U.S. Federal Withholding on Paychecks

[Storminator]

Ack! No no no! I just did some calculations and it looks like 20% of my paychecks are going towards taxes. And that's federal alone! It should really be only 3%.

That's it. Come time to do my taxes, I'm going to find out EXACTLY how much I actually paid in taxes, and make a charitable donation to a random fund of that amount so the gov't doesn't get a cent in the long run. Crazy system.

That is SOOOOO not going to work.

You pay a social security tax. Nothing on God's green earth is going to get you that money back unless SS is still there when you retire. There's about 6%.

You pay a Medicare tax. Same thing.

You pay federal income tax. You can offset some of that with charitable deductions, but you don't break even -- not even close. Charitable deductions reduce the amount of taxable inclome you have. So if you're in a 25% bracket, and you donate $1000, your taxes go down by $250.

Then, depending on where you live, you may have state and local taxes.

Get used to the tax man, brother.

PS

 

[CarlZog]

Oh my God! This thread is making my day! I can't stop laughing.

I don't remember being this naive about taxes when I first started paying, but maybe I was... It was a long time ago.

This IS one aspect of life that they just don't teach you, or warn you about, in school.

Actually, now that I think about it, most of what I knew by the time I had to start filing had come from my Dad -- who worked for the IRS at the time.

Carl

 

[VirgilCaine]

Wierd. I'm on half pay and the % in taxes they're taking out has gone up. Oh well, it'll all come around.

That made my day.

 

[kaarle30]

US Federal Withholding on Paychecks

Federal withholding is a progressive tax rate as was pointed out earlier, possibly 0, 10%, 15%, 25%. Social Security and Medicare is a total of 7.65% of your pay. As was also pointed out you can manage your withholding by using the W-4 and come out very even at the end of the year. I have seen people who come out within $10.00 of what their federal income tax is when their tax return is completed.

Overtime can be taxed at a flat 25% rate, there are 2 ways the tax can be figured. Ask your employer which way they do it.

And lets not forget about State withholding (if your state has an income tax) you can also adjust that to come out pretty even.

Oh, and BTW I work for the IRS, thats how I know about this. And IRS doesn't get a cent of this, it goes into the US Treasury to pay for roads, schools, military, welfare, health etc. But, good old Congress makes these rules and then the IRS must implement them.

 

[Jeff Wilder]

As was also pointed out you can manage your withholding by using the W-4 and come out very even at the end of the year. I have seen people who come out within $10.00 of what their federal income tax is when their tax return is completed.

Please note that while many people do this, it is not legal. If you claim allowances to which you're not entitled, and you sign the "under penalty of perjury" line, you've perjured yourself. (Will you get caught and prosecuted? Probably not.)

Yes, if you end up overpaying, the government gets a short term, zero interest loan. It's not that big a deal.

(What sucks is if you have to, like me, pay in extra so you're not underpaying. I prefer to spread my liability out over the year, rather than pay it in one lump sum in April. It's less hair-raising. (Oh, and I'm bald.))

 

[Angcuru]

Get used to the tax man, brother.

Noooooooooo!

*picks up stick*

BACK! Get back you dream-shattering devil! BACK!

 

[reveal]

I remember this "Haggard the Horrible" I had froma while back. He and a friend were in front of a wall with a slot in it. The slot had a sign above it that said "Put all your money here" and an arrow that pointed to the slot. Haggard said, as he put a sack into the slot, "I wish they'd make these tax forms easier to figure out."

 

[Old One]

Please note that while many people do this, it is not legal. If you claim allowances to which you're not entitled, and you sign the "under penalty of perjury" line, you've perjured yourself. (Will you get caught and prosecuted? Probably not.)

Yes, if you end up overpaying, the government gets a short term, zero interest loan. It's not that big a deal.

(What sucks is if you have to, like me, pay in extra so you're not underpaying. I prefer to spread my liability out over the year, rather than pay it in one lump sum in April. It's less hair-raising. (Oh, and I'm bald.))

Jeff,

Hate to disagree, but I think you are confusing "exemptions" - which are family members/dependents you can legally claim on your tax return with "allowances" - which are a management tool on the W-4 form to ensure you don't have too little (or too much) withheld from your paycheck. The two are related, but independent items.

If you are single, with no dependents, then you will claim one exemption on your tax form and might very well claim one allowance on your W-4. However, if you are married, have 2 kids, a big mortgage, live in a state with high state income taxes and make lots of charitable contributions, you will claim four exemptions on your Form 1040, but might very well claim 7 or 8 allowances on your W-4. IIRC, you can claim up to 13 allowances on your W-4 before you need to attach an explantory note to the IRS.

If you claim more exemptions than you are legally allowed on the Form 1040 (such as claiming a family pet, fictitious person or child that no longer qualifies for dependent status) and sign the return, then you have committed an illegal act and are liable for perjury (not to mention back taxes, penalties and interest if caught).

Current W-4 PDF is W-4

While the signature block does indicate that by signing you are testifying the form is correct, if you are routinely getting big federal tax refunds, it means you haven't completed the worksheets correctly. You are under no obligation to overpay your taxes and provide the government free use of your money. Adjusting your W-4 is a perfectly valid (and legal) way to manage your tax withholding, either up or down.

~ OO

 

[Greylock]

That made my day.

Glad you enjoyed it.

That said, I'd rather have the money now.

 

[Jeff Wilder]

Hate to disagree, but I think you are confusing "exemptions" - which are family members/dependents you can legally claim on your tax return with "allowances" - which are a management tool on the W-4 form to ensure you don't have too little (or too much) withheld from your paycheck.

Nope, although I wasn't as clear as I could have been.

While the signature block does indicate that by signing you are testifying the form is correct, if you are routinely getting big federal tax refunds, it means you haven't completed the worksheets correctly. You are under no obligation to overpay your taxes and provide the government free use of your money. Adjusting your W-4 is a perfectly valid (and legal) way to manage your tax withholding, either up or down.

While it is true that adjusting your W-4 is permitted and encouraged (see IRS Pub. 919 -- http://www.irs.gov/pub/irs-pdf/p919.pdf), a taxpayer is still required to submit the "true, correct and complete" number of allowances, as calculated through the various worksheets. So if the taxpayer has demostrably submitted too few allowances, then recalculates them properly and submits another W-4, that's perfectly fine.

But what you seem to be saying is that if a taxpayer believes he is overpaying his taxes -- from past results, or from the advice of a friend, or whatever -- he can assume that he has, by definition, incorrectly calculated his allowances, and that's just not true. (Pub. 919 has some notes on this. E.g., "You can only claim the number of allowances to which you are entitled.") If the taxpayer claims allowances to which he isn't entitled through the worksheets and signs the W-4, he's perjured himself, even if his estimations are dead-on to his actual tax liability (or lack of same).

The IRS does not want to allow or encourage taxpayers to overestimate their allowances (because that obviously impacts revenue negatively); if "guesstimating" allowances were allowed, everyone could legally claim a huge number of allowances (and, logically speaking, should), and that's just not gonna fly with Internal Revenue.

Is it "fair" to guesstimate tax liability and fudge allowances to match? Maybe. (It's my opinion that the contemplation of taxation vis a vis morality or justice is an invitation to an address on Insanity Boulevard.) I'm not a tax lawyer, so I'm not even sure if the act of guesstimating allowances is illegal. (I doubt good faith estimation rises to the level of fraud, for instance.) But the perjury is illegal, however unlikely prosecution may be.