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About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.


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CD Interest, Bank 1099-INT Forms and Taxes


I first published this article several years ago. I thought this would be a good time to refresh this article as savers prepare their tax returns. Unless you hold a CD in an IRA or other retirement account, you have to pay taxes each year on the interest earned from a CD.

Interest from a CD is taxable whether the CD is from a bank or credit union. At credit unions, a CD is often called a share certificate and interest is often called dividends, but from the IRS perspective, there is no difference between interest from a bank CD or dividends from a credit union share certificate.

The bank or credit union should send you the Form 1099-INT by January 31st which lists the interest earned during the previous year. Institutions don’t have to send them if interest earned is under $10. Also, you may not receive a paper Form 1099-INT in the mail if you accepted your bank’s account agreement for receiving bank documents (including Form 1099-INT) electronically.

My original article focused on the question about what years during the term of a CD should you expect to receive Form 1099-INT from your bank. This updated article will also help you understand how much interest earned for a particular year will be listed in Form 1099-INT and how early withdrawal penalties are included. My source for the answers is the IRS Publication 550.

Interest is Taxable Whether It’s Paid Out or Reinvested

The first important thing to understand is that from a tax point-of-view, it doesn’t matter if interest is added back to the principal of the CD or paid out to you by check or ACH. In either case, it’s considered taxable interest. For those new to CDs, this might be an unpleasant surprise if you had thought you wouldn’t be paying taxes on a CD when you didn’t receive an interest payment.

When Taxes Are Owed on CD Interest

Taxes will be owed for the years when interest is paid by the CD. The IRS Publication 550 describes the limits of when banks can pay interest on CDs:

Certificates of deposit and other deferred interest accounts. If you buy a certificate of deposit or open a deferred interest account, interest may be paid at fixed intervals of 1 year or less during the term of the account. You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. If interest is deferred for more than 1 year, see Original Issue Discount (OID), later.

First, note that interest is to be paid “at fixed intervals of 1 year or less.” Thus, there will be yearly interest to report for CDs with multiple-year terms. There will not be just one payment of interest at maturity. The first payment of interest may be delayed up to one year from account opening. For example, if you opened a 3-year CD today and the CD only pays interest on yearly intervals from the day the account was opened, you will not have interest paid this year, and thus, you will not receive Form 1099-INT for this CD next January. However, if the CD pays interest monthly and you open the CD before December, you should expect to receive Form 1099-INT for this CD next January.

Second, note that for CDs with terms of one year or less, interest can be paid in a single payment at maturity. Thus, if you open a 1-year CD today and the CD only pays interest at maturity, you won’t have any taxable interest on that CD for this year, and you shouldn’t expect to receive Form 1099-INT for this CD next January.

Some banks allow you to specify the intervals of when interest will be paid. For example, if you open a CD at Ally Bank with a term of one year or less, the default will be for interest to be credited to your CD at maturity. Customers also have the option to change payment to be done monthly, quarterly or annually. If you choose these other intervals for a 1-year CD, you may have taxable interest for two tax years.

Original Issue Discount (OID) and CDs

There’s a complication when a CD has a term of over one year and the bank chooses to pay interest only at maturity. The last sentence of the above excerpt references the section on Original Issue Discount (OID). The OID section of Publication 550 defines OID as follows:

OID is a form of interest. You generally include OID in your income as it accrues over the term of the debt instrument, whether or not you receive any payments from the issuer.

More details on OID specific to CDs are provided in the next page of the OID section:

If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID.

So if the bank doesn't pay interest until the CD matures and the CD term is over one year, the bank should send out the Form 1099-OID and the CD account holder must include this "phantom interest" or "imputed interest" in his or her income each year.

One well-known exception to reporting OID is the U.S. savings bond. This is the second example of exceptions listed in the OID section. You don't have to worry about reporting savings bond interest until you redeem the savings bond or until it reaches maturity after 30 years. That's one nice advantage that savings bonds have over CDs.

