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This may come as a surprise to some people during tax season, but many high-income earners may not get a large tax refund. Tax refunds generally reflect overpayments relative to actual liability and refundable credits – two things that can decrease as income increases.
That said, there are reasons not to be jealous of the refunds higher earners receive. Here are just a few.
Also see how much the average millionaire pays in taxes, according to ChatGPT.
They adjust withholding strategically
According to Chris Rivera, CPA, tax expert, “High earners often update their W-4 or quarterly estimates once bonuses, equity comp or business income becomes apparent.” ecommerce accountant.
Doing this frequently reduces the risk of them overpaying; Without paying more, the return is very low.
They often pay quarterly
For example, people in higher income groups — business owners, investors and equity-comp earners — pay quarterly estimated taxes, according to Rivera.
Not only that, but they “try to reach the safe harbor limit rather than paying massively more”, thus negating the need for larger refunds in the future.
Large refunds often reflect miscalculations – not smart planning
“A big refund may feel good psychologically, but financially it usually means someone withdrew too much money,” Rivera said.
People who earn more don’t do this.
They are not eligible for certain deductions and credits
Another reason is credits and deductions that boost refunds.
Experienced tax advisor Jean Bott, as a CPA Kevin O’Leary’s Tax Hive“Low-income people can often get a refund of more than the amount they paid in taxes through credits like the Earned Income Credit and the Child Tax Credit. Higher-income earners often miss out on these deductions because they exceed the income limits for these refundable credits,” explained GOBankingRates.