Withholding estimator https://www.irs.gov/individuals/tax-withholding-estimator
Written instructions How to Use the IRS W4 Tax Witholding Estimator
Step-by-step video https://www.youtube.com/watch?v=1AidmxJ1O9U
MyPay website (feds and military submit Form W-4 here) https://mypay.dfas.mil/
Well today we’ll talk about how we determine withholding, and more importantly we’ll talk about how to do your withholding right. First, what is withholding? Federal taxpayers, like you and me, are required to pay income tax throughout the year on our taxable income. If you earn a paycheck working for an employer like a business or the government, they are required to withhold federal income tax from your pay and submit it to the IRS on your behalf. They use the IRS Form W-4, Employee's Withholding Certificate. Your employer usually fills out the W-4 automatically and has you sign it when you first start work. This mandatory withholding only applies to income you earn from an employer and pensions. If you are self-employed, earn money as a contractor that is reported on a Form 1099, earned interest on bank accounts, have rental income or other business income, or have dividends or capital gains from investments, you need know that there is no automatic income tax withholding for this income. You still OWE tax on it. But no one else will withhold it for you.
You are required to submit those taxes either by submitting them yourself quarterly directly to the IRS or you can have extra income taxes withheld from you paycheck with your employer. You can have that extra tax withheld each pay period by filing an updated Form W-4.
Most of you who are single with income almost entirely from a paycheck will find that the automatic W-4 that your employer provided does a pretty good job of withholding. What we are finding are these automatic W-4’s are now coming up short if you have more than one job, if you’re a couple with very different incomes, or if you’re couple with more than two or jobs or other sources of income.
Before you start the IRS’s new online W-2 tax withholding estimator, pull together your and you spouse's most recent pay statements or leave and earnings statements. Gather information for other sources of income you may have, including rental property, interest on savings, or dividends and capital gains from taxable investments. A great place to start is your 2020 income tax return. And make adjustments for changes you expect in 2021. I highly recommend you watch the IRS step-by-step tutorial video on how to use it before you start.
To locate just the amount of your government or military pay that is taxable, look on your LES in the section called Federal Tax. In that box you should see wages this period and wages year to date. You’ll need both numbers. To calculate you annual taxable income, multiply your wages this period by the number of pay periods in the year. The estimator will also ask for your wages to date and federal tax withheld year to date. Both are also found in that federal tax section of our LES.
Print out the info from the estimator and use the results to complete a new Form W-4, Employee's Withholding Certificate. Then submit the completed Form W-4 to your employer. All military members, military retirees and federal civilian employees using myPay can update their IRS Form W-4 on line at myPay.
If you have any feedback or would like to have you question answered on a future podcast, you can always reach me through my website moneypilotadvisor.com. Talk with you next week.
