One inevitable thing…

For the second year in a row, the Internal Revenue Service in the U.S. pushed the tax filing deadline ahead due to COVID-19 and other issues. Last year in 2020, filing for 2019 taxes was pushed up to October 15. This year, filing for 2020 was moved to May 17, which was last Monday.

The normal filing date is April 15, or the 16th if that date falls on a Sunday.

Apparently, the way Americans pay income taxes is kind of weird compared to the rest of the world, so let me give a little explanation.

People who get paid regular wages, whether hourly or salary, have amounts withheld each paycheck to cover certain taxes. Some amounts go to federal and state income taxes. The former is national. The latter depends on where a person lives.

There are two deductions basically for health and welfare: an amount that goes into Social Security and which is matched by the employer. This is the federally administered retirement plan that most people qualify to start withdrawing from at 65.

The other is for Medicare, which is the closet thing we have to socialized medicine here, but of course there’s a catch. Again, people generally qualify at 65 — younger if they’re permanently disabled or have end stage renal disease, i.e. terminal kidney failure requiring transplant. However, the only part of Medicare that is completely covered is known as Part A, which only covers hospitalization.

For Part B, there is a monthly premium and while it’s a lot cheaper than what most of us pay, it can still be hefty for someone who has retired and started collecting Social Security. People also have to buy their own Part D coverage, which is for prescription drugs. For some people, with very few or generic-only medications, they can get this coverage fairly cheaply and not pay a lot for their meds.

But… if their doctor’s prescribe higher-tier drugs, or ones that are not as available as generics, drug costs even with a plan can get ridiculously expensive. When I used to work in insurance, we did have cases of people who’d wind up having to pay thousands or tens of thousands per year just for their prescriptions.

If someone is just on Social Security, the drug costs can bankrupt them, although the Part B premium can be deducted from their SS benefits. But the catch is that Social Security is pretty much means based.

That is, if you worked constantly from 18 to 65 and made good money, you’ll have stuffed that plan to the gills and get the maximum monthly payout. And if you did that, you probably already have retirement savings or maybe even are old enough to have had a pension from work at some point. Good for you.

But, and particularly among the generation that’s been on Social Security for a bit already, those who didn’t work all that time or who didn’t make great money or both get much less per month. This applies to a lot of people in minimum-wage service jobs. But it also affects a lot of women of a certain age, who might have left the work force in their early 20s to raise a family, with the husband the sole breadwinner.

I think there’s some formula in that case based on the husband’s earnings to increase the wife’s benefits, although I’m not sure.

But the point is this: These amounts all come out of our paychecks to cover our retirement and eventual senior care, but have nothing to do with health insurance right now. For that, if you’re lucky, your employer subsidizes your plan, but even then it’s not cheap. If they don’t subsidize it, then it’s really not cheap.

Comparison: When I didn’t have employer health insurance last year, I paid about $750 a month for a plan with a high deductible and high maximum out of pocket cost, meaning that I would have been very unlikely to use it anyway — and that was with an income-based reduction from the State of California, which was actually fairly substantial.

This year, I was lucky enough to get a job that covers 75% of my health care premium, so I was able to opt up to the platinum level plan — so no deductible, no out of pocket required, but still over $500 a month. However, since I’ll use it because I can basically walk into the doctor’s office or hospital for free or toss them $10 or $20 for lab work or whatever, it’s worth it.

This premium is also paid by deduction from my check, although that goes direct from my employer to the insurance company with no government involvement. The nice part, though, is that they deduct it before taxes, meaning that my income looks that much lower to the government for tax purposes. (Yes, State and Federal withholding went down once the health insurance deduction kicked in.)

More on all this later, though. Let’s get back to America’s really screwed up income tax system.

The one other deduction that most people have from their paychecks is for their State Disability Fund. This is actually a ridiculously tiny amount — usually a couple of bucks a week at max — but it’s for a good cause. If you become temporarily or permanently disabled and cannot work, it will pay you… something. Although, again, from what I understand, it’s far from a living wage either, just like Social Security.

That last sentence is going to become really ironic later on in this article.

But for all my non-U.S. readers, I hope this hasn’t been too confusing. The summary is that when we get our paychecks, we have money taken out in advance for these specific things, with the taxes submitted to what are basically government escrow accounts in our names.

This only applies, though, if you’re considered staff or an employee. If you’re freelance, you’re fucked. In that case, you get a check for the full amount and you’re responsible for figuring out the taxes you owe (about 20% higher because you have to cover the parts that your employer normally would) and have to submit a payment quarterly.

