As an employee, when you get paid, so does Uncle Sam and the state government. If he’s lucky enough to live in one of the few states that doesn’t tax income, then he’s just paying the federal government. But for most of us, a portion of our country is headed for federal and state income tax, or withholding tax.
The amount that comes out of your paycheck depends on your exemption allowances. When you were hired, you filled out a W4 form and/or a statement with withholding. These forms stated your marital status and the amount of allowances you are claiming. Appropriations serve to divert government money into your pocket. He reads the form carefully, because he only wants to exempt what really should be his. You can change your exemptions at any time – just fill out a new form and send it to your supervisor.
Monitor your paycheck to make sure the exemptions you claimed are calculated into your wages. You don’t want to end up owing the government more than you already paid because your employer didn’t calculate the correct tax. The IRS website has a page to calculate your withholding. Take the chance! Also available on the web are numerous websites that calculate your paycheck for you, based on your earnings, deductions, and taxes. If you think your paychecks are not calculating correctly, compare your paycheck with a paycheck calculator. If the differences are within a few dollars, don’t worry. However, if the difference could add up to hundreds of dollars over the course of a year, talk to your supervisor and have your paychecks reviewed for discrepancies. It could be a simple miscalculation, but it’s better to catch it early so the differences can be adjusted, rather than paying a big chunk when you file your taxes.
Finally, you must understand that the tax tables change every year, and sometimes during the course of a year. For example, in February 2009, President Obama signed the American Recovery and Reinvestment Act (ARRA) which included the Making Work Pay tax credit. For tax years 2009 and 2010, Americans can expect to receive a few dollars more in each paycheck, totaling about $400.00 a year. This works because the tax table was changed so people don’t owe as much in income tax. However, again this is where I say pay close attention to your federal income tax withholding. If you’re married or have multiple jobs, you may be getting too much credit, which means you’ll end up owing when you file for 2009.
Bottom line: Pay attention to your paychecks. Control your income tax withholding. Calculate against current tax tables to make sure you’re paying the government exactly what you owe and not less. Take the time to spend a few minutes every now and then calculating your paycheck and you can avoid surprises in the year to come.