A common question often asked during tax season is, “What taxes do you get back?” This can be a complex question due to the intricacies of the tax system, but this article will seek to provide a simplified explanation of the various taxes you might get back through a tax refund.
Understanding the Basics: Income Tax
In the United States, the federal government and most state governments collect income tax, which is a tax levied on the income of individuals or entities. Throughout the year, an employer will typically withhold a certain amount of your income for taxes. When you file your tax return, you calculate how much tax you owe based on your taxable income. If too much tax was withheld relative to what you owe, you will receive a tax refund.
Federal Income Tax
Federal income tax is progressive, meaning the tax rate increases as the taxable amount of income increases. The U.S. uses a system of tax brackets to determine the tax rate for different portions of your income. When you file your federal tax return (Form 1040), you can get back the portion of federal income tax that was over-withheld throughout the year.
State and Local Income Tax
Depending on where you live, you may also pay state and local income tax. The rules for these taxes vary by location. Like federal taxes, if too much was withheld throughout the year, you could receive a refund when you file your state or local tax return.
Tax Deductions and Credits
Tax deductions and credits can lower your tax bill, increasing the chance of a refund. Deductions reduce your taxable income, while credits reduce your tax liability dollar for dollar. Examples include the Child Tax Credit, Earned Income Tax Credit, and deductions for student loan interest or contributions to retirement accounts.
Sales Taxes and Property Taxes
It’s worth noting that not all taxes are refundable. Sales taxes, for example, are generally not refundable unless you’re a business that can claim input tax credits for GST/HST paid on business purchases. Similarly, property taxes are usually not refundable.
Refunds of Other Taxes
Some specific circumstances could lead to refunds of other taxes. For example, if you’ve overpaid taxes on early retirement account distributions or had too much tax withheld on unemployment benefits, you might receive a refund for these.
In general, when people ask, “What taxes do you get back?” they’re typically referring to getting a refund on overpaid federal and state income taxes. The amount of your refund will depend on factors like your total income, the amount of tax that was withheld during the year, and any tax credits or deductions for which you’re eligible.
It’s always a good idea to consult with a tax professional to understand your specific situation better. They can help you optimize your tax strategy, make sure all deductions and credits are applied correctly, and potentially increase your refund.