Completing a W-4 to maximize refund

[ash_003]

This year, my income from this job is $30,096 based on my 2021 W-2. I owe $500.00 in taxes this year; mostly Federal. I just don't know where I missed the mark. Last year, I got a return of nearly $1800. My circumstances then was that whilst I still worked for the same company, I was being paid through a staffing agency for a majority of that year up until September 2020 when I chose permanency.

Filing seemed so much easier last tax season. For 2021, the only deductions I have are for the $73 student loan interest paid. Nothing much changed for 2020. There aren't any other deductions, I don't think.

With that being said, I want to figure out how to understand what my stub is telling me and what I need to do to maximize what I can receive (or owe as little as possible on a return). I also don't want too much to come out of my take-home pay as I'm already not making a lot anyway. I always file single and I never claim (nor do I have) dependents.

I'm rather young and new to the game so any support is appreciated. Adulting is hard and I'm figuring this out alone.

I attached my recent stub and censored out any sensitive info if it's helpful.

[saom]

Adulting is hard!  Your pay stub gives you lots of information...your gross pay, your deductions and your net pay for the pay period and for the year to date.  It appears you have pre-tax savings for dental and health care....make sure you use that money before it expires, which is sometimes the end of the year, sometimes a month into the next year.  Those generally save you take home pay, since they lower your pay before taxes are calculated.  Then you have the Federal withholding, Social security, Medicare, and GA withholding.  You can't change social security or Medicare so only Federal withholding and GA withholding are slightly adjustable.  The question becomes do you want more take home pay each check and perhaps owe a little when you file or do you want less take home pay and probably not owe when you file.  To achieve the last option, many times you can have a few extra dollars withheld above the calculated withholding rate by filling in a new W-4.  Take the amount you owed, divide it by the number of pay dates you get and add that to the W-4 form.  

[AamilD]

Based on your paystub which you have provided, to summarize:

1. You are paid an hourly rate of $17.5 and you work 80 hours for every two weeks. Based on that assumption your gross income for 2022 will be approximately $36,400 ($17.5 x 2080(hours worked in a year based on 40 hours/week)).
2. Based on your paystub, $71.15 is the federal withholding for every pay check. Since you are paid bi-weekly and pay $71.15 for every 2 weeks, based on this assumption, the total federal withholding which will be done for 2022 would be $1849.9 ($71.15 for per pay period and there will be 26 pay periods in the year so $71.15 x 26).

To summarize your gross income for 2022 would be $36,400 and your total federal withholding would be $1,849.9

Based on the 2022 numbers, the standard deduction for single filers is $12,950. What this means is that the first $12,950 of income is tax free and you are not required to pay any tax on it.

Gross Income  -----------------------------------------$36,400

Less Standard Deduction--------------------------$(12,950)

Taxable Income----------------------------------------$23,450

Based on the tax brackets, for single filers and the total taxable income of $23,450 (see above),  the first $10,275 of the income will be taxed at 10% and the remaining $13,175 ($23,450-$10,275) will be taxed at 12%. The total tax which you would be required to pay is around $2,608.

Now if you compare with the withholdings you are projected to do for the year it is $1,849.

So based on the numbers above, you are required to pay $2,608 and you would have only withheld $1,849 which means you would owe about $759.

Based on these calculations you can see that you are not withholding enough and hence you would be owing money when you file the tax return. There is no perfect answer to this question since if you would like to owe less at tax filing time, you can increase your withholding by filing a Form W-4 with your payroll department. However, this will reduce the current paycheck which you will get.

The above numbers are simply assumptions and approximations and are not exact numbers. This above calculation is done with assumptions and the purpose was to show you how the calculations are being done.