What determines how much tax refund you get?

Your refund is determined by comparing your total income tax to the amount that was withheld for federal income tax. Assuming that the amount withheld for federal income tax was greater than your income tax for the year, you will receive a refund for the difference.

obliviousinvestor.com - How Do I Calculate My Income Tax Refund? - Oblivious Investor

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The following is an excerpt from my book Taxes Made Simple: Income Taxes Explained in 100 Pages or Less. Many taxpayers in the U.S. have come to expect a sizable refund check every tax season. To some people who don’t prepare their own tax returns, it’s a mystery how the refund is calculated. The idea is really quite simple. After calculating your taxable income, you use the information in the tax tables to determine your total income tax for the year. This amount is then compared to the amount that you actually paid throughout the year (in the form of withholdings from your paychecks). If the amount you paid is more than your tax, you are entitled to a refund for the difference. If the amount you paid is less than your tax, it’s time to get out the checkbook.

Withholding: Why It’s Done

If you work as an employee, you’re certainly aware that a large portion of your wages/salary doesn’t actually show up in your paycheck every two weeks. Instead, it gets “withheld.” The reason for this withholding is that the federal government wants to be absolutely sure that its gets its money. The government knows that many people have a tendency to spend literally all of the income they receive (if not more). As a result, the government set up the system so that it would get its share before taxpayers would have a chance to spend it. The amount of your pay that gets withheld is based upon an estimate of how much tax you’ll be responsible for paying over the course of the year. (This is why you are required to fill out Form W-4, providing your employer with some tax-related information, when you start a new job.)

Withholding: How It’s Calculated

At this point you may be thinking, “OK. Well I’m in the __% tax bracket, and it’s obvious that my employer is withholding way more than that!” You’re probably right. That’s because your employer isn’t just withholding for federal income tax. They’re also withholding for Social Security tax, Medicare tax, and (likely) state income tax. The Social Security tax is calculated as 6.2% of your earnings, and the Medicare tax is calculated as 1.45% of your earnings. Before you’ve even begun to pay your income taxes, 7.65% of your income has been withheld. Your refund is determined by comparing your total income tax to the amount that was withheld for federal income tax. Assuming that the amount withheld for federal income tax was greater than your income tax for the year, you will receive a refund for the difference. EXAMPLE: Nick’s total taxable income (after subtracting deductions) is $32,000. He is single. Using the tax table for single taxpayers, we can determine that his federal income tax is $3,641. Over the course of the year, Nick’s employer withheld a total of $8,500 from his pay, of which $4,000 went toward federal income tax. His refund will be $359 (i.e., $4,000 minus $3,641).

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What money can the IRS not touch?

Federal law requires a person to report cash transactions of more than $10,000 to the IRS.

irs.gov - Here's what people should know about reporting cash payments - IRS

IRS Tax Tip 2019-49, April 29, 2019

Federal law requires a person to report cash transactions of more than $10,000 to the IRS. Here are some facts about reporting these payments.

Who’s covered

For purposes of cash payments, a “person” is defined as an individual, company, corporation, partnership, association, trust or estate. For example:

Dealers of jewelry, furniture, boats, aircraft, automobiles, art, rugs and antiques

Pawnbrokers

Attorneys

Real estate brokers

Insurance companies

Travel agencies

How to report

People report the payment by filing Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or BusinessPDF. A person can file Form 8300 electronically using the Financial Crimes Enforcement Network’s BSA E-Filing System. E-filing is free, quick and secure. Filers will receive an electronic acknowledgement of each form they file. Those who prefer to mail Form 8300 can send it to the IRS at the address listed on the form.

What’s cash

Cash includes coins and currency of the United States or any foreign country. For some transactionsPDF, it’s also a cashier’s check, bank draft, traveler’s check or money order with a face amount of $10,000 or less.

A person must report cash of more than $10,000 they received:

In one lump sum

In two or more related payments within 24 hours

As part of a single transaction within 12 months

As part of two or more related transactions within 12 months

When to file

A person must file Form 8300 within 15 days after the date they received the cash. If they receive payments toward a single transaction or two or more related transactions, they file when the total amount paid exceeds $10,000.

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