Taking Home Your Take Home Pay Is Not Illegal

A common complaint, heard weekly or bi-weekly depending upon how frequently you receive your paycheck, and which is uttered by both Republicans and Democrats, is “Dang it, look how much taxes they took out of my paycheck.”  It’s a legitimate complaint.

Americans also are frequently informed, via the news media, that many in America are living paycheck to paycheck, struggling to make ends meet.

One clear answer to why this is is the tax burden imposed on Americans by federal, state, and local governments.  But there is also another reason, amongest others, as to why this is, and this reason is in large part a self-inflicted monthly tax burden.

In 2011, the average tax refund Americans received was $2,913.00.  This amounts to the average American taxpayer denying themselves the use of $242.75 per month.  This is no little amount of money, and it would go far in assisting Americans whom we are told are living paycheck to paycheck.  But why are Americans denying themselves $242.75 of their hard earned pay every month?

Part of the reason why Americans are denying themselves this $242.75 every month is because they have been conditioned to consider a tax refund as new found money, a cash bonanza you could call it, like hitting the lottery, and there is much rejoicing when these refunds hit Americans’ mailboxes, and the common paycheck complaint uttered throughout the remainder of the year is very temporarily forgotten.

The more important, and actual, reason Americans are denying themselves this $242.75 per month is the fault of the IRS W4 Form (pdf of 2 pgs.), which each hard working American fills out for their employer who collects the taxes to forward to the government.  The W4 Form is filled out by working Americans so that the employer can calculate tax withholding.

Because Americans’ paychecks are about to become smaller, once again, thanks to new tax deal the government has cut for itself,

-A consequence of the tax agreement is to increase payroll taxes on 155m American workers by $125B. We know this hurts middle and low income workers and their families. We understand that this is a very big tax increase, and that it will knock at least 1% of 2013 GDP (and beyond). We’re sorry about this, it couldn’t be helped. Nancy Pelosi and Harry Reid insisted it be this way.

Americans should probably look into amending their withholding taxes via the IRS W4 Form, but they should not rely on the IRS’s tax withholding calculations as determined by the W4 Form, because it is designed to benefit the government, rather than Americans’ weekly take home pay.  If you are filling out the IRS W4 Form, with its “Enter “1” for yourself” etc. suggestions, you will be denying yourself a portion of your take home pay you so badly need to make ends meet, and I think this may be by design, because the government is badly in need of money, your money.

Americans can legally claim up to 10 exemptions, if I am not mistaken, on the IRS W4 Form, though the way the form is designed, Americans have no way of knowing this, and the IRS’s calculation suggestions will definitely not inform Americans of this.

If you question this, and I am not a tax preparer or attorney, go and talk with your tax preparer, or your human resources personnel, but the proof of this assertion is in the average tax refund Americans receive each year.  Why live without that $242.75 per month?

Quote obtained via a Business Insider article titled The White House Left Out One Inconvenient Item On Its Fiscal Cliff Deal Fact Sheet, linked via Donald Sensing.

Posted by .(JavaScript must be enabled to view this email address) on 01/03 at 12:08 PM
  1. John -

    A very Happy New Year to you and yours.

    Now, for most, it will be a travail and beyond their capabilities. but . . .

    You can ask your employer to make you a 1099 employee, or a no ‘with-holding’ employee, or re-classify you as an independent contractor.  It can be done.

    Or, you can claim enough exemptions to cover your whole income, and take home mist all of you check.

    1099’s win, though, because SS and Medicare are not withdrawn.  You get your whole check.

    What a concept!!!

    Posted by .(JavaScript must be enabled to view this email address)  on  01/03  at  07:47 PM
  2. Good advice on keeping more of one’s earnings throughout year, but keep in mind that a bunch of that money paid out in 2011 as “refunds” consisted of Earned Income Tax Credits . These funds are not earned as wages and aren’t available to bolster paychecks, no matter how the many recipients (close to 25.6 million in 2012) adjust their withholding.

