How is it that I made over $40,000 last year but only getting $62 in state income taxes made way less in 2021 but got $500 back? Why?
So many possibilities.As others have said, in general, two types of people get money back: First, people who overpay all year for some reason (most people, and that’s what most people call a tax refund, the government generously refunding their overpayment!)Second, people who the government wants to encourage or take pity on. That is called a credit. When you’re down and out, the government says “how bout we give you $1000 per child you have, because parenting is hard!” Thus the Child Tax Credit. If you’re poor, they may give you a few thousand bucks for being poor, called Earned Income Credit. These are just backdoors to welfare by another name. I don’t even mean that in a bad way. I dream of a tax refund as much as anyone else. One more, Education Credits. If you were in school, they say Yay School! and give you money.So one of the questions I get asked the most is “why do I owe money, I’m just a single guy with no family and not in school working full-time! Why don’t they just tax rich people?” Well, the reality is at that point, this guy is rich people. He may make $15/hr, but with nothing “important” to spend it on, it couldn’t be more fair to tax anyone else! (Unless you believe that taxing none of all evenly is more fair, that’s up to you.)But the government will pay you or give you a discount for basically anything it wants you to do, get married, have kids, buy a house, go to school, give to charity, etc. And they’ll pay you for anything they take pity on: medical expenses, smart debt, moving expenses for a better life…Now this is an important part: with many Credits, you don’t even have to pay in to get the “refund.” Local strip mall tax offices are often crowded with people off the street, walking in with kids that aren’t theirs, and saying, “look at me, I have five kids, let me make up a few social security numbers for you so you can give me $5000! And I’m in school, and we live off $13,000/yr.” Really. The IRS isn’t stupid, but you can only go after so many people a year. And this will stay on their record til the day they die, so next year when they bring different kids or different social security numbers it’ll catch up. But in year one, it often works. Because Credits.Long story short, as you raise the ranks, if you pay the right amount of taxes, your refund will decrease. But more likely you’ll only raise the ranks by making good choices, which will increase your refund. Or you’ll face a disaster, which will increase your refund.