Just a quick note - anything that's deductible from gross income or net income to arrive at net taxable income isn't "subject to income tax."
If the discussion is focused on income tax, then the millionaires who can hide or defer or legally avoid tax on their personal earnings are being disingenuous when they say they pay taxe…
Just a quick note - anything that's deductible from gross income or net income to arrive at net taxable income isn't "subject to income tax."
If the discussion is focused on income tax, then the millionaires who can hide or defer or legally avoid tax on their personal earnings are being disingenuous when they say they pay taxes when all they are referring to is FICA contributions or the tax withheld on their employees. Those really aren't "their" taxes - they are someone else's, and they are deductions from gross revenue or net income and hence never taxed as "net taxable income" at the corporate level. It's not just tax law but also basic accounting.
I would just say, in closing, that social security taxes and medicare taxes need to be expanded to include incomes at all levels. And so to emulate the European social democracies.
Actually, I agree that the cap on income subject to FICA contributions (taxes) should be raised or outright eliminated, so I think we're on the same page.
I just think it's important to remember that social security and Medicare (FICA) taxes are quite distinct from income tax.
FICA taxes are paid even when no income tax is due, e.g., when an individual has net taxable income below a certain amount or a net loss, whether becasue of small total earnings or because of carefully crafted tax avoidance schemes like Heather noted and that are referenced in her citation to the Guardian article. If I (hypothetically) make less than about 15,000 a year, basic deductions usually get the "hypothetical me" out of having to pay ANY income tax, and whatever got withheld for INCOME tax becomes my tax refund.
But there's no refund for FICA withholding that is taken out of my wages just because my earnings fell below the income threshold for INCOME tax.
One thing that I think is slightly mistated here is that somehow your tax refund is in any way relevant to your "tax". Tax refunds (with the exception of a few situations where tax credits are actually PAID to someone even if no tax has been withheld) are nothing more than the return of money that the taxpayer should have never paid. Tax refunds can, in most cases, be eliminated by simply adjusting your tax withholding. In the end, the result is IDENTICAL (almost) in that you will have paid in (after you get whatever refund is due) the exact same amount of tax. (I use the word almost because in fact if you overwithhold, you LOSE any benefit from interest you might earn on the withholdings and the government which now has your overpayment may actually earn some interest on that money until you claim your refund.
My point is that you should never really THINK about the "refund" because it is meaningless in terms of what you owe. It is merely the repayment of some money you have temporarily loaned to the government.
There is no refund on ANY tax owed, whether it is income tax or FICA. The monies go into different jars in the treasury, but in the end, they are both TAXES and should be considered as such. Bringing up tax "refunds" is just confusing the issue.
Maybe so, but only in rare cases does an employee ever get to claim a refund for over-withheld FICA contributions.
My point of course illustrated the difference between FICA and income tax - it had nothing to do with how many withholding exemptions one claims on a W-4. Suggestion: maybe instead of misdirecting the topic, please come up with an easier to understand illustration.
There are a lot of reasons one can have a refund aside from over-withholding, too. Net operating loss carry-back comes immediately to mind. It's not meaningless to think about a refund if you've overpaid for any reason, and a return by the government of overpaid taxes is, legally speaking, both semantically and technically a refund.
You are obviously missing my point. What is important is NOT the "refund" but rather the amount of tax you pay. Refunds are just a way of adjusting when you overdeposit taxes (as payments are a way of adjusting when you underdeposit). What matters is not at all that you get a refund but what your final "net" taxes and FICA are.
You are correct that it is rare to get a refund for over-withheld FICA because if you only have one job in a year (as most of us do), then the FICA is ALWAYS properly withheld (the company stops it when you reach the maximum). If you have TWO or more jobs and you make a total of more than $160,000 a year, then you MIGHT be eligible for a FICA refund but that is rare (since all companies will be withholding FICA and it can exceed the maximum).
