Federal Withholding of Income Tax – How Much is Coming Out of Your Wallet?
As an employee, when you are paid, so is Uncle Sam and the state government. If you are lucky enough to live in one of the few states that do not tax on income, then you are only paying the federal government. But for most of us, a portion of our pay is directed to federal and state income tax, or withholding tax.
The amount that netfile comes out of your paycheck is dependent upon your exemption allowances. When you were hired you filled out a W4 and/or a state withholding form. These forms declared your marital status and the number of allowances you claim. Allowances serve to direct the money away from the government and towards your pocket. Read the form carefully, because you only want to exempt what truly should be yours. You can change your exemptions at any time – just fill out a new form and submit it to your supervisor.
Monitor your paycheck to make sure the exemptions you claimed are calculated into your pay. You do not want to end up owing the government any more than you have already paid because your employer did not calculate the correct tax. The IRS website has a page for calculating your withholding – take advantage of the opportunity! Also available on the web are numerous websites that calculate your paycheck for you, based on your earnings, deductions, and taxes. If you think your paychecks are not being calculated properly, compare your check against a paycheck calculator. If the differences are within a few dollars, do not worry. However, if the difference could add up to hundreds of dollars over the course of a year, then talk to your supervisor and request that your paychecks be reviewed for discrepancies. It could be a simple miscalculation but better to catch it as soon as possible so the differences can be adjusted, rather than paying a large chunk when you file your tax return.
Lastly, you should understand that the tax tables change every year – and on a few occasions during the course of a year. For example, in February 2009 President Obama signed the American Reinvestment and Recovery Act (ARRA) which included the Making Work Pay tax credit. For tax years 2009 and 2010 Americans can expect to receive a few dollars more each paycheck, totaling around $400.00 annually. This works because the tax table were changed so that individuals would not owe as much towards income tax. However, again this is where I say pay close attention to your federal withholding tax. If you are married or work multiple jobs you may be receiving too much credit, which means you will end up owing when you file for 2009.
To sum up: pay attention to your paychecks. Monitor your income tax withholding. Calculate against current tax tables to make sure you are paying the government exactly what you should and no less. Take the time to spend a few minutes every so often calculating your paycheck and you may avoid surprises in the next year.