    That said - and beside the point but just for the heck of it -  I wanted to get the percentage of IRS refunded taxes in 2011 that were actually EITC.  I used the total refund payout ($318.5 billion) from your CNN Money link and the earned income payout ($60.7 billion) from my link to get an eye-popping 19% of the total as EITC - right at one in five tax refund dollars being “refunded” to someone who hadn’t paid it in.

    But then I realized that the CNN refund total is for 2010, paid out in 2011, and the EITC table is for 2011, paid out in 2012.  Still, 19%-ish, give or take.

    Anyway and back to the point, a lot of those $2900+ direct deposits from the IRS consist of this “earned” income money. Their recipients - many of the paycheck-to-paycheck people you mention - don’t have much incentive to fiddle with their withholding.

    Posted by .(JavaScript must be enabled to view this email address)  on  01/03  at  08:29 PM
  3. We’ve got greed and tax problems on many levels, of course you already know that.

    Posted by Yabu  on  01/03  at  09:22 PM
  4. I ran a business for many years and had several accountants on standby because the tax laws are so convoluted. Yes, I DID build that “in spite of” the rotten assed gov’t AND I paid far more than my fair share.

    Now, I still run my own show but keep all the money and have been this way since 2002 and intend to stay that way. From my first job at McDonald’s at 15 years of age til now I’ve never taken to the idea of giving my earned money away to anyone nor of letting anyone take it.

    Nope.
    The politicians can act like criminals if they like but their words mean nothing to me except warning signs to stay away from them. I stand for the real idea of america where each person tries to do and achieve his best and criminals will not get in my way for long.

    For 20 years I tried to get my brother to become self employed but for reasons unknown to me he never would. Oh, he always had reasons but they were bullshit reasons. Once, he told me how much he was *getting back* for a refund and I asked him why he doesn’t change his things so his paychecks would be more rather than giving it as an interest free loan to the gov’t. He said, “I’ll just waste it, so I’d rather get it back as a big chunk”.

    So he can waste it. I have very little do to with him and people like him. They’ll drag you down.

    Posted by .(JavaScript must be enabled to view this email address)  on  01/03  at  11:37 PM
  5. JB, your suggestion is worth considering, but I think you’d admit that if amending a simple W4 is beyond individuals’ capabilities, filing a self-employed tax return for these said same individuals would be akin to reading Egyptian hieroglyphics.

    Posted by John Venlet  on  01/05  at  10:06 AM
  6. Linda, thanks for the additional insights you provided with your research.

    I still think the idea to amend your W4 withholding allowances has merit for actual hard working Americans, whom still outnumber those willing and eager to ride hard working Americans’ coattails.

    Posted by John Venlet  on  01/05  at  10:11 AM
  7. John -

    As you know, I am a 1099 - I have to justify my income and my deductions, but frankly, that is a piece of cake next forking money over to bureaucrats.

    It is more difficult as a mere employee to insist upon 1099 status, and yes, most would find my suggestion to be hieroglyphics.  For the sake of truth, I would not advise claiming non-existent dependents.  Lie to gummint and they will nail you.

    That much admitted, folks need to “smarten up” or else, their own bucks sprout wings and fly on to D.C.  Most do not even know that the Internal Revenue Service is a private corporation, and not an arm of gummint.  They are officially located “offshore.”  As such, the IRS has no legal standing to force citizens to “ante up.”  The IRS itself is nothing but a licensed gummint contractor - very much like the Federal Reserve Bank - both of which were declared “constitutional” by very dubious end results.  Do your own research - I did mine years ago.

    In both cases, citizens should properly ignore both institutions, and brain-dead judges who do not know the law.  Yes, doing so can land you in the jail gummint is “contracting” to incarcerate citizens, but there are the legal ways around that.

    Or, you can cave.

    One can choose to be “American” . . . or not.

    Posted by .(JavaScript must be enabled to view this email address)  on  01/05  at  10:23 PM

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