The saying “It’s refund season” is more than just a catchphrase. For many Americans, it is a reality that fuels their entire year. For the next coming weeks, millions of returns will be filed with the hope (or expectation) that they will receive money back.
However, for many, they may not receive as much as they had hoped in a refund. In fact, Americans paid more in taxes in 2015 than they did in 2014. According to a report by the Tax Foundation, Americans paid 10 percent more in taxes last year compared to 2014, which amounted to an additional $129 billion paid in federal income taxes.
So how does this happen? This post will highlight an explanation.
Essentially, the U.S. Tax Code is designed to increase taxes faster than people’s incomes. So even though people earned more (due to an improving economy and job growth), they ended up paying more because their incomes pushed them into higher tax brackets. As incomes increase, there may be fewer deductions that may be available, and the impact of remaining exemptions may not be as valuable.
Because of this, even though Americans’ incomes increased by 6.1 percent compared to 2014, they ended up paying 10 percent more in taxes in that same period.
However, as we noted in prior posts, making more money does not always mean higher taxes if you are able to maximize all the deductions and exemptions that are available to you. If you have questions about how to make these work for you, an experienced tax law attorney can help.
The preceding is not legal advice.