How To Use The IRS Withholding Calculator

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I want to show you a free tool called the IRS Withholding Calculator.  

I use the IRS Withholding Calculator to make sure I don’t give the IRS an interest-free loan but also to make I have had enough money withheld by my employer.  I usually aim for a refund of 100 or to pay 100.

Just to be clear, just because you get a refund doesn’t mean you are giving the IRS an interest-free loan. Everyone’s tax situation is different but there are people who earn a middle-class income but struggles when an unexpected $400 expense comes up but they receive a 4 figure refund each year.  I want you to give yourself a raise during the year, if possible, so you can use that extra money to save, pay off debt, invest, or use for your goals.

Check out my demo of the IRS Withholding Calculator.

*This only works for Federal Taxes, not state and if you have an accountant or CPA, you should work with them directly because they know your tax situation.

Hi, this is Alanna from Financialdemics.com. I am going to show you how to use the IRS Withholding Calculator to make sure that you are having the right amount withheld from your check. 

Just my disclaimer, I am not a Tax Advisor, but one thing I know how to do is how to use this tool. I've been using it for 4 years to make sure that I'm having the right amount withheld so I do not owe taxes at the end of the year, and I want to share what I know with you. 

We're going to go ahead and get into the tool. Make sure that you have your recent pay stub with you, and if you really want to get exact numbers, or as close as you can, then you may want to get last year’s tax return, but you can do this really quickly with a recent pay stub. This is just something you can do on your break at work. 

I have somebody's pay stub here and I'm going to just get into it.

General Information

The first thing you need to distinguish is how you file your taxes- so single, filing with your spouse, married, filing separately from your spouse, head of household, or a qualifying widower. 

Head of household means that you have actual dependents, but you pay more than 50% to maintain the cost of maintaining your household. 

This person is single, so I'm going to go ahead and pick single.

No one else can claim them as a dependent.

So, choose no.

From there click continue, under general information, they want to know how many jobs this person has?

This person only has one job. If you have more than one job, you would want to have both of your paycheck stubs available.

Also, we are expecting that this person stays employed at their job for the whole year, this person does contribute to their 401K plan, but they do not have any cafeteria or pre-tax plan, like health insurance that they contribute to. And they do not receive scholarship or Fellowship money so we are not going to check that box either.

This person does not have any dependents, but if you have any dependents you make sure that you put the number of dependents that you have; they're not over 65 and they are able to see.

The Child and Dependent Care Credit

If you have a child that you pay child care for so that you are able to go to work or look for work, you want to go ahead and mark how many children that you actually pay dependent care services for, and if you have an estimate on the amount that you plan to claim, you can put that in there also.

Also, for the child tax credit, its same thing choose the number of kids you will be claiming for the child tax credit.

Then for the Earned Income Tax Credit, if you have children that you are claiming for this credit, and this is typically for people who earn low or moderate-income, go ahead and put in the number of children that you are claiming there.

This person doesn't have any children, again, so we're just going to keep that at zero.

If you have any other tax credits that you want to accommodate for, you can enter that number here. I always just keep that number at zero.

Go ahead and click continue.

Income & Withholding

This is the part where you want to have your pay stub with you because you will want it for two of the sections.

 The first thing they want to know is how much you plan to make this year?  I'm going to go ahead and put in the numbers for this person.

Do you expect to receive any bonuses? They don't receive bonuses at their employment.

How much do you expect to contribute to your 401k? For this year, or it can be just any tax-deferred plan, but let's just say 401K. For this person, we've already done a calculation based off of how much they've already contributed so far.

And then they want to know the total amount that you have had withheld from your federal taxes, year-to-date. This is why you want to have your pay stub handy. For this person, we're going to go ahead and enter the amount that they've had withheld year-to-date, and also the amount that they've had withheld on their last paycheck.

Then enter how often do you get paid, so it's so it's weekly, twice a month, and then monthly. So, this person actually gets paid twice a month.

They had the job at the beginning of the year, and they expect to still be working there at the end of the year.

Nonwage Income

The next section is all about non-wage income. This is for you if have a business on the side, not that you're working for somebody else, but you have your own business.

This is where you can report those numbers to make sure that you're not in a sticky situation at the end of the year. That is what you would put in the first section, here.

If you have a business, and that's where most of your income comes from, then do not use this calculator, there's an actual form (Publication 5050) that you should use instead.

We're going to enter zero for the non-wage income. For this person, they do not expect to receive unemployment either during the year, so we're going to put zero for that.

Then they want to know if you expect to receive any dividends or interest payments that you expect to receive. For this person, we're going to put zero also.

Adjustments

The last section is for adjustments. If you're going to make any contributions to your IRA, or if you're going to have any student loan interest. I typically just put zero.

For me, I do have student loan interest; I know that this person has student loan interest, but we are not going to worry about accommodating for the deduction when setting up their allowances, we'll just consider that when they file their taxes that’ll just be a bonus if they're eligible for those deductions.

Deductions

The next page is all about your deductions, and whether or not you're going to itemize or not.

They actually list, right here, the standard deduction amount for people who are single, and this is the same deduction for the persons who are married- filing separately. If you are head of household, it would be 18000, and if you're married- filing jointly, or if you are a surviving spouse or a widow or widower, it would be 24000.

If you think that you're going to have deductions that are above the amount that's listed here, then you can estimate the amount here. If not, then you can just roll with the number they give you based off of the standard deduction, it's not a problem.

But for this person, he does not have itemized deductions that would be more than the 12200 that's listed here, so we're just going to go ahead and hit continue.

Your Results

Once you click on continue, now you have your actual results.

So, the calculator actually shows you how much your tax liability would be for the year.

For this person it would be $1,495 for 2019, and based on the numbers that we have entered, this person will have $1,825 withheld for 2019, which is an over payment of $330.

The IRS Withholding Calculator is also giving them the link to a W-4 if they want to change it.

The calculator also tell them how many allowances they should actually have and where to fill that out on their form W-4.

For this person, based on their projected salary, they should two allowances withheld and they should mark single because, remember at the beginning, I said that they are single with no children.

If they complete a new W-4, they would actually have a refund that would be about $50 and hey, that is the goal.

What we want here, is to not give the IRS an interest-free Loan, and get more of your money in your paycheck during the year. So, for this person, instead of having to wait for their money, they'll get it up front.

This is how you actually fill out the IRS Withholding Calculator. If you have any questions about how to use the tool, let me know below. But hopefully this was helpful and it will help that you won't have a surprise at the end of next year during tax time.

Again, I am Alanna from Financialdemics, thanks for watching.

RE

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