Tax withholding is the amount that your employer withholds from your paychecks for paying the Federal Income Tax. If you do not get this number right with the IRS then you may need to get some IRS help which is better then them coming after you.
The amount that is withheld from your paychecks depends upon two main things, employee earnings and the information furnished to your employer on Form W-4.
The employees can also check the withholdings with the help of the IRS “Withholding Calculator” released in the year 2018.
You get an estimate about the current withholdings you need to change with your employer in regards to:
- Earlier in the particular year
- With the changes in the tax laws to get tax relief
- When you experience changes in your life:
Income changes: When you or your spouse starts to work or switches on to the second job
Lifestyle changes: Marriage, Divorce, purchase of home, adoption or birth of a child, Retirement or Filing the Chapter 11 for Bankruptcy
Adjustments made in the Income: Student Loan Interest Deduction, Deduction in IRA or Alimony expenses
Taxable Income that is not Subject to Withholding: Dividends, Interest Income, Capital Gains, IRA (inclusive of Roth IRA) distributions, and Self-Employment Income
Deductions in Items or the Tax Credits: Taxes, Gifts to Charity, Interest Expense, Medical Expenses, Education Credit, Dependent Care Expenses, Earned Income Credit, and Child Tax Credit
Introduction to IRS Withholding Calculator
Due to recent changes in the Federal Tax Laws this year, it becomes necessary to use the IRS Withholding Calculator.
It will help you to seek the “paycheck checkup.” It aids in identifying the right amount of tax withholdings are done out of the paychecks at your workplace.
It is important to check and calculate your withholdings for two reasons:
- If the little amount of tax has been withheld from your paycheck, then this calculator will aid you in proper calculations. It will save you from any penalties or unexpected tax bills while calculating taxes in the next year.
- If your average refund tops to nearly $2,800, then you can prefer to have fewer taxes withheld and receive more amount through their paychecks.
If you are working as an employee, then this Withholding Calculator will determine whether you need to give the Form W-4 or the Employees’ Withholding Allowance Certificate.
In case, you receive the pensionable income, the results from this Calculator can be used to fill out the information in Form-W4P and send it to your payer.
You can also take IRS Help from experienced professionals for using the Withholding Calculator.
If you are an employee, it is recommended that you use the Withholding Calculator to see if your employers are withholding the right amount of taxes in 2018.
By doing this, it can help your employer in saving them from possible tax penalties.
As an employee here are some tips to help you help with your tax withholding calculations:
- Gather up and use your most recent pay stubs and your Federal Income Tax return to estimate your income for the year. Make sure you keep in mind the newer tax laws.
- You should make the proper estimates from your income. However, it's worth noting that your withholding results will be more accurate by entering the most up to date and accurate information.
- It may be a good idea to print the final screen summary of all of the entries and the results. The results from the Withholding Calculation will help you in determining whether you should complete the Form W4 or Employee’s Withholding Allowance Certificate.
Note: The “Withholding Calculator” will never ask for personal or identifiable Information of the taxpayer such as their name, address, social security number, or the bank account numbers.
How to Use The IRS Tax Withholding Calculator
Each of these steps will help you depending on what the “Filing Status” is of each individual.
Step 1: If you are single, then choose the option accordingly.
Step 2: If you are under 19 years or studying full time, less than 23 years, and leaving with your parents, then you are considered as a dependent. In this case, choose the option “Yes” in the dependent section. Otherwise, choose “No.”
Step 3: Click on “Continue”
Step 4: Fill the general information; the number of jobs in which you were employed or currently working. If you are an ex-military person or receiving a pension, then consider it as a separate job. Under general information, check the box if,
- You had a job this year but are no longer employed
- You have contributed to the ‘Tax-Deferred Retirement Plan’ like the 401(k) this year
- If you made contributions towards the Cafeteria or Other Pre-Tax Plan like the Health Insurance this year
- If you have received a fellowship or scholarship grant that must be included in your gross income
Select the number of dependents that you wish to claim in your tax returns.
- Check the boxes if you are blind or you will turn 65 years or older as on January 1, 2019.
NOTE: If there are certain amounts that do not apply while calculating the taxable income, then fill “0” over there. Do not leave them blank.
Step 5: Under the Child and Dependent Care Credit, select the number of qualifying children (below 13 years) or the dependent person and estimated expenses if there is any.
Step 6: Select the number of children for your Child Tax Credit. The child can be your son, daughter, adopted child, grandchild or even stepchild. However, your child must have a social security number, be a citizen of USA, and be under 17 years of age.
