Thursday, July 5, 2012

Taxes revisited

I got my first "big" paycheck this week.  I worked 58 hrs (we are shooting for 60) in the payperiod, so this was a good indication of what this paycheck will look like.  I liked it!

However, I am going to have to adjust the tax withholdings.  While getting a nice fat paycheck every other week would be SWEET, I know that the taxes will come back to bite us in the behind come next year.  In particular, our state taxes.  I don't get our state taxes.  We keep increasing the withholding, and we STILL owe every year. 

I am terrible at figuring out the withholdings.  My plan is to look at last year's taxes and use those as a guideline for the total amount that we need to pay to the government.  I will probably just override the the withholdings and just say "take out X dollars," which is what I do now.  Of course, when I did my withholdings originally, my paychecks were alot smaller.

I am really hoping to not owe anything.  I can live without getting a refund....I just don't want to owe.

So now I have a choice.....I can change the withholdings officially, and never see that money.  OR....I can transfer it into a holding account for next year, and if (when) we owe, then we have it there.  If I transfer what would have gone to the government into another account....I will earn a little interest (albeit, only a few dollars). 

Of course, we are already half way through the year, so I may need to take out "extra" for the next few months to make up for any deficit that wasn't withheld in the past months, as I started working more.  Actually, I just realized I changed my withholdings in January, and my boss never made the changes in the computer!!  So I am already a little behind (not by alot....but a little).

Any thoughts?


  1. Well, I don't know you. We are not that good with making sure to set it aside. The first couple of months are great, then something happens and we say, "We will borrow from taxes, then pay it back next month." However, next month comes and we don't pay it back or pay toward it!

    BUT, if you really think you can do it, then managing your own is always a good thing.

  2. If it were me I would officially have them take it out of my paycheck before the check comes to me. Personally I am not good at saying that I am going to put it in savings and then actually doing that faithfully.

  3. I would have it withheld as, generally if you've had as much withheld as you owed the previous year, you're safe from penalties. Unless you want to make an estimated tax payment at the end of the year. As far as the amount goes, rather than choosing a fixed amount, reduce your allowances. This changes the percentage that is withheld and should better match what you owe. If you have reduced your allowances and you still owe, set your rate at single instead of married. If this still doesn't work, you should check how your withholding is calculated. If your boss uses a payroll service, then talk to them. If he uses a computer program, make sure it's updated to reflect current tax law. If he does it himself, he's probably not doing it correctly. Which means you should probably just make estimated tax payments quarterly to make up the difference.

    In other words, you should not have to figure out your withholding to cover what you owe unless you have considerable income that is not subject to withholding. Just set your allowances and the state should do the work. If you have more deductions than average (say to medical expenses or something), than you will get a refund.

  4. You're doing the right thing. State taxes bit us so hard we're still recovering. I think we'll go back for more of the same pain because we're stupid that way. :o)

  5. I always have the max withheld. I do get a refund every year, and I know that's a big "no no" in the eyes of personal finance bloggers, but honestly, the interest you would generate is not a ton (like you said, a few dollars) and it's not worth the headache to worry about having to owe taxes. I also know that if we had the money sitting in savings, we would spend it, or worse yet, I wouldn't even put in savings because we would find some reason to "need" the money. Only in dire circumstances, do I change our tax withholdings, and usually I change them back right away. Most of the time, the max is taken out.

  6. The IRS has an easy worksheet on their website to calculate how much you need to have withheld from each check, so you pay enough but not too much. It's easy to plug in the numbers even at the 6 month mark. If you don't have enough $$ withheld you may owe a penalty in addition to the tax owed.

  7. My mom is a retired IRS agent so from the time I started working I have always claimed zero. Now I claim zero and married at higher single rate and so does DH. Then in july we have my mom do a rough working of next year taxes and then adjust from there.

    As long as we dont owe I am a happy camper