How Early Withdrawal Penalty Affects Taxes Owed

In addition to interest income, Form 1099-INT can include an early withdrawal penalty. There are separate boxes on Form 1099-INT for both interest and an early withdrawal penalty. In most cases, when you withdraw principal from a CD before it matures, the bank will charge you an early withdrawal penalty. The Publication 550 provides the following instructions on reporting early withdrawal penalties:

The Form 1099-INT or similar statement given to you by the financial institution will show the total amount of interest in box 1 and will show the penalty separately in box 2. You must include in income all interest shown in box 1. You can deduct the penalty on Form 1040, line 30. Deduct the entire penalty even if it is more than your interest income.

It might seem strange that an early withdrawal penalty (EWP) can be more than the interest. This can occur if the early withdrawal is done early in the term of a CD. For example, if the EWP is equal to six months of interest and you close the CD three months from the date it was opened, the EWP will be twice the amount of the interest. Another way an EWP can be larger than the interest on the 1099-INT is if interest from the CD was reported in previous tax years. Not much interest may have been paid in the tax year when the EWP occurred.

Taxes on Savings and Money Market Account Interest

As you can see from above, interest reporting on a CD has a few complications. Interest reporting on a savings, checking or money market account is more straightforward. For these types of liquid bank accounts, there are typically no early withdrawal penalties. Second, interest is typically paid monthly. So you should expect to have interest income for the years you own a liquid bank account. The only exception would be if you opened the account in December. If the bank pays interest on monthly intervals starting a month from the opening date, no interest might be paid in that year.

This article contains general information and should not be considered tax advice. If you have a question about your taxes, and what should be reported on them, it is a good idea to consult a tax professional who can help you navigate the rules.

Related Pages: CD rates

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Comments


Apache
Apache   |     |   Comment #5
I have been round the block with certain banks and how they handle the CD interest.  What I was told if the interest is only taxable to you when it is accrued and paid.  Some one year CDs I have had only paid the interest at maturity so I only got the 1099 INT at that time to list for taxes since the interest was not available to me before then.  I now get longer term CDs and usually want the monthly or quarterly interest checks sent to my bank or mailed.  They have to send me the 1099 INT each year for these CDs since the interest is available to be and I must include it in income.  Just a note, make sure you get the info you need for any EWPs so you can deduct these penalties on your tax report.
Anonymous
Anonymous   |     |   Comment #6
Thanks 
ZICO
ZICO   |     |   Comment #8
Thanks for the good explanation. This explains why Citibank Brazil sent me 10990-OID for a CD. In Brazil interest are paid only at maturity or redemption but Citibank reported the accrured interest at the end of the year as OID. This is bad news, but it is what it is. I see many people are reporting wrongly, mainly on CD issued by Foreign Banks who don´t gnerate 1099-OID. Now, can someone explain if we claim the accrured TAX CREDIT (in this case, foreign tax credit)?
LuvCD
LuvCD   |     |   Comment #9
Do what you think is right, disclose everything, etc. Better to ask for forgiveness than permission. Go talk to a tax advisor
Danilo
Danilo   |     |   Comment #10
My understanding is that you can claim a tax credit for an interest accrued in your Foreign CD even if you haven't paid it yet. Being a Brazilian CD, the tax return when you claim the credit could be under risk of being amended later due to a "Foreign Tax Redetermination" (see form 1116 instructions). 2 reasons: first because Brazil's tax varies from 15% to 22.5% according to your CD redemption date - so be sure to redeem later at the same foreign tax rate as you are claiming a credit now; second, if you CD foreign taxes are paid in foreign currency, the BRL to USD conversion you use this year (say at accrual date 12/31/2016) will not match the conversion when you actually pay the taxes on your 2016 CD income reported on 1099-OID (either at redemption or maturity. You can avoid these two sources of redeterminations by withdrawing your CDs before you file your tax return, so you'll get the final foreign tax and actual currency exchange rate on the date the taxes were paid.
Marcos
Marcos   |     |   Comment #60
Thank you Danilo! Highly valuable comment. While I have always availed of the Foreign Tax Credit for foreign (in this case, like yours, Brazil) CD's, this has always been for foreign taxes duly paid, as opposed to foreign taxes accrued. After a lot of research, it turns out you can indeed make a one-time (irrevocable) option for accrued treatment for foreign taxes. So even with the OID treatment of accrued foreign interest under US tax law (that isn't taxed until maturity or redemption in most foreign jurisdictions), you can fully offset this annual US tax liability in the same tax year with the accrued foreign tax credit option. That way the foreign and domestic taxes may be fully offset, as there is no longer a timing mismatch in the two jurisdictions.
harry2019xx
harry2019xx   |     |   Comment #11
HELP..How can I get a 1099 for 2018? Where do I go online?
.
DCGuy
DCGuy   |     |   Comment #13
Banks do not have to send you the Form 1099-INT until January 31. The form may in your online account information (under the category of tax forms). If there is no indication of it by Jan. 31, then I would contact the bank directly. They could receive a penalty if they do not provide it to you.
Donna M
Donna M   |     |   Comment #12
I put money into a 5 yr cd but cashed it out after one yr. go back my initial deposit but got a 1099 for the interest I did not get. Do I have to still pay taxes on interest I didn’t receive?
DCGuy
DCGuy   |     |   Comment #14
If you closed the CD before maturity, you would have received a penalty (should be displayed on your 1099-INT) unless it was a no-penalty CD. If the 1099-INT shows interest that was not received when you closed the account, go back to the bank (or contact them online) and ask for a statement of account for the CD account to see where the interest amount is coming from.
Brokered
Brokered   |     |   Comment #15
#12
1099-INT
Line 1 Interest Income
Line 2 Early Withdrawal Penalty

