I have personally seen tax software be wrong. Some tax software is off $1-6 dollars. How this happens you might be asking yourself, well it's simple really and I will explain it. The IRS gives you two ways to compute your tax. Either use the tax table or figure it using a basic formula. The table has many levels of taxable income listed. Every $50 dollars more of taxable income the table's level increases to the next level Example 1000-1050 is one level. The tax table figures one tax for the whole level. What the tax table does is take the tax of the middle of the level, 1025, and then computes the tax, $103, and applies it for the whole level of 1000-1050. If your taxable income was 1005 you would be paying the same tax as someone that had 1045. Where as if you compute your tax using the tax formula 1005 would be $101 and 1045 would be 105. That makes a $4 difference.
You have the choice to use either method. If your taxable income was 1049 it is clearly better to use the table and pay tax of 103, instead of 105 if you used the formula, which saves you $2.
The problem arises when tax software uses only the table to compute tax. If your taxable income is 1005 they simply use the tax table and you will pay a tax of $103. If you computed it using the formula your tax would only be $101, results in you losing $2. The same $1-3 your neighbor, relative, and half of America lost. It really adds up fast.
You might be asking were the other $1-3 might come from? Well it's simple; those individuals that are eligible for Additional Child Tax Credit get robbed another $1-3. Since the IRS bases the Child Tax Credit on your tax. It is easy to understand why the Additional Child Tax Credit would be wrong. For example you have one child and by the table’s standard your taxable income of 5450 computes 548 in tax. Your child tax credit will then be only 548. That makes your Additional Child Tax Credit 452. Now if you use the formula your tax on 5450 would be 545. That makes your Additional Child Tax Credit 455. Which I want to add for those who do not know the Additional Child Tax Credit is refundable which means money in your pocket. It basically gives you what is left from the Child Tax Credit (1000/child) IF you qualify.
To sum it up tax software that only uses the tax table will cheat about 49% of filers $1-3 and of those filers the ones that qualify for the Additional Child Tax Credit are shorted another $1-3. You might be thinking it's not a lot and it's not everyone. But why let the government keep all of that money?
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6 comments:
There are many scams running on the internet due to which it has became unsafe therefore before thinking about them one should check them
One should keep themselves out of this and take care before going to any site like this
Michael is write in stating that calculating tax only through tax table will cheat you. So better use the method that help calculate it in a better way.
Such awaring post.You have shared a good information.You are doing a great job.Thanks for such post.
The tax software that only uses the tax table will cheat about 49% of filers $1-3 and of those filers the ones that qualify for the Additional Child Tax Credit are shorted another $1-3. So be careful while choosing tax calculators
I am sure that this blog will help large number of people including me. The information is too good to be kep in mind
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