I understand we're all getting a break on Federal withholding, but how is this going to affect us at the end of the year? My fear is that they're going to want it all back.
Can anyone explain if we're going to owe more at the end of the year?
No, we're not going to owe it back because it represents a tax credit passed in a stimulus bill in February. So, brackets and rates haven't changed (aside from annual bracket adjustments) but when you do your taxes there will be a credit to claim to account for this.
Of course, most people foolishly overpay their withholding anyway, my pet peeve...
OK, out of a gross of about $4000, the federal gov. took out about $7 last check.
It has been around $200 per check.
Take last year's tax bill, subtract $800 ($400 for individuals) and divide by the number of paychecks you get per year.
If you are having substantially less than that withheld and you haven't had any changes in tax status or income- you probably aren't having enough withheld.
I've caught 2 employees here already where payroll reduced their withholding to represent the entire $800 credit- and so did the payroll folks at their spouse's employer. Both spouses can't take the full credit or you'll have an $800 shortfall next tax season.
So, if I didn't owe tax, but instead got a refund, how do I calculate that?
I am ignorant when it comes to taxes.
Thanks so much for your help.
You probably had a base tax bill of some sort, it was just overpaid by a combination of withholding and credits- and you got the difference back in cash.
Take the amount of your refund and divide it by the number of paychecks you get per year. You can reduce your withholding by that amount and come out about even- no refund, no check to write.
Now do the same thing with the new tax credit- $800 family or $400 individual. Divide that by the number of paychecks you get per year.
You can reduce your withholding by that amount and come out about right.
This won't work if there is any change in your financial situation- changes in income, deductions, credits, etc. If you have changes, there are withholding calculators on the IRS website that will get you in the right ballpark.
Last week on dh's check-- his Federal withholdings actually went UP.
I'm thinking his payroll department messed up somehow, because we're getting a little LESS in his check now vs. MORE.