- Days left

Withholding your taxes -- what's the right amount?

One of the keys to avoiding penalties or other nasty surprises come tax time is to make sure your withholding is correct. Withholding can sometimes feel complicated, but it boils down to just a few issues: filing status, number of dependents, pay frequency and pay amounts.

Social Security and Medicare (sometimes referred to together as "FICA") taxes are the easiest to figure: Those taxes are simply withheld from your wages by your employers at a flat rate. For 2009, the amount withheld from your pay for Social Security is 6.2% on earnings up to $106,800. The amount withheld for Medicare is 1.45% on all earnings.

Federal income tax withholding is not a flat rate and is based on your individual circumstances. The best way to figure out the correct amount for your employer to withhold is to complete a federal form W-4 (available for download here).

You'll report basic information on the form W-4, such as your name, address, Social Security and marital status. You'll also report the number of personal exemptions you wish to claim; you figure this using the personal allowances worksheet attached to the form W-4. The basic rule is that the more allowances that you claim, the less money will be withheld from your paycheck each pay period. The number of allowances should coincide, roughly, with the number of exemptions and deductions you will claim on your tax return. If you get stuck figuring out that amount, try the IRS withholding calculator. It's not a substitute for the federal form W-4, but it can help you figure out how many exemptions to claim.

Local and state income tax withholding are generally automatic -- unless you are not a resident of the city or state where you work. If you are not, you should check the individual rules to determine what you will need to file. For example, if you live in Philadelphia but work in Wilmington, Delaware, you are still subject to the City Wage Tax even if it is not being withheld; conversely, if you live in Wilmington, Delaware, but work in Philadelphia, you are subject to the City Wage Tax which will likely be withheld for you at the employer level. Despite the loud grumblings about wage taxes in cities like New York City and Philadelphia, a large number of smaller municipalities and townships have similar tax schemes. Check with your employer to see what's being withheld and check with your local government to find out how your local taxes work.

If you've done the math correctly, there should be no surprises come tax time. However, the burden is on you to make sure you continue to have the correct withholding taken from your check. If you get married, have a baby, take on an additional job or otherwise change your financial picture, you should complete a new form W-4 so your employer knows to make changes in your withholding.

Increase your money and finance knowledge from home

Introduction to Retirement Funds

Target date funds help you maintain a long term portfolio.

View Course »

Managing your Portfolio

Keeping your portfolio and financial life fit!

View Course »

TurboTax Articles

Video: Who Qualifies for an Affordable Care Act Exemption (Obamacare)?

The Affordable Care Act requires all Americans to have health insurance or pay a tax penalty. But, who qualifies for an Affordable Care Act exemption? Find out more about who qualifies for an exemption from the Affordable Care Act tax penalty, how to claim an exemption on your tax return and how the Affordable Care Act may affect your taxes with this video from TurboTax.

Video: How to Claim the Affordable Care Act Premium Tax Credit (Obamacare)

The Affordable Care Act Premium Tax Credit is a new refundable tax credit that can lower your monthly health insurance premiums. If you qualify for the tax credit, you can claim the Premium Tax Credit throughout the year to lower your monthly health insurance premiums, or claim the credit with your tax return to either lower your overall tax bill or increase your tax refund.

Deducting Summer Camps and Daycare with the Child and Dependent Care Credit

If you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child under age 13 or a disabled dependent of any age, you may qualify for a tax credit of up to up to 35 percent of qualifying expenses of $3,000 for one child or dependent, or up to $6,000 for two or more children or dependents.

What Is Schedule H: Household Employment Taxes

If you hire people to do work around your house on a regular basis, they might be considered household employees. Being an employer comes with some responsibilities for paying and reporting employment taxes, which includes filing a Schedule H with your federal tax return. But even if you have household employees, filing Schedule H is required only if the total wages you pay them is more than certain threshold amounts specified by federal tax law.

Add a Comment

*0 / 3000 Character Maximum