As a working individual, you need to know how to calculate your federal withholding tax. This money is set aside as part of your annual tax bill. Think of it as a payment plan toward Tax Day. Knowing how to calculate your federal withholding tax is critical even if your employer deducts this sum for you. As you'll see shortly, the amount of money which is set aside for the federal withholding tax depends on your withholding allowance. This isn't as complicated as it sounds. Let's see how to calculate your federal withholding tax, with the help of the Internal Revenue Service.
What you need to calculate your federal withholding tax:
- Your most recent tax return
- Your most recent paycheck stub from your employer
- Internet connection
- Understand your filing status. Your tax bill greatly depends on your legal social state. That means that you are: Single, Married filing joint return, Married filing separate return, Head of Household or a Qualifying widow(er). Getting this right is critical. If you are unsure of which status fits you best, consult with an accountant.
- Understand if someone is claiming you. The IRS will need to know if someone else claims you as a dependent on their tax return. This is most often a parent, but it isn't limited to that. If you are unsure, ask your parents or caretaker and then answer to the best of your knowledge.
- Understand who you can claim. The IRS will need to know who depends on you for their livelihood. The IRS is very strict with this definition. Do not claim your pet or pets. If you give a number that's too high, you'll end up with insufficient funds to cover your federal withholding tax and get stuck with a high tax bill at the end of the year.
- Understand dependent care credit. You can reduce your tax bill by qualifying for Child and Dependent Care Credit. The IRS defines this as the money you pay someone to care for your dependent who is under the age of thirteen, or for your spouse or dependent who is not able to care for himself. To qualify, you must pay these expenses so you can work or look for work.
- Understand your yearly income. Use your last tax return as a baseline. If you make the same money this year, use the numbers your employer gave you. If you got a raise, or took on an additional job, use your last pay stub to get an idea of your new yearly income. If you have more than one job, do the same for that income source and write that information down. This is the most important data point needed to calculate your federal withholding tax.
Use the IRS calculator. The IRS provides a precise tool that uses the information you now have to accurately calculate your federal withholding tax. Follow each of the steps and provide accurate and truthful data. Remember that the IRS has the ability to audit your tax return and verify each and every answer. When you finish walking through each of the pages, you will have an exact and official way to calculate your federal withholding tax. You'll sleep better at night knowing that you will be fully prepared for Tax Day.