'Next to being shot at and missed, nothing is really quite as satisfying as an income tax refund.' -F J Raymond

February 27, 2006 5:57 AM

[IncomeTaxFilter] I get paychecks from three employers. No matter how I adjust my withholding, I always seem to owe at the end of the year. I've tried taking the IRS's advice as to how to adjust withholding, but with no luck. Is there some reliable formula I can use to figure out how much I should ask to have withheld from my weekly paycheck?

More Useful Info:

-- I live in the USA
-- Two of my paychecks are salaried (the same every week) and one is hourly.
-- Assume I have only the standard deduction.

In 2003 I owed a small amount, so I followed the IRS's advice and the result was that I basically doubled my withholding, but increased income meant that I owed double my 2003 tax bill in 2004 despite the increased withholding. So for 2005 we adjusted it again, but I'm now facing a $2400 tax bill (combined state and federal). I'd prefer to never, ever go through this again. It seems like calculating the correct withholding should be fairly straightforward, yet I've gotten screwed by the whole "multiple jobs" thing three years in a row. Plus, this year it looks like I'm going to end up paying a penalty for not having enough withholding taken out.

Please don't advice "consult a tax accountant". I've tried all last week, but I can't find anyone that I can afford.

posted by anastasiav to Work & Money (10 answers total)

(Er, what advice did the IRS give you? You might get better help here if you specified what it was that didn't work in '04 and '05.)
posted by nebulawindphone at 6:18 AM on February 27, 2006

How about 0 deductions? Two paychecks, one of which is highly variable (hourly) will always screw you, because each one is taxed as if it were your sole source of income.

You could also set up a personal "tax fund" bank account, shunting some portion of your paycheck there for this purpose. You gain interest on it, and hopefully you'll have more than enough to cover yourself come tax time.
posted by mkultra at 6:23 AM on February 27, 2006

If you make less than $150K total, you only have to withhold at least as much as last year's taxes were, to avoid penalties. So it seems odd to me that if you increased your withholding from last year, that you'd owe a penalty this year.

Nutshell: every job should have a W-4 filed that says "Single-0", so that taxes are withheld from your checks as if you're a single person with no dependents (=max). That will work fine if you have two jobs. Now, three jobs might be a little trickier. You might have to ask for extra witholding from one of your jobs. That's line 6 of the W-4. If you write, say, $50 on that line, the employer will hold out an extra $50 from each paycheck. (For state taxes, each state has a similar form - most of them are almost identical to the Federal W-4.) You can change your W-4 at any time - for instance, if you took a fourth job (you must not sleep a lot), you could change the W-4's for jobs 1 through 3.
posted by jellicle at 6:23 AM on February 27, 2006

You can specify a percentage to be withheld at some places; that can let you precisely adjust your witholding to match your expected taxes. If you don't get married, get a big raise, or something similar, your tax liability should be similar enough from year to year to base your estimate on; for example, since you were 2400 dollars short this year, adjust your withholding at one or more jobs to take about 200 dollars a month more out of your checks. if you don't mind paying a little tax each April, make it a little less; if you want a refund make it a little more. A simpler, but less precise solution is to not claim any witholding exemptions, or to claim them for only one job. If you do your taxes with something like Turbotax, you might be able to use their planning features to see how these different scenarios play out. Of course, the rightwingers in congress could finally make good on their threat/promise to abolish the IRS and render this whole discussion moot.
posted by TedW at 6:27 AM on February 27, 2006

My income went up about 2k between 04 and 05, and I went from getting about $700 back to owing $75. My guess is that it's a tax-bracket thing.
posted by elisabeth r at 7:09 AM on February 27, 2006

Best answer: There is a withholding calculator somewhere on the IRS website.
posted by LadyBonita at 7:39 AM on February 27, 2006

Response by poster: IRS Withholding Calculator
posted by anastasiav at 7:54 AM on February 27, 2006

I've been through this problem too. The withholding tables/calculators simply never work out. For the past 5 years, my salary remained constant, as did my wife's. And yet, despite continuously adjusting out withholding, we still owed every year. We finally, this year, got the ownage down to couple hundred bucks. At times it was as high as as almost two grand.
Calculating correct withholding is voodoo.
posted by Thorzdad at 9:01 AM on February 27, 2006

It sounds like what you really want is to be sure that you don't have too little withheld. In that case, you should just put numbers into the calculator that significantly overestimate your likely income. Then you could be reasonably sure that you won't owe anything. If you were plugging numbers into the withholding calculator based on past income, then if you make more this year it's going to underestimate the amount you will need to withhold. Just give yourself a safety factor and overestimate by 10% or more.
posted by jefeweiss at 9:48 AM on February 27, 2006

I always have them withhold an extra amount on each check -- there is a place on the w-4 form that allows you to specify the amount. If you pay too much, they give it back (admittedly, without interest earned, which is why some accountants recommend against this and argue instead for a healthy savings account), but if you have an extra $15 or so taken out every week, depending how much you make, you should owe nothing at the end of the year.
posted by Astro Zombie at 9:51 AM on February 27, 2006