Help me have more of my income withheld for taxes!

April 16, 2012 6:32 AM

I'm tired of getting screwed over on my taxes. I have two jobs, one of these jobs will not take taxes out with each paycheck. How do I arrange my other job to take more out to cover this?

Last couple of years I've owed money in federal taxes because of that second job. This year it took a large chunk of my savings.

I want to avoid this next year. I already set it up with the IRS to take estimated taxes out of my bank account 4 times throughout this year. I want to cover my butt though and have my first job take more out of my paycheck for taxes.

I called our HR and the guy told me to go into our computer system and just "add more exemptions" to the w-4 information they have online. All I see there are "allowances". Is that exemptions? When I poked google about this, it said having more allowances will reduce the amount that's withheld, not increase..

I'm also worried about just randomly changing my allowances without a better idea of what I'm doing. I live pretty much paycheck to paycheck and I don't know the dollar sign differences between 2 allowances (what I currently have) and 1 or 3 allowances. Is there a set number out there somewhere..?

(Also for the online form from my employer, there's a box for "Additional Withholding Amount" that looks like it's strictly dollar signs. I realize this might be my employer only and you might not be able to answer this question, but if i stick, say $20 in that box.. does that mean they take $20 out each paycheck or $20 out over the span of the year?)

How do I make it so the government gets nibbles of my income every paycheck instead of one giant chomp in April?

posted by royalsong to work & money (19 answers total)

this may be a tangential way, but assuming your income is roughly the same as last years, can't you take the amount of taxes you owed, divide it by the number of paycheques you receive each year, and then automatically deposit that amount yourself every paycheque into a separate savings account that you will use for taxes and taxes only?
posted by modernnomad at 6:36 AM on April 16, 2012 [4 favorites]

There's a section on your W4 (the form you fill out for your employer that changes your exemptions and allowances) that directs you to the back side of the form if you have more than one job. I think between the two of them you have to gross over 40k, but that's where I wound up this year after being frustrated for still owig taxes come April.
posted by carsonb at 6:38 AM on April 16, 2012

Line 6 is the amount withheld for each paycheck. So assuming you're paid biweekly, that would be $total_additional_withholding/26.
posted by chesty_a_arthur at 6:39 AM on April 16, 2012

Two things:

1) You should speak to an accountant, who can provide any jurisdictional expertise on your particular tax situation;

2) You are able to accrue interest and/or returns on investments if you're not paying the taxes each pay check. If you invest your "expected" tax burden each year in a one-year CD or other safe investment, you will earmark the money you need come April and make a little profit off of it.

By giving it to the government each paycheck, you lose the potential earnings your money can make by holding the money yourself. This requires a little discipline, but there's no sense in having your money in the government's hands all year if you can avoid it and profit from the venture.
posted by Rodrigo Lamaitre at 6:39 AM on April 16, 2012 [4 favorites]

Also for the online form from my employer, there's a box for "Additional Withholding Amount" that looks like it's strictly dollar signs. I realize this might be my employer only and you might not be able to answer this question, but if i stick, say $20 in that box.. does that mean they take $20 out each paycheck or $20 out over the span of the year?

That's the field you want to use to fix this situation. You should absolutely call your HR department to confirm, but from what I've seen it's generally a per-paycheck value and not a yearly one.
posted by Remy at 6:40 AM on April 16, 2012 [3 favorites]

Okay, allowances are what you want and you want to lower them, not increase them. Basically, allowances are people - you, your spouse, your kids. The less people you are supporting, the more money they take out of your paycheck. Therefore, stop claiming everyone. If yours says 2 allowances currently, that means you're supporting 2 people - yourself and someone else. Change it to 1 and boom, more taxes will be coming out of your check. I'm not sure you're allowed to change it to 0 although I've heard that you can.

There is no set number that they lower your check per allowance; it all depends on what tax bracket and thus percentage you are in. Go ahead and lower your allowances and see when you get your next paycheck if you can live with the amount. If it's too tight, you can always up the allowances again but remember, that will mean a big chunk next April. I feel your pain.
posted by mygothlaundry at 6:49 AM on April 16, 2012

I'm not sure you're allowed to change it to 0 although I've heard that you can.

You can. You can try the paycheck calculators here to calculate what your paychecks will be if you change your withholding allowance.

I would follow one of the suggestions above, either a) divide what you owed by the number of paychecks you get from the employer who takes taxes out, then put that number in the "Additional Withholding Amount" field; or b) automatically transfer that per-paycheck amount into an interest-bearing savings account and pay it to the IRS quarterly or annually. I say quarterly because depending on how much you owe to the IRS, you may be subject to an underpayment penalty if you continue to owe a significant amount each year. But you can just do the quarterly payments instead of adjusting your paycheck.
posted by bedhead at 6:55 AM on April 16, 2012 [1 favorite]

I'm not sure you're allowed to change it to 0 although I've heard that you can.