Make sure you're looking at the correct line.
It's also possible to earn interest and incur the EWP, depending on when you cashed it in.
The EWP goes on line 30 of your 1040 tax form.
DAJunkie
DAJunkie   |     |   Comment #16
(Note line 30 now appears on Schedule 1 (new for 2018) which must be attached.)
Brokered
Brokered   |     |   Comment #17
#16
Thank you...at least it's still line 30!
DOA
DOA   |     |   Comment #41
I cannot see any simplification in the new 2018 tax forms. Have fun on figuring out on which line you show estimated taxes paid.
ddbrege
ddbrege   |     |   Comment #48
Hey DOA, you will be prompted if you are using tax prep software under misc. taxes paid and you have to make a choice "Estimated Taxes Paid" which when entered will show up on the second page of the new 2018 1040 form line 17 list as Schedule 5. I am going from memory but I think that is correct.
DOA
DOA   |     |   Comment #53
Okay thanks #48. As you said, I finally found that the estimated taxes goes on schedule 5. Not sure why they did that? It use to just be shown once on the 1040.
CurousDave
CurousDave   |     |   Comment #49
It's not simlified, it's actually more complex - unless you take the position that the only part of your tax return is Page 1, which is indeed "simplified" because the details that in the past went onto Page 2 are now spread out over more pages. The tax code is now much longer than it was before and the Treasury Regulations issued bu Congress and by the IRS are even longer. If you happen to live in Caifornia it gets even worse, because California did not conform to most of the federal Tax Reform changes. For instance, most filers will claim standard deductions on their federal returns because their itemized deductions are likely to be lower than the new, increased standard deductions. California filers have much lower state standard deductions and their itemized deductions, which include items that are no longer allowed as federal deductions (like unreimbursed business, work-rellated moving expenses or employee expenses, or broker advisory fees and other investment expenses) are still allowed by California, will likely be higher than their state standard deductions.
Confused
Confused   |     |   Comment #18
I am still confused. I opened 3 time deposits in 2018. The first one will mature in May 2019. The interest is earned monthly and added to the account. But I can't have the interest unless I pay a penalty. Do I still have to report the interest which was earned in 2018?
yes
yes   |     |   Comment #19
Yes Pay tax on accrued interest from 2018 and then pay the rest of the accrued interest earned at the end 2019 even if it is for 3 months. you cant get the interest unless you break the CD so you have to pay a penalty
anonymous
anonymous   |     |   Comment #42
Just to be slightly more precise with the terminology; if you are a cash basis tax payer (most common situation) then you only pay tax when the interest is paid or received (not accrued). But the IRS will consider the interest paid when it is added to your account. For tax purposes, it doesn't matter if the interest is paid directly to you or added to the CD account balance.
DAJunkie
DAJunkie   |     |   Comment #20
For any deposits with terms exceeding one year you MUST REPORT 2018 tax year interest.

