How Do I Ensure That I'm Having Enough Money Taken Out of My Paycheck So That I Don't Need to Pay Additional Taxes?
Written by James Hirby | Fact checked by The Law Dictionary staff
Although the majority of American workers' paychecks are made smaller each week by income withholding taxes, many of these folks don't fully understand the concept of "withholding." The withholding tax that the typical worker forfeits is comprised of a combination of distinct streams of revenue used by state and federal authorities to fund a variety of government programs. Regular federal income taxes generally comprise the largest single withholding stream. Other common withholding streams include state income taxes, Medicare fees and Social Security taxes. These last two withholding streams are sometimes collectively described as "FICA withholding taxes."
If you earn a regular salary, you probably don't think about your withholding taxes on a regular basis. Since your paycheck is virtually the same from week to week, you simply accept that you'll lose a certain amount of your gross income to the IRS. Depending upon the tax deductions that you're able to claim, you probably expect a sizable refund at the end of the tax year. If you can claim lots of deductions, you may be able to receive thousands of dollars in refunded taxes.
You can adjust the amount of money that your employer withholds
from your gross pay by requesting a new W-4 form. You can increase your desired withholding rate by specifying the dollar amount that you'd like to forfeit on top of your existing withholding obligations. Alternatively, you can decrease the amount that you wish to have withheld by claiming additional tax exemptions. Of course, you can't simply assert that you're eligible for an exemption without being able to substantiate such a claim. If you're found to be making fraudulent claims during an IRS audit, you may be subject to significant legal and financial penalties.
If you earn irregular wages or spend long periods of time on unpaid furlough, you may wish to decrease your withholding amount. This will ensure that you can keep more of your weekly earnings and won't receive an enormous tax refund at the end of the year.
If you're self-employed or work in an occupation that doesn't require employers to withhold income taxes, you'll need to increase your withholding levels. In most cases, you'll have to "self-withhold" by estimating your tax liability and putting the appropriate amount of money in a savings account or other liquid investment vehicle. You'll use this money to make estimated tax payments to the IRS on a quarterly basis.Source: thelawdictionary.org