thegreekdog wrote:
YARGH! NO IT'S NOT! Oh my holy mother of pearls...
Let's say there is a child tax credit (so you get a credit for having children). Over the course of the year, I pay $10,000 into my federal taxes through withholding. At the end of the year, I do my tax return and lo and behold my tax calculates to $10,000, before credits. Then I apply my child tax credit ($1,000) and I owe, in taxes, $9,000. But I paid in $10,000 so the government gives me $1,000 back. Is this is a refund of my money? Sure. It's also a tax credit.
It may or may not be a refund, simply depending on how you set up your deductions. If you take enough deductions, you can owe several million in taxes and still get a refund or you can take so few (mostly if you are student) that you wind up paying, even if your tax is only $100.
Come on greekdog.. think about what I am saying.
thegreekdog wrote:
Now let's say there is a child tax credit. Over the course of the year I pay $500 into my federal taxes through withholding. At the end of the year, I do my tax return and lo and behold my tax calculates to $500, before credits. Then I apply my child tax credit ($1,000) and I owe, in taxes, negative $500. Do I get $1,000? No. I get $500 because that's what I paid in. That's how a typical credit works. A refundable credit, on the other hand, would give me the entire $1,000 so I get subsidized by other taxpayers for this child tax credit.
Now this tax credit is recieved off of your total tax bill, regardless of how much you withold. The two are not related, except that,, as you note you normally want to estimate your actualy payment so that you are not giving the government a free loan. (which is, of course all a refund means).
This can be even better illustrated by the EIC. You might (?) not be that familiar with this, dealing mainly with higher income people (?), but that
credit is gained even if a person pays no taxes at all. All other (well.. better make that almost all, because there might be exceptions) credits are taken off your total tax bill.
Again BOTH are irrelevant to your refund. Your tax payment is calculated by your status, your rate basedon earnings minus credits and deductions (unless, of course you fall into the alterantive tax trap). Your tax refund is irrelevant to that. Your tax rate is based on government rules. Your tax refund or payment level is based on how good a tax planner you are. The government has little to do with your refund, at least for most individuals (I know that companies and high income earners have to pay quarterly taxes and such, not clear on if that changes their rates or not-- not sure if they still get assessed the overall yearly rate or not).