Saturday, April 17, 2010

Income Tax Injustice: Tax Withholding

April the 15th of any year has to be a cursed day in this country. Obviously, I am talking about the Constitutional abomination known as the income tax. Every year at this time I end up in a rant because the frustration has grown ever higher. I'm going to try something different. Instead of ranting I am going to deconstruct things about the abomination that utterly tick me off. Come with me, let's take a look.

As usual, I get to pay. This time it is because my wife and I have a total of six jobs for the year. We both changed jobs and we both held a second job. The problem is that the withholding system is stupid. It assumes you only have one job. If you have a dual income family (and nowadays who doesn't?) the amount held back will usually be too little.

Withholding is calculated based on the employees projected annual income assuming no raises or promotions. The problem is that multiple income sources, when added together, often equal a higher (unexpected) tax bracket. So, at the end of the year you get a whammy.

Additionally, if you are working at a low paying part time job, there is a required minimum of about two-eighty per week before withholding kicks in. You don't notice that little to nothing is held back because the overall check is so small. However, at the end of the year it adds up to several thousand dollars in untaxed income. Even if your other jobs are holding back at the highest possible rate it may not be enough to cover the total liability.

The biggest injustice of the withholding system is that the taxpayers lose sight of precisely how much government costs. Instead, they bank on getting the maximum tax refund possible. After you have loaned the government your money, interest free no less, you are so happy to get some back that the idea you should be angry never occurs to you.

The alternative of course is the Fairtax. HR 25 continues to sit in limbo for about the tenth or eleventh year in a row. We'll talk more about that in another post.

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