Quick, simple, taxes - no those don't really go together but here is my best shot.
You want to be sure to have enough taxes withheld that you owe less than $1,000 to the federal to avoid penalties and interest. Some people like to zero out at tax time and some people like to give the government their money and then get one big refund at tax time. If you are good at saving money, a big refund is not desirable as you can save through the year and earn more. If you are terrible at saving, a big refund can be nice. Let's start with the basics. The more allowances you claim, the less money they take out. Single and zero withholds the most. You can have more taken. By saving the money, you may even qualify for the Saver's Credit. Here are some options and examples:
Federal
Method 1
Use the Tax bracket calculator to find out what percent should be withheld to zero out. Ex, Marginal tax rate 10%
- Grab your paycheck.
- Find your federal tax withheld and divide it by income.
- Ex. $500/ $5000 = 10% on track to zero out.
- Ex. $500/10,000 = 5% is less than 10% so you will owe money.
- Ex. $500/ $4000 = 12.5% is greater than 10% so refund time.
Method 2
- Determine how much your tax liability will be for the federal with TaxCaster tax calculator. Let's pretend it's $1,000.
- Decide if you want a big refund, let's say you want $3,000 refund
- Add them together so $4,000 would need to be withheld from your paychecks to get the refund desired.
- Figure out how many pay periods are left in the year.
- Grab a paycheck and see how much they .have already taken. Let's say $500. That means you need $3500 more withheld during the year.
- Divide the amount needed by pay periods. Let's say $3500 and paid once a month so 8 checks left is $438/ mo to take out.
- Subtract what they are currently taking out and you get how much more needs to come out of your paycheck.
- Go to HR, tell them you need to change your w4.Keep whatever you filled in for exemptions originally. There is a box that says take an additional $___. Fill in that difference.
Method 3
Similar to method 2, using IRS calculator, Tax Withholding Estimator
Don't forget your state taxes and determine if you want a refund and how much needs to be taken.
Check your paystub and make sure enough is being taken out for the year to not owe or to have your desired refund for both federal and state every quarter. Bookkeeping accidents do happen.
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