Can't figure out my taxes

[K PhaNTOM]

I know a lot of you guys are old and wise so hopefully you can explain something about taxes to me. I won't reveal my salary since I am American now and apparently it's not acceptable to disclose that information. Anyways.

On the 1040 form. Let's say I make an even $25,000. There is something called a standard Deduction. Since no one can claim me, Standard deduction is $10,150. Now the field under it, says "Taxed income" which now says $14,850. Following me so far? Okay. So what I understand now is that Taxed Income is what amount of money I made that will be taxed, right? Well, not according to Turbo Tax.

The field next says "Federal Tax Withheld: $2,000." So basically they withheld $2,000 from the $25,000 I made. Now my total says $0, I don't get a refund nor do I owe money. Why? I don't know.

My effective tax rate is %7.6 according to the instructions. However, 7.6% of $14,850 is $1,128. Which means I should be owed ~$800, Right? The more keen mathematician can however see that ~$2,000 is how much taxes I would have to pay if I multiplied ALL my 25,000 salary by 7.6%.

Long story but my question is why does the field "Taxable Income" exist if I still have to pay my whole effective rate for my whole income and not the "Taxable Income."

Income: 25,000
Taxable Income: 10,150
Withheld: 2,000
Owed/Refund = $0

$14,850 x .076% = $1,128
$25,000 x .076% = ~$2,000

Help will be appreciated. I already filed all my taxes but I'm very curious about this.

Thanks, everybody!

[JohnyRico]

Did you try calculating your taxes manually or just using TurboTax? A single guy without extra sources of income past his salary and not making a ton can do a very simple 1040EZ form that can get you a number very quickly. Try it and compare to what the program gave you.

[goldenfooler]

I would agree with Johny. Do both the manual and turbo tax, at least several years in a row. This will get you an idea what happens. My dad made me do it and it helped me understand it.
The other question is what did you claim for deductions.
I personally use turbo tax each time now and only have a few things that I have to look into. Besides Nobody ever pays just 7.6%.. unless you really made no money.. though you are a single guy without children(god I hope), without a house. We pay the most of everyone.
Now you also have several other things other then just federal withheld as well.
If you have school loans you can deduct a percentage.
If you have medical and can itemize you can deduct that as well... usually federal is 7% of your income... state is usually lower, NJ is about 2 %. You can even itemize the distance you have to drive(only worth while if you do it alot)

Also there are other FREE(make sure you use free if you qualify) electronic deductions. Only follow links from the federal home page.
Not sure where all your income comes in. I did have about 2300 that was not taxed because of incentives from Volvo. This year I am up to about 4500 and will be heavily taxed on my next tax return. This is under a 1099 form. That might or might not relate to you.

PS always do your taxes as soon as possible. Which means when you get your W2 form.

[goldenfooler]

oh yea I am not a smart, old or wise person.

[Qicmee]

I'm older than Golden.

1. "Effective tax rate" is an invented term that means whatever TurboTax says it means. In this case, it's probably the proportion of taxes paid vs. total income, as you assumed.
2. Perhaps your W-4 is perfectly aligned to your tax rate? However, nothing owed or refunded is rare.
3. I would trust TurboTax, but it's good to pay attention. TurboTax produces the same forms as you would use to do your taxes manually. You could download the IRS instructions and follow the math used by TurbTax.
4. Besides the simple tax rates, some tax credits kick in at various situations & income levels.
5. 2014 tax rates: http://www.forbes.com/sites/kellyphi...unts-and-more/
6. Corporations dislike employees comparing salaries because it creates dissatisfaction & distress. Also, since the manager isn't allowed to discuss salaries of other employees, the manager cannot factually resolve the situation.

[Slaughter]

Not sure where your standard deduction of 10,150 comes from.

standard-deductions1.png

[K PhaNTOM]

Hey thanks for that link for the tax table. $907.50 + 15%? That still doesn't make sense though.

So, $25,000 - $9,075 (Standard deduction) = $15,925. That's the taxable income right? 15% of 15,925 = 238.

$907.50 + $238 = $1145. I think that turbo tax is doing it correctly, however, Next year I'm definitely going down to some tax place and having it explained to me.

@golden, I don't procrastinate on my taxes. I got my W2 on the 8th, I filed on the 12th, it was accepted on the 19th of JANUARY.

[K PhaNTOM]

Because form says so...

haa.PNG

[K PhaNTOM]

Looks like I did the math wrong above.

15,925 x 15% = 3,200.

BUT STILL DOESN'T MAKE SENSE!

The IRS does this crap on purpose to confuse everyone.

[Qicmee]

Next year I'm definitely going down to some tax place and having it explained to me.

With the IRS instructions and completed tax forms in hand, you might not need anybody's help to work through it.

Congress writes tax law. The IRS only communicates & enforces it. By the way, when a politician says, "We should change the whole thing;" he means, "I'm talking big to avoid doing anything." The better politicians work to reduce federal tax laws, but that doesn't win votes.

[Slaughter]

Here is what it is.

The 1040EZ adds both your personal exemption of 3,950 and the standard deduction of 6,200 for a total of 10,150. The other forms 1040A and 1040 puts them on separate lines.

[goldenfooler]

With the IRS instructions and completed tax forms in hand, you might not need anybody's help to work through it.

Congress writes tax law. The IRS only communicates & enforces it. By the way, when a politician says, "We should change the whole thing;" he means, "I'm talking big to avoid doing anything." The better politicians work to reduce federal tax laws, but that doesn't win votes.

Congress can't even upgrade their own coal power plant that is very very old.