Your comment about net operating loss etc is not at all relevant to personal income taxes which is what we are discussing. Individuals can not have that unless they own unincorporated businesses.
But again, my point is that refunds really have nothing to do with the net of taxes. You should onlye be thinking about the effects AFTER you have netted out any refunds (or underpayments) because the NET amounts are all that matter.
I didn't miss your point at all; I just think it's out of place in the discussion, and your attempt at semantically saying "it's not a refund because it was mine all along" is pure sophistry.
If anything, you missed my point.
My point was that income tax and FICA are two very different taxes based on two very different legal schemata, and a corporation paying half my share of FICA isn't really paying its own tax at all, and an individual with wage, salary or self-employment income always owes FICA tax/contribution but may owe no income tax at all.
That's why FICA and income tax appear as separate line items on an individual tax return.
Of course EVERY REFUND of ANY KIND has ALWAYS been YOURS all along!
That's what makes it a refund.
BTW, there are a lot of us who have S corps and family LLCs who enjoy the benefit of pass-through NOL as well as those among us who have unincorporated businesses.
Also, I think beginning in the '80s corporations started paying their CEOs in stock options in lieu of huge salaries, and the stock options aren't taxed as far as I know, thus lowering their 'taxable income'. Taxes are probably paid on any capital gains when the recipient sells, but capital gains taxes have been slashed, too. I'm happy to be corrected if I don't have this right.
Well, ALMOST correct. Stock options aren't taxes UNTIL they are exercised. And there are two kinds of stock options, qualified and non-qualified. Non-qualified options are ALWAYS taxable when exercised. I.e., if you are given 1000 stock options at $1 a share and at some point the stock is worth $10 a share and you exercise and sell, you net $9 a share and you owe REGULAR TAX (not capital gains tax) on the $9 a share.
If you hold the shares of non-qualified options, you still have to pay the tax owed immediately. Most people just do what is called a same-day sale and exercise the options and immediately sell them typically for exactly the same price as they paid for the options. That generates the cash needed to pay the tax on the gain (from the $1 purchase to the $10 value).
No problem -
Just a quick note - anything that's deductible from gross income or net income to arrive at net taxable income isn't "subject to income tax."
If the discussion is focused on income tax, then the millionaires who can hide or defer or legally avoid tax on their personal earnings are being disingenuous when they say they pay taxes when all they are referring to is FICA contributions or the tax withheld on their employees. Those really aren't "their" taxes - they are someone else's, and they are deductions from gross revenue or net income and hence never taxed as "net taxable income" at the corporate level. It's not just tax law but also basic accounting.
I would just say, in closing, that social security taxes and medicare taxes need to be expanded to include incomes at all levels. And so to emulate the European social democracies.
But I think you will disagree with this premise.
Actually, I agree that the cap on income subject to FICA contributions (taxes) should be raised or outright eliminated, so I think we're on the same page.
I just think it's important to remember that social security and Medicare (FICA) taxes are quite distinct from income tax.
FICA taxes are paid even when no income tax is due, e.g., when an individual has net taxable income below a certain amount or a net loss, whether becasue of small total earnings or because of carefully crafted tax avoidance schemes like Heather noted and that are referenced in her citation to the Guardian article. If I (hypothetically) make less than about 15,000 a year, basic deductions usually get the "hypothetical me" out of having to pay ANY income tax, and whatever got withheld for INCOME tax becomes my tax refund.
But there's no refund for FICA withholding that is taken out of my wages just because my earnings fell below the income threshold for INCOME tax.
Nice to hear someone who can differentiate, explain, and make sense
One thing that I think is slightly mistated here is that somehow your tax refund is in any way relevant to your "tax". Tax refunds (with the exception of a few situations where tax credits are actually PAID to someone even if no tax has been withheld) are nothing more than the return of money that the taxpayer should have never paid. Tax refunds can, in most cases, be eliminated by simply adjusting your tax withholding. In the end, the result is IDENTICAL (almost) in that you will have paid in (after you get whatever refund is due) the exact same amount of tax. (I use the word almost because in fact if you overwithhold, you LOSE any benefit from interest you might earn on the withholdings and the government which now has your overpayment may actually earn some interest on that money until you claim your refund.
