I have personally seen tax software be
wrong. Some tax software is off $1-6 dollars. How this happens you might
be asking yourself, well it's simple really and I will explain it. The
IRS gives you two ways to compute your tax. Either use the tax table or
figure it using a basic formula. The table has many levels of taxable
income listed. Every $50 dollars more of taxable income the table's
level increases to the next level Example 1000-1050 is one level. The
tax table figures one tax for the whole level. What the tax table does
is take the tax of the middle of the level, 1025, and then computes the
tax, $103, and applies it for the whole level of 1000-1050. If your
taxable income was 1005 you would be paying the same tax as someone that
had 1045. Where as if you compute your tax using the tax formula 1005
would be $101 and 1045 would be 105. That makes a $4 difference.
You have the choice to use either method.
If your taxable income was 1049 it is clearly better to use the table
and pay tax of 103, instead of 105 if you used the formula, which saves
you $2.
The problem arises when tax software
uses only the table to compute tax. If your taxable income is 1005 they
simply use the tax table and you will pay a tax of $103. If you computed
it using the formula your tax would only be $101, results in you losing
$2. The same $1-3 your neighbor, relative, and half of America lost. It
really adds up fast.
You might be asking were the other $1-3
might come from? Well it's simple; those individuals that are eligible
for Additional Child Tax Credit get robbed another $1-3. Since the IRS
bases the Child Tax Credit on your tax. It is easy to understand why the
Additional Child Tax Credit would be wrong. For example you have one
child and by the table's standard your taxable income of 5450 computes
548 in tax. Your child tax credit will then be only 548. That makes your
Additional Child Tax Credit 452. Now if you use the formula your tax on
5450 would be 545. That makes your Additional Child Tax Credit 455.
Which I want to add for those who do not know the Additional Child Tax
Credit is refundable which means money in your pocket. It basically
gives you what is left from the Child Tax Credit (1000/child) IF you
qualify.
To sum it up tax software that only
uses the tax table will cheat about 49% of filers $1-3 and of those
filers the ones that qualify for the Additional Child Tax Credit are
shorted another $1-3. You might be thinking it's not a lot and it's not
everyone. But why let the government keep all of that money?
