As you note: from a purely pragmatic viewpoint it is better to make a payment at the end of the year, rather than get a refund. But, for a variety of personal reasons, many people prefer to arrange things so that they get a refund instead. More power to them.
But I am puzzled by what I understand to be a math mystery contained in your original post: If you adjusted your withholding so that more tax is withheld during the year (i.e., so you will get a refund, rather than having to make a payment), how is it possible for your take-home pay to go up? (Unless you got a raise or something and didn't mention that as a contributing factor.) The equations seem simple to me (for a constant Income):
Tax Withheld Now + Tax Paid At End Of Year = Total Tax (a function of Income) Taw Withheld Now + Takehome Pay = Income
To reduce Tax Paid At End Of Year, Tax Withheld Now must go up (because Total Tax is constant if Income is constant). If Tax Withheld Now increases, Takehome Pay must decrease. Any other result is suspect, unless your Income was not held constant during the exercise.
Of course, if you got a raise, then what happened (most likely) is that your take home pay went up less than it would have if you hadn't adjusted your withholding.
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timeasmymeasure
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Date: 2009-04-15 06:48 pm (UTC)But I am puzzled by what I understand to be a math mystery contained in your original post: If you adjusted your withholding so that more tax is withheld during the year (i.e., so you will get a refund, rather than having to make a payment), how is it possible for your take-home pay to go up? (Unless you got a raise or something and didn't mention that as a contributing factor.) The equations seem simple to me (for a constant Income):
Tax Withheld Now + Tax Paid At End Of Year = Total Tax (a function of Income)
Taw Withheld Now + Takehome Pay = Income
To reduce Tax Paid At End Of Year, Tax Withheld Now must go up (because Total Tax is constant if Income is constant). If Tax Withheld Now increases, Takehome Pay must decrease. Any other result is suspect, unless your Income was not held constant during the exercise.
Of course, if you got a raise, then what happened (most likely) is that your take home pay went up less than it would have if you hadn't adjusted your withholding.