Tax Refund vs. Tax Liability: What’s the Difference?

Tax Refund vs. Tax Liability: What’s the Difference?

Tax season is always a busy time, and one that many look forward to. Not only do most individuals look forward to a nice chunk of money back, so do the businesses that rely on people spending that money.  Read on to gain a better understanding of your tax refund vs. your tax liability, and why your tax return may not be as high as you’d hoped this year.

Tax Basics

Your taxable income and filing status will determine which tax bracket you fall into, which will then give you your tax rate. No matter the tax bracket you fall into (and thus your tax rate), it’s important to remember that not all your income will be charged at that rate.

Most people are very happy when they receive their tax refund, and many treat it like a free chunk of money from the government. The truth is, when you receive a refund you are simply getting back your own money that has been loaned to the government interest-free.

Tax Refund

Your tax liability is simply the amount you owe in taxes every year, and is determined by four things: your filing status, your taxable income, your tax bracket, and tax credits. Filing status is simply based on your household and how you identify.

Tax Liability

Your tax liability is simply the amount you owe in taxes every year, and is determined by four things: your filing status, your taxable income, your tax bracket, and tax credits.

Do You Owe More of Less?

Do You Owe More of Less?

What really matters, and what you should look to compare, is your tax liability because that is the amount you actually owe to the government. Thus, if you really want to know the impact of the new tax law you need to compare your tax liability for this year with that of last year.

How Come My Refund is Smaller, Or Worse, I Owe?!

The answer for why your refund is smaller, or why you may owe taxes, this year is partially based on your individual situation and how changes in the tax brackets, tax percentages, and deductions have affected you.

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