| About 90% of Americans pay their income taxes via | | | | taxes or get a refund. If you will make under $150,000 |
| payroll withholding. If you are wondering whether you | | | | in 2010, you must make sure that you pay at least the |
| do or don't, chances are very good that that's how | | | | total amount of income tax you owed for 2009 or |
| you pay your income taxes as well. Essentially how | | | | 90% of the total income tax you end up owing for |
| this works is that every time you get a paycheck, a | | | | 2010 (whichever is lower) during the 2010 year. If you |
| certain amount of money is withheld from your check | | | | don't end up doing that, you will end up having to pay |
| by your employer. The employer holds onto that | | | | hefty fines to the IRS in the form of interest and |
| money until it's time to give the money to The | | | | penalties. |
| Treasury Department. Depending on the amount of | | | | So, if you owe a lot of money to the IRS in April, you |
| payroll taxes the employer owes, the time they get to | | | | need to make sure that you adjust your W-4 and |
| hold on to the money before sending it to the | | | | decrease the amount of allowances, otherwise it's |
| government can be anywhere from one week to | | | | likely that you will owe fines for 2010. |
| three months. | | | | If, however, you will be getting a big refund check at |
| The amount your employer withholds is actually | | | | the end of this year, and you expect the situation to be |
| determined by you. When you first started working, | | | | the same next year (i.e. the refund is not due to a |
| one of the several forms you filled out was a W-4 tax | | | | one-time tax credit or other major deduction) then you |
| form. Many people fill this out once, and leave it the | | | | should increase the number of allowances on your |
| way it is, but you are actually allowed to change this | | | | W-4. If this is the case, you are certainly allowed to |
| form at any time. The way it works is that you tell | | | | keep it the same. The IRS has no problem taking more |
| your employer how many "allowances" you have. | | | | money than they deserve and giving it back to you in |
| Essentially, the more allowances you claim on form | | | | April. Essentially, you just gave them an interest free |
| W-4, the less money your employer will take out of | | | | loan, and they will be happy to hold onto your money |
| your paycheck to pay your Federal Income Taxes | | | | for you. It is more financially sound, however, to |
| with. On the first page of the W-4 form is a | | | | increase your allowances so that you don't have to |
| worksheet prepared by the IRS that allows you to | | | | wait until April to get your money. Some people, even |
| determine how many allowances you have. The | | | | knowing this, choose to forgo the possible interest and |
| worksheet is pretty self explanatory, and it is unlikely | | | | use the IRS as a forced savings vehicle. While we |
| that your employer will help you fill out the form (not | | | | don't agree with that technique, we certainly |
| because they don't like you, but most are not tax | | | | understand the logic behind it, and you need to |
| experts and they don't want the liability if you make an | | | | determine the best method for you. |
| error). | | | | If you have any questions regarding withholding, please |
| If you plan on being in the same financial situation next | | | | don't hesitate to contact us. If your income is under |
| year, you should look at your current W-4 and look at | | | | $60,000 per year, we will assist you for free with |
| your tax return to determine whether you will owe | | | | setting up your allowances. |