Stop Overpaying the IRS!!
If you get a large tax refund every single year, you might be overpaying the IRS(Internal Revenue Service). Contrary to that if you owe every year you might be underpaying. One great thing about it, is that you can make a change any time. Yes, you can update something called a W-4 form with your HR department and this essentially adjusts the withholding amount of your federal taxes. Before you decide to make any adjustments, contact your employer and tax professional for advice. With that being said the IRS has a great calculator tool that you can use and I will be walking you through it step by step in this post.
For example, let’s use a random guy named Russell. Russell just had a child and he now qualifies for Head of Household on his 2019 income tax return. Russell makes $60,000 a year and previously he was claiming only 1 allowance as a single person living alone. Russell gets paid twice a month and has around $300 withheld from each paycheck for federal tax purposes. He wants to update his withholdings but he just doesn’t know how. But Russell researches, this YoungIncome blog post =] and checks out the awesome IRS withholding calculator tool.
On the first page, Russell checks off Head of Household.
On the second page, he selects 1 for the child tax credit because of his recent newborn.
On the third page, he puts $60000 for gross wages and $300 for total Federal tax withheld in 2019 thus far. Russell also puts $300 for tax withheld on his last salary payment because that is the federal tax amount that taken from his last paycheck. He also selects twice a month pay frequency because he gets paid on a semi-monthly basis.
Finally, the results are in. The IRS calculated that Russell was projected to overpay the IRS by $4,776 based on an anticipated income tax of $2,724. They then gave him the proper withholding allowance amount to claim to adjust his Federal tax withholding for the year. Now his refund would go from $4,776 to $300-$400.
Why wait for a large refund when you can get that money throughout the year? And by the way, this is YOUR money that you’re entitled to. The IRS charges you penalties and interest when you owe them money and forget to pay. If they owe you money though…. you don’t get any extra interest paid for it just the exact amount you overpaid. Look below at the difference in take-home pay Russell has just by updating his W-4 form.
That’s $400 a month going back into his wallet!! Russell can maybe afford to pay for more formula, diapers and baby supplies lol.
Whether you’re overpaying or underpaying I think you should check this calculator out just to get an idea of your projected taxes for the year and to see where you track. Tax laws change so it’s always good to be aware.
Reminder, always speak with a tax professional to see what filling status and credits you qualify for and adjust your W-4 forms accordingly.
Check out the IRS 2019 Withholding calculator belowIRS Calculator