My point is that you should never really THINK about the "refund" because it is meaningless in terms of what you owe. It is merely the repayment of some money you have temporarily loaned to the government.
There is no refund on ANY tax owed, whether it is income tax or FICA. The monies go into different jars in the treasury, but in the end, they are both TAXES and should be considered as such. Bringing up tax "refunds" is just confusing the issue.
Maybe so, but only in rare cases does an employee ever get to claim a refund for over-withheld FICA contributions.
My point of course illustrated the difference between FICA and income tax - it had nothing to do with how many withholding exemptions one claims on a W-4. Suggestion: maybe instead of misdirecting the topic, please come up with an easier to understand illustration.
There are a lot of reasons one can have a refund aside from over-withholding, too. Net operating loss carry-back comes immediately to mind. It's not meaningless to think about a refund if you've overpaid for any reason, and a return by the government of overpaid taxes is, legally speaking, both semantically and technically a refund.
You are obviously missing my point. What is important is NOT the "refund" but rather the amount of tax you pay. Refunds are just a way of adjusting when you overdeposit taxes (as payments are a way of adjusting when you underdeposit). What matters is not at all that you get a refund but what your final "net" taxes and FICA are.
You are correct that it is rare to get a refund for over-withheld FICA because if you only have one job in a year (as most of us do), then the FICA is ALWAYS properly withheld (the company stops it when you reach the maximum). If you have TWO or more jobs and you make a total of more than $160,000 a year, then you MIGHT be eligible for a FICA refund but that is rare (since all companies will be withholding FICA and it can exceed the maximum).
Your comment about net operating loss etc is not at all relevant to personal income taxes which is what we are discussing. Individuals can not have that unless they own unincorporated businesses.
But again, my point is that refunds really have nothing to do with the net of taxes. You should onlye be thinking about the effects AFTER you have netted out any refunds (or underpayments) because the NET amounts are all that matter.
I didn't miss your point at all; I just think it's out of place in the discussion, and your attempt at semantically saying "it's not a refund because it was mine all along" is pure sophistry.
If anything, you missed my point.
My point was that income tax and FICA are two very different taxes based on two very different legal schemata, and a corporation paying half my share of FICA isn't really paying its own tax at all, and an individual with wage, salary or self-employment income always owes FICA tax/contribution but may owe no income tax at all.
That's why FICA and income tax appear as separate line items on an individual tax return.
Of course EVERY REFUND of ANY KIND has ALWAYS been YOURS all along!
That's what makes it a refund.
BTW, there are a lot of us who have S corps and family LLCs who enjoy the benefit of pass-through NOL as well as those among us who have unincorporated businesses.
Thank you, Steve.
Also, I think beginning in the '80s corporations started paying their CEOs in stock options in lieu of huge salaries, and the stock options aren't taxed as far as I know, thus lowering their 'taxable income'. Taxes are probably paid on any capital gains when the recipient sells, but capital gains taxes have been slashed, too. I'm happy to be corrected if I don't have this right.
Well, ALMOST correct. Stock options aren't taxes UNTIL they are exercised. And there are two kinds of stock options, qualified and non-qualified. Non-qualified options are ALWAYS taxable when exercised. I.e., if you are given 1000 stock options at $1 a share and at some point the stock is worth $10 a share and you exercise and sell, you net $9 a share and you owe REGULAR TAX (not capital gains tax) on the $9 a share.
If you hold the shares of non-qualified options, you still have to pay the tax owed immediately. Most people just do what is called a same-day sale and exercise the options and immediately sell them typically for exactly the same price as they paid for the options. That generates the cash needed to pay the tax on the gain (from the $1 purchase to the $10 value).
Thanks for clearing that up.