For deposit terms under 1 year, however, the situation isn't as clear.
You indicate interest is ACCUMULATING and is FULLY CREDITED monthly
(not just AT MATURITY?). If so, you're potentially liable for 2018 tax.

But, since you also indicate your institution doesn't permit penalty free
interest withdrawals until maturity, IRS Publication 550, pg. 5, Section
"Certificates of deposit and other deferred interest accounts"
may apply, providing a loophole.

"If you buy a certificate of deposit or open a deferred interest account,
interest may be paid at fixed intervals of 1 year or less during the term of the account.
You generally must include this interest in your income when you actually receive it
or are entitled to receive it without paying a substantial penalty."

However, if you DO receive a 2018 1099-INT non-zero interest report for this account,
I'd seek further expert advice before attempting 2019 deferral!

Other DA tax analyst opinions/interpretations welcome!
Confused
Confused   |     |   Comment #21
Thanks. I was hoping for a different answer.
anonymous
anonymous   |     |   Comment #44
OK, here's an interesting perspective on this situation:

https://finance.zacks.com/tax-payable-matured-certificate-deposit-9085.html

This article claims that short-term CD ( 1 yr, interest needs to be reported annually. Anyone have any experience with tax reporting of short term CDs?
anonymous
anonymous   |     |   Comment #45
Sorry, there was a formatting problem with my reply. For long-term CDs greater than 1 year, definitely interest has to reported every year. The article I linked above claims that for a short-term CD less than 1 year, interest is to be reported in the year of maturity, if there is an EWP to receive the interest. Some banks allow penalty-free withdrawals on interest, so you'd have to see which situation applies. I'm curious if someone had actual experience with reporting short-term CD interest this way.
CuriousDave
CuriousDave   |     |   Comment #50
Cash basis taxpayers (which includes most of us individuals) report interest income for the year is is either paid or made available to us, whether or not we take it during the year. So if we purchase a 12 month CD today but the terms of the CD are that interest is not payable until the end of the 12 moths, it means the interest is unavailable to us until next year, and will therefore the full 12 months of interest will be reported as 2019 interest o a Form 1099-INT that we can expect to receive by 1/31/2020. If instead the terms of the CD state that interest accrues calendar monthly, then we can expect to receive two 1099 forms, one for 2019 for interest through 12/31/19, and another for the period 1/1/2020 - 2/15/20.
Ken mentioned that interest earned on U.S. Savings Bonds are exempt from the OID rules that require interest to be picked up annually over the life of the bonds, so that interest need not be taxed until the year th bonds are redeemed. However, one can elect instead to pick up the interest annually, as if OID. That may be a good option if the bonds are in the names of very young children, as they are likely to have very little (if any) tax liabilty until their first working years.
deplorable 1
deplorable 1   |     |   Comment #29
Yes! and you should have received a 1099 INT for each or you may have to download a PDF file from the bank's/CU's website. It does not matter to the IRS if you didn't actually receive the interest only that it was added to the account in 2018.
CURIOUS MIKE
CURIOUS MIKE   |     |   Comment #22
WHAT ABOUT EARLY WITHDRAWAL PRINCIPAL INTEREST LOST FROM A BANK CD B4 MATURITY THAT IS IN A ROTH IRA.
QUESTION..... IS THAT ALSO CONSIDERED A PENALTY AND CAN YOU DEDUCT THAT AMOUNT ON YOUR TAXES.................HAVE NOT SEEN ANY COMMENTS OR FACTUAL INFO ON THAT SUBJECT WHEN IT APPLIES TO ROTH IRA....PLEASE COMMENT!!!!!!!!!!
DCGuy
DCGuy   |     |   Comment #34
I am not a tax advisor, but from what I understand about Roth IRAs is that any earnings are not taxed as long as you meet the account requirements. Also losses cannot be deducted for any IRA I believe. So if you have a Traditional IRA in a mutual fund and it drops 50% (like back in 2008-2009) and you took money out of it during those years, you can't deduct the loss in the account balance.
CuriousDave
CuriousDave   |     |   Comment #51
The answer depends on the timing. If one takes an early distribution from a Roth IRA before reaching the age of 59 1/2 and also before the expiration of 5 years from the date your very first Roth account was opened, all the earnings in the Roth would be taxable, and, because of that, any penalty paid to the financial institution for early CD withdrawal would be deductible, because that "penalty" is really a repayment of taxable interest income. On thec other hand, if the Roth owner is over 59 1/2 at the time of taking the early withdrawal and if the owner's very first Roth account was opened more than 5 years ago, the interest earned on the CD would be exempt from tax, and an early withdrawal penalty in that situation would not be deductible because the interest income to which it relates was never taxed.
Jennifer
Jennifer   |     |   Comment #23
I wish this article also included specific details about brokered CD's purchased at a discount. I am assuming they would issue a 1099-OID each year. However, after talking to the fixed income desk at my brokerage. They seemed very unsure. The interest on the brokered CD's is paid quarterly. So it seems they would have to issue a 1099-OID every year?
Does anybody here who has brokered CD's know the answer?
Mak
Mak   |     |   Comment #24
I would think if you bought a brokered CD at a discount that would not be considered income, if you let the bond mature at par then you would owe on the profit which would be taxed as a capital gain....not 100% sure but that is what makes sense to me.
CapitalClimate
CapitalClimate   |     |   Comment #64
Market discount is not capital gain. You need to read the section "Market Discount Bonds" in IRS pub 550, which says:
"You must treat any gain when you dispose of the bond as ordinary interest income, up to the amount of the accrued market discount."
CDs are treated the same as bonds for this purpose.
jrz83
jrz83   |     |   Comment #72
#64, It could be taxed as capital gain. You've neglected the De Minimis tax rule which is applicable to bonds and brokered CDs.

