How to Choose the Best Federal Withholding for You
Most often when you work and receive income, your employer withholds taxes from your pay. These taxes are paid to the IRS in your name and at the end of the year when you complete your tax return, you determine whether you have paid a bit too much (and get a refund) or a bit too little (and pay the difference). Taxes are also withheld from other types of income including bonuses, commissions and even gambling winnings.
So, when you think about your withholdings, your ultimate goal is to withhold enough so that you do not have a large tax bill come April 15th, but not so much that you have a huge refund either. After all, that refund could be money in your pocket throughout the year!
Your Withholding: Get It Right!
Estimating your withholding and choosing the best federal withholding for you is a critical part of the annual tax process. We have pulled together some information that will help you sort out this sometimes complicated process and get it right this year!
- W-4: The IRS uses the amount you earn annually along with the information you provide on your W-4 to determine how much they withhold from your paycheck. To make adjustments to this, you need to amend your W-4 form. You can do this at anytime and can often request a W-4 form from your HR department. Often, when you start a new job, your employer provides one and suggests that you complete it. You should note that generally your employer cannot advise you how to complete this form.
- Coming up with the correct withholdings for you: There are many factors that go into estimating your tax withholdings. You can use tools like the personal allowance worksheet and the deductions and adjustments worksheet to incorporate your unique personal information with your earned income to arrive at your optimal withholding. You will use information such as filing status, allowances (for you, your spouse and any dependents) and any tax deductions and credits that you plan on taking to help you calculate your withholding.
- Once you have completed the worksheets described above, use the IRS wage bracket tables (on their website) to see exactly how much the IRS will withhold based on your current information.
- The more allowances you have, the less money will be withheld from your paycheck. This keeps more money in your pocket throughout the year, but can lead to owing the IRS at the end of the year, if you do not withhold quite enough.
- The fewer allowances you have, the more money will be withheld from your paycheck. At the end of the year, you will have a larger refund, but less money in your pocket throughout the year.
Still Have Questions?
Because of all of the variables that go into the calculation, figuring out your withholding can be complicated and lead to many questions. While your employer cannot answer questions about how to complete your W-4 and how much to withhold, a tax professional can. You can discuss your goals for your annual tax return (whether you prefer a refund or prefer to have that money coming via your paycheck) and get advice about how best to complete your W-4 form.
Success Tax Relief works with the IRS to resolve tax debt and other tax issues on behalf of many people each year. Call (877) 958-6638 to schedule a free consultation today!