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are you entitled to the full amount of the standard deduction or is it based on how much taxes you paid?
I think I'm having trouble understanding the difference between deductions and tax refunds
9 Answers
- ShayLv 72 weeks ago
A deduction reduces the amount of income you pay taxes on. You always get the full amount of standard deduction you qualify for no matter what you earned or what you paid.
A tax refund is the amount that you overpaid on your tax liability.
Example: A person who is single earned $20,000 for the year.
A single person who is not a dependent gets a standard deduction of $12,400. So, instead of owing income tax on the full amount of their earnings - they get to deduct that standard deduction and now they only owe taxes on $7,600 of their income.
(20,000 - 12,400 = 7,600) (income minus standard deduction equals taxable income)
Their employer withholds federal income tax from their paychecks based on how they filled out the W-4 form when they was hired. In this example, we will assume that their employer withheld $900 in federal income tax.
The tax liability for a taxable income of $7,600 is $758. But, they paid $900. This creates a refund of $142.
(900 - 758 = 142) (Taxes paid minus tax liability equals refund) (BUT if the taxes paid are less than the tax liability - the person would owe more instead of getting a refund)
Again, that was a very simple example. Actual taxes can be a little more complicated. The standard deduction is different for single vs married vs head of household. For some people, it is better to itemize their deductions instead of using the standard deduction. There is a list of things that can count toward itemizing deductions BUT you can't use both the itemized list AND the standard deduction, so it only makes sense to itemize when you have enough qualifying things to be higher than the standard deduction. (the average person doesn't)
There are also things called TAX CREDITS that can increase your refund. For example, you might qualify for an earned income credit if your income and age qualifies you for it. The amount of an earned income credit would be based on your total income and not your income after the standard deduction. There are some other tax credits for things like having children and education tax credits. You would only know what you qualify for by either talking to a tax professional or using a decent online tax program that will ask you questions to guide you to what you qualify for.
BTW - if a person's total income was below their standard deduction that just means that they have NO taxable income and would qualify for a FULL refund of any federal income taxes that they had paid during the year.
Hope these examples helped clear it up a little. If you just have W-2 forms and nothing too complicated, I would suggest finding a decent online tax program like Turbo Tax or H&R block online and entering your information and answering the questions that they ask on those programs.
- NALv 72 weeks ago
It's never based on the amount of taxes paid.
It is based on filing status, dependency, age, ability to see and income.
- John AldenLv 72 weeks ago
The deduction reduces your gross income which lowers the amount of tax you owe. The refund is what is leftover from the money taken out of your paycheck in small portions to pay the tax you will owe at the end of the year.
The deduction can be the standard, of which you are entitled to the full amount always, or it is adjusted upwards based on your circumstances. Or, if you have enough you can itemize your deductions to reach a higher deduction amount. But if you are asking this question at all, I suspect you will not benefit from itemized deductions.
- SlickterpLv 72 weeks ago
You get it all, but you don't get any of it in your pocket. Deductions reduce your income. A refund is what you get back if you overpaid your taxes.
- ?Lv 72 weeks ago
A tax refund is similar to getting back change when you pay with a $20 bill. You paid more than you needed to so you get the excess back.
Thus a tax refund cannot be more than the tax you paid during the year.
The standard deduction is a reduction of the amount of income that you owed tax on. It cannot reduce your taxable income below 0, but you still write the full number on your tax form. (for example: income $10,000, standard deduction $12,400, taxed income $0)
For dependents the standard deduction is limited to the amount they actually earn. This is because it is assumed that any investment income is really the parents' investments.
- A HunchLv 72 weeks ago
If you are dependent, it's based on your income.
For everyone else, it's "standard" or higher, if you itemize.
- Anonymous2 weeks ago
I am entitled to double the amount
- Anonymous2 weeks ago
Deductions helps you to pay less in taxes. Refund is how much money you get back because you overpaid in taxes or the government withheld too much.
You’re entitled to the full refund.
Deductions is a list of your losses or tax credits that you’re entitled to. Suppose you use your vehicle as part of your job, you’re entitled to some deductions like gas costs or the depreciation of your car due to excessive miles.