https://www.investopedia.com/terms/d/deminimistaxrule.asp
Brokered
Brokered   |     |   Comment #28
#23
As I understand it OID does not apply to secondary market CD's because the originating bank has nothing to do with it. If you pay $98 for a secondary market CD paying 4% and it matures years later at par ($100) you owe a capital gain tax on the $2. Also, you owe annual taxes on the 4% interest earned.
$100,000 CD paying 4% interest
Purchased on secondary market for $98,000
Pay annual tax on $4,000 (4%) interest.
At maturity collect $100,000 and pay a gain tax on $2,000

When buying secondary issues it's vital to note the YTM value.
Jennifer
Jennifer   |     |   Comment #38
Excellent information. So do you think the brokerage firm that holds the secondary CD's, for example, Vanguard, will keep up with it and give me a tax form after the maturity which indicates the capital gain amount?
Or do I have to keep up with this myself? (nightmare :)
Brokered
Brokered   |     |   Comment #39
#38
My CD sales already show the gain/loss and it will be reported next year on the tax statement. You should see the same thing for secondary issues (buy/sell/gain/loss) sold at maturity.
RichardW
RichardW   |     |   Comment #43
Comments #23 & #38 - Vanguard will supply you a Form 1099-B which will list the realized gain for your CD when it matures. Vanguard will also list annual interest income for your CD on Form 1099-INT. Except for the periodic interest payments you receive during the year, I believe that you are not required to deal with other taxes regarding your discount brokered CD until it matures or you sell it in the secondary market. When you buy a brokered CD at a discount, the difference between the par value and the discount value is your gain. When the CD matures or you sell it, the gain can be taxed at the ordinary income tax rate or at the capital gains tax rate. In order to determine the tax rate that applies to your situation you should research the IRS “De Minimus Tax Rule.”
Jennifer
Jennifer   |     |   Comment #52
Thanks Richard :) You sound awfully knowledgeable.
RichardW
RichardW   |     |   Comment #54
You're welcome Jennifer. I know a few things about brokered CDs...on the other hand, I can't spell (e.g. "De Minimis Tax Rule").
HighYield
HighYield   |     |   Comment #25
Another good reminder from Ken. Thank you.