Step 7: If you wish to claim Earned Income Tax Credit (EITC), then enter the number of dependent children who are living more than half the year with you, under 19 years of age, under 23 years of age in case of full study, or permanently disables.
Step 8: Mention other credits if you have them which may include credit such as education, elder or disabled person, adoption, foreign tax, business interest, mortgage, electric vehicles, retirement savings, and health coverage tax. Click on “continue.”
NOTE: If you file all of the above credits, then you are expected to receive smaller refunds that will be shown under your result section.
Step 9: Fill the requisite information in the ‘Income and Withholding’ section that includes:
Wage Income and Withholding that will consist of your bonuses, wages, Federal Income Tax, Income Tax withheld on your last payment, etc. for all your jobs of the year.
- Non-Wage Income including a total of the other taxable and earned incomes (including tips or any compensation), dividends or interests received, and unemployment compensation
- The adjustments will include the education loan interest and deductible IRA contributions
Click on “Continue.”
Step 10: The next section will include any of your deductions. If your standardized deduction is ($12000) or more than your overall item wise deductions, then the standard deduction applies when calculating you’re your withholding amount.
If you want to use itemized deductions for calculating the withholding amount, then check the box provided and enter the amount for medical and dental expenses, paid tax, paid interest, charity, casualty loss, and other items.
Here are a few points to notate while mentioning itemized deduction.
- The standard deduction will be $1600 more in each case - age is 65+ or blind
- Medical and dental expenses are eligible only if it exceeds 7.5% of your adjusted gross income.
- You can claim tax up to $10000.
- Home mortgage interest depends on the time when you buy. For more details, refer to these notes.
- A casualty loss is eligible for the disaster declared by the government.
- You can claim any gambling losses in other deductions.
Step 11: Now click on “Continue,” and the results section will show you your accurate summary.
If you have any concerns regarding your withholdings, either check it out with your employer or get IRS Help from a tax expert. You should check your tax withholding amount before the beginning of next year.
- Married Filing the Joint Return
Step 1: If you are married and wish to file return jointly, then choose “Married filing joint return” option.
Step 2: Since you are married, you should select the “No” option in the dependent section. You can only check “YES” if you are looking forward to claiming the refund of the taxes paid. You need to enter your dependent details in the subsequent steps.
Step 3: Click on “Continue”
Step 4: Follow the same steps 4 to 11 as mentioned for the “Single” status except for the following changes.
- Check the additional boxes if your spouse is 65 years old as on 1st January 2019 and he/she is blind.
- The standard deduction for married filing the return jointly is $24,000. If your itemized deduction is more than $24,000, then you can mention the amount accordingly.
- The standard deduction will be $1300 more in each case - age is 65+ or blind.
- Married Filing Separate Return
The information will remain the same for the General Information section, Tax Credit section, Income, and Withholding section as of the “Married Filing the Joint Return.”
The only thing is that the standard deduction is $1,900 in case you are a dependent. Moreover, the result will be based on the information provided. You can download the Form W-4 from here.
If you are not a dependent, then the standard deduction is $12,000.
- Head of Household
Under this status, if ‘Yes’ is selected and the dependent query is checked, AND someone else is claiming you as the dependent, then you cannot file the return. The claim can only be asked on the tax return if you are unmarried or pay more than the 50% of the cost to upkeep the home.
If you need more details on the claim, then you can check the IRS Publication 501 at https://www.irs.gov/publications/p501
If you are selecting the ‘No’ option in the dependent section, then
- General Information and Tax Credit remain same as Single status where you need to select the dependents
- The Income and Withholding section remains same as cited in above statuses
- The “Deductions” section remains same, but the standard deduction amount changes to $18,000
- The results will only be accurate if the information provided is correct. You can download Form W-4 for filing the return.
- Qualifying Widow(er)
If you are a dependent, then you cannot file the return. In the case of a reliant child, see the following pointers at https://apps.irs.gov/app/withholdingcalculator/helpdocs/qw.htm
If you are not a dependent, then follow the same steps as mentioned for the “single status,” just minus the deductions. Here, the standard deduction amount is $24,000.
The Withholding Calculator will provide you the summary of your information that you can print out. With this, you can decide whether you need to complete the new Form W-4 and give it to your employer.
The withholding calculator is great to determine how much the IRS is going to take from you. It also can be frustrating if you find out they are taking more money from you then expected.
The good news is, you can speak to a tax relief expert if you owe too much on your taxes and cannot pay the IRS for that amount. The tax relief expert may be able to get that amount lowered for you.
Leave a comment below on how the tax withholding calculator has helped you?