability by thinking about what things enabled you to make that ad, or what you spent on the kid you watched. You can reduce the tax you owe, but you can’t eliminate it. If you go too far in finding “business expenses”, you invite a tax audit, and you’d better have receipts for all those expenses.
All of these are “close to real” examples, and the YWCA example is very real, a person whose taxes I reviewed last night had that (by reviewed I mean; in VITA office this year the IRS is having a second person look at people’s taxes). But the rent thing I mentioned earlier is absolutely and unfortunately happened to the same person who was surprised with a 1099 from the Y. Her story was that apparently her mother lives with her, or in a house she owns. I don’t believe her mom paid any rent. Well, someone in the Social Security Administration told her that if her mom did pay her rent, then mom could qualify for a Pennsylvania rent rebate. But there’s a flip side, now the woman (the daughter) has to claim rental income.
VITA sites aren’t equipped to file the forms needed to deal with rental income. We had to turn the woman away. Now I wonder if she will file at all.
Well, I gone on with this a long time, and I’m not sure I even had a point. If you (tax preparer) get people a lot of money, they will think you are the best thing since sliced bread, even if you are pretty convinced that software would have gotten them the same refund. And if they owe, or just get back less than they think they deserve, there first response will be to accuse of incompetence and then to think you cheated them. Most of the time tax preparers have very little leeway in tax preparation. But of course people attribute god like powers to you, and then wonder why you have not favored them.
Mostly though, you should look at your pay stub. If something doesn’t make sense, there is probably a reason for that, and you should ask. By the time next year’s filing time rolls around, it will be too late to fix anything.
Maybe this was just about blowing off steam.