My online tax return program is easy & speedy. It figures all the EWP stuff. I actually look forward to filing my return every year because it's so simple. But I gotta admit, the interest thrown off from all my CDs causes me to owe money to the IRS each year. I probably only keep about 50% of my interest? But I'll take it. Still better than earning nothing.
Ratesaver
Ratesaver   |     |   Comment #26
I opened a cd just about a year ago for 5yrs. I am online with the bank and the cd has accrued interest but is not added to the original cd at this time... Note no interest will be added until next month their for I have not yet received a 1099 int for last yr. Interest will be added soon and next yr 2019 I will expect the 1099int. Then I will claim it period
Brokered
Brokered   |     |   Comment #30
#26
That sounds like annual compounding (interest paid every 12 months). It keeps the APR lower than it would be with shorter interest payment terms (monthly, quarterly, etc.).
deplorable 1
deplorable 1   |     |   Comment #32
He may have gotten a better interest rate on his CD though even with annual compounding.
Brokered
Brokered   |     |   Comment #33
#32
Sure but the usual point of annual interest is a lower APR. It also eliminates monthly/quarterly interest distributions.
deplorable 1
deplorable 1   |     |   Comment #31
Your CD must have annual compounding then. Interest is only taxable in the year in which the interest is added to the account. So you are correct in 2019 you should get a 1099 INT which will go on next years tax return.
deplorable 1
deplorable 1   |     |   Comment #27
I always check all my accounts for 1099 INT's before tax season. Some are mailed and others are only available online in PDF format. Anything under $10 does not generate a 1099 and doesn't get reported to the IRS. You are supposed to report it anyway though just like you are supposed to report all online purchases to your state. Now the question remains will the IRS know if you don't report these things? Answer no! lol
DCGuy
DCGuy   |     |   Comment #36
There are tolerances when comparisons are made between what is being reported and what is on your return. When the difference is "insignificant", they will let he return "slide".
HighYield
HighYield   |     |   Comment #37
I usually file my return in mid-January, even before the 1099 shows up on the CU's website. I get my interest info (and any EWP info) from my year-end December statement.
anonymous
anonymous   |     |   Comment #46
We also need to remember that, in addition to interest that the bank pays, we have to report the value of gifts received from a bank (such as account opening bonuses). These are usually, but not always, reported by the bank on a 1099-INT. Small gifts, such as those less expensive than a toaster, do not need to be reported ("toaster rule").
PatGeneric
PatGeneric   |     |   Comment #35
Nice article, Ken! Now I can just show this to my son instead of trying to explain all of that. Thanks for all your hard work!
111
111   |     |   Comment #40
Another great article by Ken Tumin. Always wondered what 1099-OIDs were for. Now I know.

In terms of odd things a person might look out for concerning 1099 forms - I received (hopefully) my final 2018 1099 in today's mail, from Edward Jones. I puzzled over why I got it via snail-mail at all, instead of online. Then I remembered that I'd closed that account last spring, and requested that online access be shut down also. (This was for security reasons - who really wants online access to a closed account to be maintained? I've noticed that financial institutions differ on their policies concerning this - some just leave the online access for closed accounts available; some don't.) Anyway, even though my Edward Jones 1099s have been online for the past several years, per my request, this final one had to be snail-mailed. The same might be true for anyone else who closed a financial / brokerage account last year.
anonymous
anonymous   |     |   Comment #47
For anyone interested in strange intricacies of tax law, read about when the IRS considers that you have income that is "constructively received" ...

https://en.wikipedia.org/wiki/Constructive_receipt
Tax Calculation
Tax Calculation   |     |   Comment #55
I'm posting the website
http://taxplancalculator.com/
for anyone interested in seeing how your 2018 taxes changed after tax reform.

The reason I'm posting is I've started to read and hear complaints from people upset they have to pay this year instead of receiving a refund. If withholding amounts were not adjusted it is quite possible you received more money throughout the year due to the tax relief bill, that not enough tax was deducted and that you will receive a lower refund or owe tax as a result. I am amazed when I read people consider the absence of a refund as a "loss of income" but that's how mathematically ignorant our population has become.

The program I listed is very accurate. It does not account for every situation but I've run several scenarios that all proved accurate. One thing that may negatively affect your federal tax are the changes made to the SALT deductions. SALT, for example, allowed people with large homes to deduct very large amounts of interest along with state/local taxes that are, in many cases, exorbitant. In the past, the modest homeowner with lower property taxes in a state with lower taxation rates paid a higher effective rate of taxation than their wealthier counterpart due to less deductions on their 1040. In effect, the modest tax payer subsidized the wealthier.

