Understanding the Key Differences between Tax Refunds vs Returns + Important W-4 Tips

Thanks for the explanation! Quick question - if I'm self-employed and make quarterly payments, does the same basic idea apply? Should I be aiming to pay almost exactly what I'll owe, or is there some buffer I should keep in mind so I don't underpay and get penalized?

For self-employed individuals making quarterly estimated payments, the same principle applies - you want to match your payments to your actual tax liability, but with a slight buffer to avoid underpayment penalties. The IRS generally expects you to pay at least 90% of your current year tax or 100% of last year's tax (110% if your income is over $150,000) through quarterly payments to avoid penalties. I recommend calculating your expected annual income, then determining quarterly payments based on that projection. It's better to slightly overpay than underpay since the underpayment penalties can be frustrating. If your income fluctuates throughout the year, you can adjust your quarterly payments accordingly.

Does this actually work with all the different tax situations? I have rental income, a W2 job, and some 1099 side gig stuff. Would it be able to handle something complicated like that?

I'm skeptical. How does it compare to just using the IRS withholding calculator? Seems like that would do the same thing for free...

It definitely handles complex tax situations including multiple income streams. The advantage over the standard IRS calculator is that it actually reviews your full tax history and finds patterns you wouldn't catch yourself. My situation includes both W-2 and some freelance work, and it properly accounted for both. The difference from the IRS calculator is that it's much more comprehensive and provides specific recommendations based on your actual filing history instead of just a single point-in-time calculation. It helped me understand the relationship between my deductions, credits, and withholding in a way the basic calculator never did.

How does this actually work? Do they just call and wait on hold for you? Seems weird that they can somehow get through faster than if I call myself.

This sounds like a scam. There's no way to "skip the line" with the IRS. They're understaffed and everyone has to wait. I'm calling BS on this.

They use an automated system that waits on hold for you and then calls you when they reach an agent. It's not about "skipping the line" - you're still in the same queue as everyone else, but their system waits in that queue instead of you having to stay on the phone yourself. It's basically like having someone wait in a physical line for you - when they get to the front, they call you to come take their place. The IRS doesn't know or care who's physically listening to the hold music. And honestly, given that I was trying to resolve an issue where my employer wasn't handling my withholding correctly despite a properly filled W-4, the time saved was absolutely worth it.

So how exactly do you account for the child tax credit on the new W-4? I have 2 kids but always end up with a $5000 refund. I feel like I'm filling something out wrong but I'm afraid to adjust it and end up owing money.

On the current W-4 form, you'll want to use Step 3 specifically for tax credits. For each dependent child under 17, you can enter $2,000 per child (so $4,000 total for your two kids). This tells your employer to withhold less throughout the year because they know you'll be getting these credits. If you're still getting a huge refund after doing this, look at your most recent tax return and see where the extra refund is coming from. It might be from other credits or deductions you qualify for that aren't accounted for in your withholding. You can further adjust your W-4 by using line 4(b) to list additional deductions or 4(c) to request additional withholding if needed.

Bonuses are considered "supplemental wages" and are typically withheld at a flat 22% federal rate (higher for amounts over $1 million). The good news is that when you file your tax return, bonuses are just treated as regular income. If your actual tax bracket is lower than 22%, you'll get the difference back in your refund.

Thanks for explaining! That makes so much more sense now. So basically there's nothing I can do to prevent the high withholding when I get the bonus, but I'll get the extra back when I file my taxes if I'm in a lower bracket?

Exactly right! The 22% withholding on bonuses is just the default rate employers use - it's not necessarily your actual tax rate. When you file your return, that bonus income gets added to your regular salary and taxed at your normal marginal rate. If you're in the 12% bracket, for example, you'll get back about 10% of what was withheld from your bonus. It's one of those situations where the withholding system errs on the side of taking too much rather than too little.