Wednesday, April 2, 2008

Busy Season - Tax Time

I've got about two more weeks of busy season and then things should die down and be more manageable.

March is a slow month for tax season. We get our peak in late January into early February. That's because all the big refund people come as soon as they get their W-2's. People don't realize how much wealth re-distribution that goes on during tax season. I never realized it until I got into my tax business.

That wealth redistribution is what makes the tax business so lucrative. With the Earned Income Credit, a family of four can make around $20,000. Someone like your average construction worker. The guy could have zero dollars withheld for taxes. He would still get somewhere in the neighborhood of $6500 in a refund. How?

Two refundable credits:
1. Earned Income Credit - around $4500
2. Add'l Child Tax Credit - $2,000

That's like receiving a 32% Annual Bonus check from the Government. Imagine getting 32% of your annual income as a tax rebate check.

Give the guy some credit, because he is paying his Social Security and Medicare Taxes which are in the neighborhood of $1500. But even if you net the two, he's not doing bad with a $4,000 refund, which is more like 20% of his annual income.

But if the tax business is that lucrative, why is it that I still find myself as the one getting my annual bonus checks?


Alice Wills Gold said...

$20, do we get that?

Rach said...

do you mean the guy earns around $20,000 a year, in order to receive his $4000 refund? Sounds nice yeah, but I would not want to try to live on $20,000 a year being a family of 4. We did it when we first lived here and its so hard to make ends meet... remember, when you are 40, with financial freedom, you won't have to look forward to a tax refund... you will be the one paying the construction worker!

crashomatic said...

A small miscommunication. The guy is earning around $20k, and he'll get a $6500 refund.

So, he's really living on $26,500, less Social Security withheld, and ends up being around $25k.