As mentioned in Part 4, the amount withheld for income taxes is based on the data you provide on Form W4 and the state equivalent – if any. How is the actual amount determined from this data? The withholding “formulas” start with the rate of earnings for each individual paycheck extrapolated to an annual amount. Assume you are paid bi-weekly, which is 26 checks per year. If you make $2K in the biweekly pay period, the withholding formula starts with the assumption that you make $52,000 a year. Based on $52K a year, the formula then calculates the amount of tax […]
When you receive a paycheck, you will see amounts “withheld” from your wages for Federal and State income tax and for Social Security / Medicare. Sometimes these are coded with acronyms like FIT, Fed W/H, S W/H, FICA, Med etc. Regardless of the label, it is an amount withheld from your wages for estimated tax payments. If it was not withheld, you would have to write a check to the IRS, Social Security and the State Tax Commission with each paycheck. Withholding makes it simple but is removes the pain of having to actually write the check and appreciate how painful […]
No – I don’t do this for clients Nor do I make convincing commercials like this I once drove by a tax preparation office in the suburbs of a large city giving away free leather jackets to those that walked in with their tax documents. The entire mass of humanity in their office were donned in brown leather jackets ….. They were all promised BIG refunds for wearing the uniform.. The first audit I ever represented for a client was one where the taxpayer was audited to produce evidence against a tax preparer that was under investigation for fraud. The CID (IRS Criminal Investigation Division) […]