To put it in bureaucratic terms, when the end of the year rolls around, all those staff workers receive a document called a W-2. The freelancers get a 1099 followed by various letters. All of these forms are supposed to be delivered by the last day of February with the information for the prior calendar year.

Oh, right. A 1099 also applies for things like unemployment, whether taxes were withheld or not, disbursements from retirement accounts, miscellaneous income, etc.

Traditionally, the deadline for filing one’s taxes has been April 15 for the prior calendar year. Why this date? It’s strictly an accounting thing, since it’s two weeks after the end of the first quarter.

Accounting tends to be reconciled in quarters, which are three month periods, and the expectation has always been that accountants can pull it all together for the previous quarter in two weeks. In the big picture, if you’re a freelancer, then you make your estimated tax payments four times a year on this schedule — April 15, July 15, October 15, and January 15.

And what happens on or before April 15? Well, Americans gather together all of those W-2s, 1099s, and, if necessary, receipts, bank statements, and other whatnot, get ahold of the specific tax forms they need, and then tear their hair out as they try to jump through all the hoops.

That’s right. In America, although the government already has all of the information and could just send us a bill that we could dispute or correct, it doesn’t work that way. Instead, it’s up to us, who are generally not trained accounts or lawyers, to try to navigate these ridiculous forms, fill in the blanks, calculate what we owe or are owed, and hope to god we get it right the first time lest we suffer the wrath of the IRS.

So yeah. It’s a system that makes no damn sense at all. But let me explain it again in brief. Everyone I’ve worked for in the year and who’s paid me money, whether they withheld any taxes or not, has reported those amounts to the state and federal governments, as well as paid those taxes to them. So the U.S. knows what I made and what I paid in. So does my home state.

There is absolutely no reason that each of them could not just run the calculations, send me a bill, and then list possible exemptions and deductions I might qualify for. At that point, it would just be a matter of checking boxes to indicate filing status (single, married filing jointly, married filing separately, head of household), number of dependents, and other exemptions for being over 65 or blind.

Send that form back, amounts recalculated, and you either get a bill or a check. Boom. Done.

But the American Tax Code is huge and, well, not just limited to what’s in USC 26. That’s because statutes, regulations, and caselaw also effect tax code, so while the actual US Code covering the subject is only 2,600 pages more or less (and still longer than the Bible or War and Peace), toss in those regulations and caselaw and you hit a whopping 70,000 pages, or about 32 million words — which is 32 complete sets of Harry Potter books.

And why is that tax code so huge? Simple. CPAs, lawyers, accountants, tax preparers, and others need jobs, and they have a powerful lobby. They also have the company Intuit, makers of TurboTax, fighting hard to keep tax forms a nightmare so that people have no choice but to turn to them to do their filing — for a fee.

Yes, my taxes this year were a complicated nightmare, although I buckled down and did them myself at the last minute. The main complications all had to do with economic help we received in 2020 because of COVID-19.

One was because most of the Federal unemployment benefits we received were exempted from income tax, but it couldn’t just be left off of the income report. Rather, it had to go onto a secondary form which showed total unemployment, amount exempted, and remainder.

The other was because we were supposed to receive several benefit payments last year, the first for $1,200 for individuals and the second for $600. I got the first but not the second so, again, this involved filling out a complicated worksheet to determine that yes, the government owed me the money, then using none of that data to put $600 on a line on my tax form.

Anyway… the end result was that I wound up being owed a rather hefty tax refund for both State and Federal, something that hasn’t happened for me (by design) for ages. In fact, it’s over a thousand bucks in total. Wow.

I say wow because it feels like the government is suddenly throwing money at me ironically at a time that I don’t need it. I managed to land an amazing and very well-paying remote-work job with health insurance, I’ve built my savings back up from “Well fuck me” to five digits, and yet… I just got a random government check for $1,400, I’m going to get another for over $1,000, and it’s getting kind of annoying.

But, okay. My car does need a brake job, probably a tire pressure sensor replacement or two, and a general service and tune-up before an epic drive north for a friend’s wedding in October. Oh yeah — and lavish wedding gifts and room and tux rentals and shit.

And, I’m guessing that if he has a bachelor party at all, it’s going to involve either an escape room or laser tag or both, but that’s all fine with me. What’s not fine? Our really fucked-up income tax system here. So, tell me in the comments: How do income taxes work in your country?

Image source:  Hloom via Flickr / (CC BY-SA), 401(K) 2013

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