Income taxes can be complicated, and that can sometimes lead to unexpected results at tax time. Having too much withheld from your regular paycheck results in a refund, while having too little withheld will result in owing money when you file your taxes.
There are many variables that can affect your withholding amounts, such as your income, effective tax rate, and how much you contribute to retirement accounts. In other words, changing your withholding to ensure a refund isn’t as simple as saying you should have an additional $100 withheld per paycheck. To determine your desired withholding amount, you will have to do some calculations based on your unique situation.
Don’t worry, though — even if you find income taxes a bit scary, the IRS has a calculator that will make it easier to do your calculation. We’ll walk through using their calculator as well as other things you need to know to make an informed decision.
How To Estimate Your Federal Withholding
If you want to change your withholding amount in order to ensure a refund, the first thing you have to understand is how withholding is calculated. Although the calculation can be complicated, it is easier since the IRS introduced a new Form W-4 in 2020.
For instance, withholding allowances are no more, which leaves less room for unexpected results after you submit your W-4. In fact, you are only required to fill out steps 1 and 5, where you provide personal information such as your name and address, and then sign the form.
In order to calculate your withholding, take a look at your most recent pay stub. From your pay stub, you’ll need the following information:
- Wages or salary per pay period
- Wages or salary year-to-date
- Federal tax withheld per pay period
- Federal tax withheld year-to-date
Plug this information into the IRS’s Tax Withholding Estimator. For an accurate calculation, you may have to provide other numbers, such as contributions to a 401(k), HSA, FSA, and any bonuses you may have received. The estimator also includes various adjustments and tax credits; enter anything here that may apply to you. The steps after income and withholding are optional, but be sure to select the standard deduction in that step, unless you itemize.
Adjusting Your Withholding
At the end of the Tax Withholding Estimator, you will see whether you can expect a refund or if you will owe at the end of the year. If you are expected to owe and would prefer a refund, the IRS recommends submitting a new Form W-4.
If you are expected to owe, there is a slider you can use to specify your preferred refund. Then, it provides instructions for how much additional income you should have withheld to see your desired refund. You’ll enter that extra amount on Line 4(c) Extra Withholding of Form W-4.
Tax Rates by Income
The full amount of tax you owe is more complex than multiplying your income by your federal tax rate — state, local, and FICA taxes also apply. In general, though, higher earners will always have a higher tax liability. For instance, here are the tax brackets for single filers for 2022:
|Tax Rate||Taxable Income|
|10%||Up to $10,275|
|12%||$10,276 to $41,775|
|22%||$41,776 to $89,075|
|24%||$89,076 to $170,050|
|32%||$170,051 to $215,950|
|35%||$215,951 to $539,900|
Keep in mind that what you see are marginal tax rates, but you won’t pay that tax rate on the entire amount. For instance, if you have $100,000 of income, the marginal tax rate is 24%. But you pay a 22% rate on every dollar under $89,076, 12% on every dollar less than $41,776, and so on. Hence, while higher earners will have more tax withheld due to higher marginal tax rates, the difference is not as dramatic as you might expect.
We have taken a look at a very basic example of income tax withholding, but there are countless ways in which the calculation could be more complex.
For instance, if you are married filing jointly, that will change the calculation. So, too, will being older than 65 by the first of next year, or claiming dependents. Even blindness entitles people to a higher standard deduction. These are just a few examples of personal information about you that could impact the calculation.
And, as mentioned earlier, there are many adjustments and tax credits that can make a difference. If you have early withdrawal penalties, business credits, or educator expense deductions, those make a difference, too. If you itemize your deductions, that complicates things further.
Plus, Form W-4 has other optional sections that can impact your withholding. Those include having multiple jobs (Step 2(b) of Form W-4), Step 3 for claiming dependents, and Step 4, which includes other income, such as dividends and retirement income.
While all of these considerations can make it more difficult to estimate your withholding, the best way to get started is to head to the IRS’s Tax Withholding Estimator with your most recent pay stub in hand. While you may need more information, that will get you started and in some cases may be all you need to start calculating your withholding.
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