Income Tax Day

Well, we finally made it to that day when all the 2009 taxes become due, even though we are still about two months away from earning enough to pay all our income tax for this year. Isn’t that ironic?

I sent my taxes due, $132, on Monday, but only because I don’t care to wait until the last hour of the last day to get it over with. I knew what I owed over two months ago, but I was in no hurry to pay it.

Now some of you out there probably filed for extensions, but I certainly hope you made the effort to estimate what your liability would be and then sent in a check for that amount if you owe. The extension isn’t a permission slip to delay payment, only a means of waiting until all the necessary documents are received that need to be filed with the Form 1040. There are stiff penalties for late payment.

I don’t mind telling you that my wife and I got that $8,000 refundable credit for purchase of a new home, but I didn’t get any check from the IRS or the Treasury Department. No, I still owed a couple thousand dollars, and that is despite the fact that I had no earned income in 2009. Everything I got and spent was either from my pension, Social Security, IRA withdrawals, interest or dividends.

By the way, I used a term in the last paragraph that requires some explanation: refundable credit. There are two types of credits allowable on tax forms. One is the refundable credit, while the other is a non-refundable credit.

A refundable credit, like my $8,000 credit for purchase of a home, is paid regardless of how much tax you are liable for. If I had owed $1,000 after I determined my taxable income, I would have received a check for $7,000 plus whatever I had had withheld or had paid in estimated tax payments.

A non-refundable credit is only excluded from whatever your liability is. If I was liable for $1,000 and had a non-refundable credit of $1,200, I would not receive a check for $200, but I would owe $0 and could get a check for whatever taxes were withheld or paid in estimated payments throughout the year. My refund could not exceed my tax liability. That is why the credit is called non-refundable

I know this is confusing for most of us, but that is, after all, why I’m all for the Fair Tax. I even have an avatar in Washington today in a “virtual tax rally.” I didn’t have to go physically, but my stand-in is there with thousands of others. It is about time that our 66,000+ pages of tax code were scrapped in favor of a national sales tax.

April 15th should have been a happy day for me, since I qualified for that $8,000 tax refund, but it never feels good when you have to write a check in addition to everything you already paid in during the year.