This is from a series of pages on sources of federal war spending other than the federal income tax and strategies that war tax resisters can use to reduce their support of the government in these areas.
Many people have more money withheld from their wages for the federal income tax than they owe. This means they get a refund when they file their tax returns, but it also means that all year long they have been giving an interest-free loan to the government: another source of government funding that war tax resisters can work to interrupt.
People who receive a wage from their American employers typically have an estimated federal income tax amount deducted from their paychecks. People who are self-employed are required to file quarterly tax returns that include a portion of their estimated taxes for the year.
During tax filing season, people determine their actual tax liability and compare this to the amount of estimated tax they paid through one of these two methods. If they overpaid during the year, they get a refund; if they underpaid they are supposed to cough up more.
Amount of this “Tax”
Most people overpay during the year, and so most people who file their tax returns are filing for refunds. In , for instance, taxpayers overpaid their income taxes by 29% — some $200 billion — and most received refunds that on average exceeded $2,000.
How Much the Government Collects
According to USA Today, “The extra withholding gives the government an interest-free loan worth more than $10 billion a year, equal to about $100 per tax return.” That $10 billion a year isn’t the amount of money over-withheld, but the amount of money the government saves by being able to borrow $200 billion interest-free.
If it had to borrow those billions in some other way, it would have to pay interest; but since it gets an interest-free loan from taxpayers, it has that $10 billion to spend on other things (like the military).
How This Tax Is Collected
People have money withheld from their paychecks based on withholding formulas and tables. The values in these formulas and tables are based on the number of “allowances” the employee has selected on the W-4 form the employee submitted to the employer. But the estimations in these tables are necessarily oversimplifications of most people’s tax situation — they don’t take into account many of the deductions and credits people may apply for. For this reason, they are biased towards overwithholding.
For people who are self-employed, the situation is more complicated. A self-employed person files estimated tax returns four times a year, and is required to pay an amount based on the estimated tax owed for that year, but bounded also by the actual tax owed in the previous year.
Are the Tax Receipts Earmarked?
The “receipts” from overwithholding are more virtual than real — it isn’t actual government revenue but avoided government expense. These “receipts” are earmarked in the sense that the excess money available to the government via over-withholding is money that would otherwise be spent in interest on government debt.
How Can You Resist This Tax?
Any actions you take to stop or to reduce withholding will reduce the likelihood that you will directly contribute to the over-withholding “tax.” See the NWTRCC Practical War Tax Resistance pamphlet “Controlling Federal Income Tax Withholding” for detailed instructions on how to do this.
But beyond this, you can resist the over-withholding “tax” by encouraging other people to change their W-4 forms so that they aren’t giving the government an interest-free loan. This is something that makes good economic sense for everyone, even for people who do not think of their taxes in terms of activism or conscientious choice. The next time you hear someone brag about the big tax refund they got, remind them that on the bottom-line this means that they lost more money than they had to, and that it’s in their power to fix this by adjusting their withholding.
- “Refunds grow fat on tax changes” USA Today