This is a question that clients ask their CPA’s every
year. While it does seem unfair that
your co-worker who says he earns the same as you and claims the same
withholding status and exemptions as you, gets a bigger refund every year
–there are many reasons why this happens.
When you look at all the pieces of information that go into a tax
return, it is easier to see that no two situations are ever really the same.
Your salary and withholding tax are only two pieces of a
much bigger puzzle. Income, deductions, number
of exemptions, tax credits, phase-out of exemptions, deductions and credits, as
well as withholding and estimated tax payments, are all factors in determining
the amount of your refund or (gasp!) the amount you owe the government at year
end.
First, your annual income tax calculation starts with ALL
sources of taxable income for the year.
In addition to your weekly paycheck, this can include your spouse’s
salary, interest, dividends, capital gains or losses, unemployment, retirement
distributions, social security, rental income, small business income, cancelled
debts, alimony, gambling winnings, and even bribes!
