LONDON WALLET
  • Home
  • Investing
  • Business Finance
  • Markets
  • Industries
  • Opinion
  • UK
  • Real Estate
  • Crypto
No Result
View All Result
LONDON WALLET
  • Home
  • Investing
  • Business Finance
  • Markets
  • Industries
  • Opinion
  • UK
  • Real Estate
  • Crypto
No Result
View All Result
LondonWallet
No Result
View All Result

This simple calculation will show if you’re withholding enough taxes from your paycheck

Tom Robbins by Tom Robbins
February 7, 2024
in Investing
This simple calculation will show if you’re withholding enough taxes from your paycheck
74
SHARES
1.2k
VIEWS
Share on FacebookShare on Twitter


Witthaya Prasongsin | Moment | Getty Images

If your tax refund or bill is bigger than expected, it could be time to adjust your paycheck withholding — and a simple calculation could help, experts say.     

Typically, you get a refund when you overpay taxes throughout the year, and you owe money when you don’t pay enough. Many workers contribute via paycheck withholdings based on a completed form called a W-4.

But the form is “very confusing,” according to certified financial planner and enrolled agent John Loyd, owner at The Wealth Planner in Fort Worth, Texas. “You’re checking these boxes, but you really don’t know how much the IRS is going to withhold.”

More from Smart Tax Planning:

Here’s a look at more tax-planning news.

How paycheck withholdings work

When you start a new job, you fill out Form W-4, which tells employers how much to withhold from each paycheck for federal income taxes. The form asks about your filing status, other income, dependents and more, which affect the percentage withheld.

“If you answer it properly, you probably will get a good outcome,” said JoAnn May, a Berwyn, Illinois-based CFP at Forest Asset Management. She is also a certified public accountant.

“The problem is that form is so foreign to people,” she said. “They see it and their eyes glaze over.” 

You also need to tell your employer about life changes — such as marriage, divorce, having a child or adding a second job — to make the necessary Form W-4 adjustments. After updating Form W-4, it’s important to double-check your paystubs for these changes, Loyd said.

Experts suggest reviewing your withholdings periodically to avoid a larger-than-expected tax bill or refund.  

Calculate last year’s ‘effective tax rate’

While Form W-4 can be daunting, Loyd said you can check your withholding by calculating the previous year’s “effective tax rate,” or the percent of taxable income you pay in levies. This is different from your marginal tax bracket.

Start by reviewing last year’s tax return. You calculate your effective tax rate by dividing your total tax (line 24) by taxable income (line 15).

“A person may be in the 22 percent bracket, but the rate they’re actually paying on everything may be 12 percent,” Loyd said.

If your 2024 earnings are similar to 2023, you’ll want your federal paycheck withholdings at roughly last year’s effective tax rate, Loyd said.

For example, if your gross paycheck is $1,000 and last year’s effective tax rate was 12%, you’ll want about $120 withheld in federal taxes, he said. Of course, this withholding could change if you have earnings from another job.

Don’t miss these stories from CNBC PRO:



Source link

You might also like

Tuesday’s big stock stories: What’s likely to move the market in the next trading session

Nasdaq 100 momentum unmatched since 1999 so brace for a shakeout, says BTIG

This big bank stock still has upside ahead despite its 20% year-to-date rally, investor says

Share30Tweet19
Previous Post

Review: Cyrusher Ripple electric snowboard actually works! (mostly)

Next Post

Existing telecom infrastructure can put L2 charging everywhere, FAST

Tom Robbins

Tom Robbins

Recommended For You

Tuesday’s big stock stories: What’s likely to move the market in the next trading session
Investing

Tuesday’s big stock stories: What’s likely to move the market in the next trading session

July 22, 2025
Nasdaq 100 momentum unmatched since 1999 so brace for a shakeout, says BTIG
Investing

Nasdaq 100 momentum unmatched since 1999 so brace for a shakeout, says BTIG

July 21, 2025
This big bank stock still has upside ahead despite its 20% year-to-date rally, investor says
Investing

This big bank stock still has upside ahead despite its 20% year-to-date rally, investor says

July 21, 2025
This is one of the most attractive opportunities for income, Vanguard says. Here’s what the firm likes
Investing

This is one of the most attractive opportunities for income, Vanguard says. Here’s what the firm likes

July 21, 2025
Next Post
Existing telecom infrastructure can put L2 charging everywhere, FAST

Existing telecom infrastructure can put L2 charging everywhere, FAST

Related News

Here are the stocks Wall Street believes will push the Dow over 40,000

Here are the stocks Wall Street believes will push the Dow over 40,000

March 22, 2024
Election prediction markets are in a sprint to prove themselves as forecasting and investing tools

Election prediction markets are in a sprint to prove themselves as forecasting and investing tools

October 15, 2024
Can Ethereum ETFs thrive without staking amid SEC scrutiny?

Can Ethereum ETFs thrive without staking amid SEC scrutiny?

May 23, 2024

Browse by Category

  • Business Finance
  • Crypto
  • Industries
  • Investing
  • Markets
  • Opinion
  • Real Estate
  • UK

London Wallet

Read latest news about finance, business and investing

  • Contact
  • Privacy Policy
  • Terms & Conditions

© 2025 London Wallet - All Rights Reserved!

No Result
View All Result
  • Checkout
  • Contact
  • Home
  • Login/Register
  • My account
  • Privacy Policy
  • Terms and Conditions

© 2025 London Wallet - All Rights Reserved!

Are you sure want to unlock this post?
Unlock left : 0
Are you sure want to cancel subscription?