Yahoo Finance The US government screwed up $247 billion in payments last year and nearly $2.4 trillion over the last two decades — costing taxpayers dearly. 3 tips to make sure you’re paying just enough
The federal government reported a whopping $247 billion in payment errors during the 2022 fiscal year, according to the Government Accountability Office (GAO). The watchdog also says nearly $2.4 trillion in payment errors have been made over the past 20 years.
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The GAO's report is among the latest oversight reports to claim billions in wasteful spending by the federal government every year.
“The government has just lost, as if you dropped it on the sidewalk, trillions and trillions of dollars over the last few decades,” Richard Stern, a budget and spending expert from The Heritage Foundation, a conservative think tank, told CNBC.
“That is money that was stolen from hard-working Americans to just simply get wasted.”
What happened to those billions of tax dollars?
So what exactly is behind these billions of dollars in payment errors? Well, not all of them represented a loss to taxpayers.
The recently published GAO report indicates $200 billion in payment errors last year were the result of overpayments, while $5.3 billion were counted toward underpayments.
Another $32.7 billion in “unknown payments” were recorded, meaning it’s unclear whether the payment was an error or not. Finally, there were $9 billion in “technically payment errors,” meaning a recipient was entitled to a payment but the payment failed to adhere to rules or regulations.
Payment errors were reported by 18 agencies across 82 government programs. The vast majority of these errors (78%) were made under five programs — Medicaid, Medicare, the Paycheck Protection Program, Unemployment Insurance, and the Earned Income Tax Credit (EITC).
The GAO recommends better monitoring and planning by federal agencies to help identify risks for payment errors, and that the IRS review more W-2s before issuing tax refunds to lower the risk of tax refund fraud.
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3 tips to lower your tax bill
There are steps one can take to ensure they’re not overpaying the tax man themselves, like checking and adjusting tax withholdings early in the year.
Taxpayers can also keep more money in the bank by following just a few simple steps. Here’s how.
1. Contribute to a retirement account
If you make regular contributions to a pretax retirement account — like a 401(k), 403(b) or 457 plan — or an individual retirement account (IRA), you can lower your taxable income for the year.
The IRS raised the contribution limit from $20,500 to $22,500 this year for 401(k), 403(b) and most 457 plans. Employees aged 50 and over who also participate in the government’s Thrift Savings Plan can make further catch-up contributions up to $7,500.
If you have an IRA, the contribution limit was raised from $6,000 to $6,500, although catch-up contributions for those aged 50 or older are still capped at $1,000.
Just keep in mind that Roth IRA contributions are not tax-deductible, but contributions to a traditional IRA are if you meet certain requirements.
2. Take advantage of tax credits
Another way to lower your tax bill for the year is to claim any tax credits you may be eligible for, like the Child Tax Credit or rebates for things such as heat pumps.
Unlike deductions, which lower the amount of your taxable income, tax credits allow you to directly subtract from what you owe to the IRS. Some of these credits, like the EITC, may even be fully refundable — meaning you’ll still get the full value even if the credit amount is greater than your tax liability.
So, for example, if you owe $500, but claim a refundable credit of $800, you’ll receive a refund of $300. If the credit was not refundable, it would simply bring your balance down to $0.
For the 2023 tax year, the EITC will be between $600 and $7,430, depending on your status and number of children.
3. Make note of charitable donations
Hold onto your receipts — there’s a good chance you could qualify for a tax deduction if you’ve made a donation to an IRS-recognized charity foundation or organization. This could include donations of cash, checks, clothing and other goods.
In general, you can deduct up to 60% of your adjusted gross income, but 20%, 30% or 50% limits may apply in certain cases.
Just keep in mind that proof of documentation will differ depending on the donation.
For example, if you’ve made a cash donation under $250, you’ll need to present a bank record like a canceled check or a credit card statement, whereas donations of $250 or more will require a written acknowledgment from the organization.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