I'm not sure what's allowed or not, but I've accidentally had my allowances set to 0, and got quite a large reimbursement that year. I think it would be hard to get this particular method to match up to what you owe for the other job though, I think it is basically calculating your taxes without the exemption for yourself, as suggested by mygothlaundry above.

More usefully, there's a withholding calculator here that tells you exactly what to do on your w4 if you give it your info.
posted by advil at 7:51 AM on April 16, 2012

For years, I have always put $75 in the "additional withholding amount" box on my W4 and I have been happy as it has always been enough to cover my occasional casual income gigs.
posted by bz at 7:53 AM on April 16, 2012

As everyone else has said, you can adjust the W4 for your one job to take out enough for the taxes on your total income. What I'm more concerned over is why this other job won't withhold taxes - do you receive a 1099 or a W-2 from that employer? Did they elaborate at all on why they are not withholding?
posted by melissasaurus at 8:04 AM on April 16, 2012

In 2011, every allowance was 'worth' $3,700 dollars in taxes a year. So if you change from taking 2 allowances to taking 1 allowance, they will withhold 3,700 more per year (so your paycheck will decrease by $308 per month). If you change from 2 to 3 allowances, they will withhold 3,700 less per year (and your paycheck will increase by $308). You can either use the extra withholding amount (which is per month), or you can use a combination of the allowances for a coarse difference and extra monthly withholding for a fine difference.

My question is, if you are already paying estimated quarterly taxes for your non-withholding job, why you are bothering to take more out of your withholding job?
posted by muddgirl at 8:05 AM on April 16, 2012

Apologies, in 2012 it looks like each exemption will be worth $3,800. A W-4 allowance is equal to one tax exemption.
posted by muddgirl at 8:06 AM on April 16, 2012

Also, I meant to say that the extra withholding amount is per paycheck.
posted by muddgirl at 8:30 AM on April 16, 2012

Use the IRS Withholding Calculator - put in some basic info and it'll tell you your projected totals. It will tell you specifically how many exemptions to claim and how much additional to make your expected refund/owe less than $100.

I run through this a couple times a year and adjust accordingly. FYI, it does not include additional exemptions like student loan interest, so it'll be a conservative estimate.
posted by bookdragoness at 8:39 AM on April 16, 2012 [1 favorite]

I am not an accountant - but I am dealing with this issue as well, and I have been advised that if I don't withhold enough I can suffer a penalty. Here is more info on the penalty. So tread with caution w/r/t just setting the money aside in an interest-bearing account. I'll be following this topic...
posted by ReBoMa at 9:23 AM on April 16, 2012

I am not an accountant, but my husband is frequently paid by grants which means taxes are not deducted. To compensate, I've add an additional withholding amount as you describe above. It is per pay period. Now, he does have taxes withheld, but I lowered my allowance to zero. I'd much rather have paid too many taxes than not enough.

Also, I agree that the concept of simply putting your money in a money market account to gain interest sounds great. However, I have found it doesn't feel great at the end of the year when you made about $40 in interest and have to write out a check in the thousands to the IRS. (interest rates suck right now). Also, it is my understanding that if you have income that is not taxed you need to either pay estimated taxes based on your actual profit, or you need to pay 110% of your taxes due last year to avoid penalty.

Again, not an accountant, but I've been in a similar situation.
posted by fyrebelley at 10:20 AM on April 16, 2012

Thanks for your answers so far, everyone!

We're talking about $300 owed. I realize this is not gigantically huge amount of money. But, revisiting the living from check to check lifestyle I mentioned, a significant chuck. Saving it away might yield me $3. If I'm lucky.

> melissasaurus

It's a weird government funded part time thing. Totally legit, but niche and complex. They want as little paperwork as possible as my guess. They won't even do direct deposit. It's a mess and I wouldn't keep it, but that job is the only way I'm making my student loan payments.

> fyrebelley

You touch on a different part of this. I want to do this because I would like to have a return. I want to be one of those people who can feel elated that the government owed them money. I don't want to have to wave away questions about what I'm going to do with my nonexistent tax return, or deal with soft spoken "oh.." when I say I owe money.

I want to do my taxes excitedly in February.. not with trepidation in April. That's worth the $3 I would get in savings.
posted by royalsong at 11:14 AM on April 16, 2012

I have my allowances set to 0 on my W4. I jet got a huge refund, an I'm okay with it setup like this because I similarly hated having to pay out. This covered my freelancing last year, but may not this year.

You may want to use TurboTax's estimated taxes service if your other jobs substantially more pay.
posted by airways at 12:09 PM on April 16, 2012

By getting the return, you're having the feds save for you. Not the worst plan. When you figure the withholding, keep in mind you've been paying at the lower rate for 3.5 months.
posted by theora55 at 1:02 PM on April 16, 2012