We live in a modest home with modest taxes with a high income. Property taxes are $5,000. Our Federal TAX SAVING this year due to the tax bill is $5,184. Here's the "TAX SAVING" calculation if our property taxes were higher.
Property tax $10,000 TAX SAVING = $4,746
Property tax $15,000 TAX SAVING = $3,346

This can become confusing very quickly so let's simplify it for someone making $100K by only deducting the property taxes (as we did in the past).

Property tax deduction $5,000 = Taxable Income $95,000 (pays the most in fed taxes)
Property tax deduction $10,000 = Taxable Income $90,000 (second most fed taxes)
Property tax deduction $15,000 = Taxable Income $85,000 (lowest fed tax of the bunch)

I'm old-fashioned. Did we pay more or less? We paid less federal taxes. Since I adjusted withholding a year ago, for the first time in 40 years, we will receive a small refund. The bottom line is our tax bill for 2018 is $5,184 less than it would have been without tax reform.
Tax Calculation
Tax Calculation   |     |   Comment #56
#55
Some will comment on the standard deductions of the past/present saying many did not itemize, etc. etc. The so-called SALT subsidy, however, was real and is a bone of contention to those who no longer benefit from it.
DOA
DOA   |     |   Comment #57
Well explained #55.
Tax Calculation
Tax Calculation   |     |   Comment #58
#57
Thanks.
I was motivated by a newspaper article telling the world how upset a MATH teacher was with the results of their tax preparation. Arguing that the absence of year-end refund, in spite of lower taxation for the year, was a loss of income was mind-numbing.

We have created an entire generation of fools who believe a tax refund is a good thing. These people are so poor at managing basic finances they need a tax refund to finance vacations, etc. A refund simply means you gave the government a 0% interest loan.
#59 - This comment has been removed for violating our comment policy.
DCGuy
DCGuy   |     |   Comment #66
I personally would be ok with a 0% withholding (exempt from withholding) for the year and to pay the entire tax bill when I file the return. If they got rid of the underpayment penalty, I would do it that way for the rest of my life.
deplorable 1
deplorable 1   |     |   Comment #69
@DCG: I agree 100%! But then the government wouldn't be getting a 0% interest free loan from the taxpayers all year long. I tried to do this myself one year when I was single and claimed 4 on my w-4 form. I owed less than $1,000 yet still got the IRS warning letter because I had the audacity to owe them money. They can owe you tens of thousands though and that is perfectly acceptable to them. We should just be able to owe them and pay it off at the end of the year IMO.
Brokered
Brokered   |     |   Comment #70
#69
Weekly tax receipts are used to fund on-going government business. How is that not obvious? Besides, how many would have the cash on hand at the end of the year to pay the IRS? The number 0 was invented for a reason.
deplorable 1
deplorable 1   |     |   Comment #71
@Brokered: The taxes owed at the end of the year would only be $2,000 or less if you claimed the right amount on your w-4 form. We all have to pay property taxes and insurance each year. You just plan for the bill like any other bill. I would personally rather owe them then have them owe me.
deplorable 1
deplorable 1   |     |   Comment #61
Most people think that getting a large tax return is a good thing. When I tell them they just gave the government a 0% interest free loan of their money all year their eyes glaze over as they try to process what I just told them! The public at large is generally ignorant about taxes which is why a certain political party that starts with a D takes full advantage of their ignorance.
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DCGuy
DCGuy   |     |   Comment #65
People who are eligible for the Earned Income Credit often get refunds. They are not giving the Government a 0% loan because the EIC money was never theirs in the first place. They would have to apply to receive an advanced EIC payment over the tax year, but I do not think that is that popular. The amount of the advanced credit may be limited and not cover the entire amount of the tax refund.
First Feral
First Feral   |     |   Comment #67
The Advance EIC payments option ended in 2011. You can no longer get Advance EIC payments.
deplorable 1
deplorable 1   |     |   Comment #68
Sure there are some exceptions DCGuy for those who qualify for special tax credits like the EIC. Those are more like government assistance payments then a true tax return though as you must be very low income to qualify.
nrf
nrf   |     |   Comment #73
is it possible to have federal taxes taken out of a cd prior to maturity if it's a long term cd?
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