Employers withhold estimated tax from every paycheque and send it to the government throughout the year.
Step 1: Let's Learn
Read it, or press Listen and follow the words.
It is an estimate
Withholding is based on what you told your employer. It rarely matches the true amount exactly.
Filing settles it
A tax return computes what you actually owed. Overpaying gives a refund; underpaying gives a bill.
A refund is your own money
A refund returns what you overpaid. It is not a gift, and it earned no interest while the government held it.
The trade-off
Withholding too little risks a bill and possible penalties. Many people prefer a small refund to a surprise.
Keep records
Income statements and receipts for deductible expenses are what make filing quick and a claim defensible.
Withholding is an estimate paid in advance
An employer estimates the tax due and sends it through the year. The return reconciles the estimate with what was actually owed, producing either a refund or a further payment.
A refund is a return of overpayment
It is money that was earned earlier in the year and lent to the tax authority without interest. Treating it as a windfall misdescribes what it is, though many people value it as forced saving.
Withholding can be adjusted
Changing the declared allowances changes how much is withheld each period. The trade is between a larger regular pay packet and a larger refund later; the total tax owed is unaffected either way.
Keep the records
Income statements, receipts for deductible expenses and prior returns are what make filing accurate and what support it if questioned. Record-keeping through the year is far easier than reconstruction afterwards.
Step 2: Try It Yourself
Tap and try it out.
Withheld
Owed
Withheld has the most. It has 500 more than Owed.
Step 3: Watch an Example
One step at a time.
Watch Elena Settle Her Year
Elena had $5500 withheld and her return shows $5000 actually owed.
- Step 1
She compares the two figures: 5500 withheld against 5000 owed.
Step 4: Your Turn
Practice makes it stick.
The Refund
Problem 1 of 2
Withheld $5500, owed $5000. Refund in dollars?
dollars
The Bill
Problem 2 of 2
Withheld $4000, owed $4600. Amount still due, in dollars?
dollars
Settle Up
1 of 8
Withheld $7000, owed $6200. Refund in dollars?
2 of 8
Withheld $3000, owed $3500. Amount due in dollars?
3 of 8
Withheld $5000, owed $5000. Refund in dollars?
4 of 8
Is a refund extra money from the government? 1 yes, 0 no.
5 of 8
Does money held as withholding earn you interest? 1 yes, 0 no.
6 of 8
$460 withheld monthly for 12 months. Annual withholding in dollars?
7 of 8
Put the tax year in order.
- 1Tax is withheld from each paycheque all year.
- 2File a return computing what was actually owed.
- 3Receive a refund or pay the balance.
- 4Tell your employer your withholding details.
8 of 8
Withheld $8000, owed $7100. Refund in dollars?
Step 5: Quick Check
Show what you know.
Question 1 of 2
Withheld $6000, owed $5400. Refund in dollars?
Question 2 of 2
What is a tax refund?
What You Learned
- Employers withhold estimated tax throughout the year.
- Filing a return settles the difference, as a refund or a bill.
- A refund is returned overpayment, not extra money.