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Author: JPLenny Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Getting a refund without paying taxes Date: 2/10/2002 10:19 AM
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Hey All,

Ok I just did my taxes and I'm getting a refund. No big deal, right? It's not like other people don't get a refund.

The difference is that I do not have taxes withheld from my employer in the US, since I am able to claim the foreign earned income exclusion (form 2555). In the past at the end of the year, I never paid taxes or got anything back. It was just a matter of doing the paperwork to file every year.

Well, this year I am getting a $546 refund, even though I did not send one penny to the IRS this year. It seems that I am getting a child tax credit. Reading the IRS and TurboTax documentation, "This credit is refundable, meaning that it is treated the same as income taxes withheld and is refunded to you if you have no tax liability."

OK, this sounds too weird to be true, but according TurboTax and everything I am reading, I am getting a refund. I am still doing some checking, since this seems to strange to be true. The 8812 (Additional Child Tax Credit) Form and worksheet does take the 2555 foreign earned income exclusion into account for some of the caculations, so I am guessing that the IRS knew this would happen.

Using the 2555 form I already get up to a $78,000 income exclusion, along with partial housing cost deduction from the IRS. This drops my taxable earned income to almost nothing. Once you factor in the standard deduction and such, I ended up owing no taxes.

This time they are trying to give me money when I didn't have anything withheld. Does anyone else find this strange? Did TurboTax really screw this up and I am missing something? Is the IRS really going to send me a check for $546 even though I didn't pay any taxes and earn a good salary overseas.


JP
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Author: walnutstreet Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58687 of 121219
Subject: Re: Getting a refund without paying taxes Date: 2/10/2002 10:52 AM
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HI,

I am not sure if you did your taxes correctly or not, however I do believe that scenarios like this are possible.

The U.S. tax code is set up to be a progressive system. In other words, the more money that you make the higher percentage of your income that you pay in taxes. This is meant to give the lower paid individuals a break.

In recent tax code changes several changes give you 'credit' for taxes paid even though you haven't paid them. These are 'charity' or help for lower paid persons to raise their standard of living slightly.

Regards

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Author: JPLenny Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58688 of 121219
Subject: Re: Getting a refund without paying taxes Date: 2/10/2002 11:09 AM
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The U.S. tax code is set up to be a progressive system. In other words, the more money that you make the higher percentage of your income that you pay in taxes. This is meant to give the lower paid individuals a break.

That what worries me the most. In the past the IRS has realized that the 2555 will make your taxable income look like you are earning below the poverty level. A lot of those credits I can't claim for obvious reasons. TurboTax will let you know. This time the work sheet even pulls info from the 2555 and uses them in the calculations for the credit.

I read the rules and I've run this thing 4 times in turbotax and two time manually and I come up with a 546 refund everytime, without paying any taxes this year.

Still, I feel like this should not be happening.


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Author: pmarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58694 of 121219
Subject: Re: Getting a refund without paying taxes Date: 2/10/2002 1:00 PM
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I read the rules and I've run this thing 4 times in turbotax and two time manually and I come up with a 546 refund everytime, without paying any taxes this year.

Still, I feel like this should not be happening.


There were changes to the child tax credit for 2001 that made lots more people eligible for a refundable additional child tax credit. I suggest you print out the applicable form and double check it. (It sounds like you may have already done this.) If it looks good, don't spend it all in one place.

Phil Marti

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Author: CheetahChrome One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58714 of 121219
Subject: Re: Getting a refund without paying taxes Date: 2/10/2002 7:43 PM
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Subject: Re: Getting a refund without paying taxes
Author: JPLenny Date: 2/10/02 11:09 AM Number: 58688

> I read the rules and I've run this thing 4 times in turbotax
> and two time manually and I come up with a 546 refund
> everytime, without paying any taxes this year.

> Still, I feel like this should not be happening.

You're correct, this should not be happening. But it's easy to fix -- just send me the check for $546 & your guilt will be erased.

--
Cheetah

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Author: JPLenny Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58740 of 121219
Subject: Re: Getting a refund without paying taxes Date: 2/11/2002 12:34 AM
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There were changes to the child tax credit for 2001 that made lots more people eligible for a refundable additional child tax credit. I suggest you print out the applicable form and double check it. (It sounds like you may have already done this.) If it looks good, don't spend it all in one place.

Thanks for the advice Phil. I've checked and rechecked this. I even did the form manaully. Checked the IRS website rules and regs and I have found nothing that says I can't do this.

I guess it's good. Still seems strange though.

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Author: JPLenny Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58741 of 121219
Subject: Re: Getting a refund without paying taxes Date: 2/11/2002 12:36 AM
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You're correct, this should not be happening. But it's easy to fix -- just send me the check for $546 & your guilt will be erased.

OK, I don't feel THAT guilty about it. :-)

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Author: jcmn One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58853 of 121219
Subject: Re: Getting a refund without paying taxes Date: 2/12/2002 12:51 PM
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I ran into the same thing a few years back doing my 20 yr old sister's MFJ taxes with one child no assets, no mortgage no investments. They only had some $700 or so withheld and received a refund of $1500+. I checked and rechecked and even called the IRS to ask about it from my military station in Scotland as it seemed too weird to get back more money than was paid in. The IRS seemed surprised I even called. In the low income brackets it is very common to get back more money than what is paid in when there are children as dependents. EIC is normally the reason. It is so crazy that it is sometimes best NOT to take deductions for child care or moving expenses as it will greatly reduce your EIC. It is interesting that the foreign tax credit can produce the same result. I would have thought that they would have plugged that hole...

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Author: mlsnala Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58910 of 121219
Subject: Re: Getting a refund without paying taxes Date: 2/13/2002 12:26 PM
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I have experienced similar situations as I do taxes for low income taxpayers at a local non-profit entity. I don't feel guilty about the refunds for these people as they usually do not make more than $30,000 with three or four kids. I also do taxes for other individuals including myself who have a somewhat similar situation to yourself where their w-2 income level is over $60,000, however they have investment properties or other tax shelters that result in no taxes due uncle sam, however you tack on the the child credit and they receive a refund. My suggestion to those individuals & I do this as well, is to put it into an investment or better yet donate it to a non-profit entity who can help those who do not make the $60,000/year.

Melody Siegrist

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Author: hghcpa Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58911 of 121219
Subject: Re: Getting a refund without paying taxes Date: 2/13/2002 12:39 PM
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I have experienced similar situations as I do taxes for low income taxpayers at a local non-profit entity. I don't feel guilty about the refunds for these people as they usually do not make more than $30,000 with three or four kids.
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they pay no taxes and pewrhaps already receive government aid and food stamps (likely) in addition to the EIC. To me it is totally unfair. EVERYONE in this country should be required to pay some income taxes to contribute their fair share to the operation of our government. Each and every citizen receives the benefits of our free society, yet certain individuals are afforded the luxury of not sharing in its cost.
It is absurd.



I also do taxes for other individuals including myself who have a somewhat similar situation to yourself where their w-2 income level is over $60,000, however they have investment properties or other tax shelters that result in no taxes due uncle sam,
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please share with us where we can find such an investment(a holy grail) .. one that gives a positive return yet can yield allowable deductions whereby 60k of income results in little if any tax due ???

I need to share this with some of my clientele..





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