RUSH: Kentwood, Louisiana. Sarah, I’m glad you waited. Welcome to the program. Hi.
CALLER: Thank you for having me, Rush.
RUSH: You bet.
CALLER: I was wondering, at the end of year we do our taxes every year, right? I was wondering, what’s the point of doing these taxes if they’re just gonna give us our money right back to us?
RUSH: What do you mean?
CALLER: Well, every year after you do your taxes they send us a bunch of that money right back to us, right?
RUSH: I wish.
CALLER: ‘Cause my dad gets about —
RUSH: I just filed my third quarter estimate, I just had to send it registered certified to the US Treasury today, and I know I’m not getting any of it back, so I don’t know what you’re
talking about. What are you talking about, seriously?
CALLER: Every year we do our taxes, right? And then they send us a portion back to us, right?
RUSH: You’re talking about your refund?
RUSH: Oh. Oh. Oh. You’re 17 years old?
CALLER: Yes, sir.
RUSH: Oh, oh, I’m sorry. Okay, good. Let me explain to you what that is. Actually, I’m glad you called. I misunderstood. You sound older than 17 to me.
RUSH: If your family is getting a tax refund — and please, Sarah, don’t doubt me on this — it simply means that your family is paying more tax than you owe during the year. Now, a lot of people do this on purpose. Does your dad work or your mom work or just one of them?
CALLER: My dad works. My mom is on disability.
RUSH: Does your dad run his own business or is he employed someplace?
CALLER: He’s a truck driver.
RUSH: Okay. Well, the odds are that every paycheck money is deducted, some for federal taxes, some for Social Security, that’s payroll taxes, and there are other deductions in there. Now, your father sets up how much he wants deducted from his paycheck with the employer on his W-4 form. That’s where he claims the number of dependents in his family like how many children, how many people live in the house, and then that determines how much money is deducted from his check every pay period. Then when you file your taxes, what happens is, if you’ve overpaid based on what you owe, if your father has overpaid, that’s what your refund is.
They are giving you your money back, but they’re not paying you any interest on your money that they have held. The fix for this is for your father to readjust his dependents on the W-4 form. Now, some people like getting the refund because it’s a big lump sum of money that they get every year. Others argue that it’s a mistake to let the government keep that money all year so that you can’t use it, then send it back to you in a lump sum every year without any interest. But they’re not sending you back nearly everything that you have paid. They’re not sending back every tax dollar your father’s paid. It’s just a portion of it.
RUSH: So your question was, why do you have to pay it in the first place if they’re just gonna send it back to you, right?
CALLER: Yes, sir.
RUSH: Right. Well, they’re not sending nearly all of it back to you.
RUSH: They’re just sending back what you have paid that you shouldn’t have. You didn’t owe that money.
CALLER: Then why do they take it in the first place if we didn’t owe it?
RUSH: Well, because my guess is that your dad wants to play it safe and not underpay his taxes and not have to owe anything. My guess is that your dad’s like everybody else, doesn’t want the government come hounding him for money, so he’s having more withheld from his paycheck than necessary so that he doesn’t become a target. Because it’s all up to your dad, really, whoever the employee is, you’ll find this out when you get your first job. I’ll tell you a little story. I never got a big refund. When I first started working, I never got a big refund. And a lot of people I worked with did. And every year they’re bragging to me about their refund and so forth. My father was a lawyer and his secretary did my taxes, so I’d send her all my credit card receipts and I said, “Look, Joyce, just play every game you can here, will you? I want to get a big refund like all my friends are getting.” She said, “I can’t do anything with these credit card receipts. You don’t have any deductions. It’s real simple. You’re not getting a refund because you’re not having that much withheld.”
She said, “You’re actually doing it the smart way. You’re keeping control of your money year round. These people are letting the government have a whole bunch of their money
all year that they don’t get use, then it’s coming back to ’em with no interest.” You may not understand the no-interest business yet, but they take it in the first place even though you didn’t owe it because they have inculcated everybody with fear of them. The last thing people want in this country is to get a letter from the IRS saying that they owe money or that they’re being audited or something of the sort. So the best way to do it is to have a little bit more withheld than what you really owe, and when you file your return the next year, then you’ll get that money back, but it’s a very small portion of what your family has actually paid in taxes. The overpayment is probably pretty small. Now, your basic question, “Why pay taxes?” (laughing) That would be an interesting answer altogether, just from starting from square one. There are reasons, of course, but has any of this helped? I don’t want you to hang up more confused than you were when you called.
CALLER: Yes, sir. I understand better than before.
RUSH: Okay. Good. It’s real simple. Your father has determined that it’s probably safer to have more money withheld from his check every pay period than is necessary just to be safe, just to make sure that all of his taxes are paid.
RUSH: And if he ends up having more withheld than was necessary then whatever that amount is is refunded to you. But it’s nowhere near the total amount your family paid in taxes. Whatever the refund is it’s nowhere near the total amount. Your family still paid a lot of taxes.
RUSH: Hmm. Yeah. You’re frustrated. It’s not even your money yet.
CALLER: I’ve already seen how much they’ve taken out of my paycheck. I started work last summer, and they’re taking $50-plus out of my paycheck.
RUSH: Well, then you do know about it. They’re taking $50 plus out of your paycheck. Do you get a refund when you file an income tax return?
CALLER: Not yet. I only started last summer.
RUSH: Okay. Well, you haven’t earned enough money yet, then, to legally file a return, or maybe you have and you just don’t know it in which case we’re not gonna tell anybody. Because on the EIB Network ignorance of tax law is fine with us. But you will remember this conversation as you get older and you see what’s happening, and my advice would be do what you want. I personally, once I figured out what was happening, every April 15th, Sarah, I want to either owe them nothing or just a little. I want complete use of all of my money, as much of it as I can throughout the year. Because whatever I get back in a refund is never gonna have any interest to it so that means the government’s kept a lot of my money, and I’ve lost the value of it.
But some people like the big refund because it’s the one time in their lives they’re gonna have that big lump where they can go out and buy the plasma TV or what have you. But I appreciate the call. Thanks for the opportunity to explain it. Sorry I misunderstand you at first but I gotta run. Sarah, let me tell you this. This is the best way to explain this to you. When I die, which is going to be a long time from now, I want my last check to be written to the IRS, and I want it to bounce.