For instance, some just rely on the marital status/dependent numbers that appear to apply to their situation, others strive to have the absolute minimum withheld, while others opt for “over” withholding.
This week I asked readers how they (you?) set your federal tax withholding rate.
At first blush, the results of this week’s bonus survey suggest a cautious crowd; nearly a third (31.4%) said they deliberately “over” withhold, including the reader who observed, “I like to slightly overwithhold. I was burned a few years back and had to pay thousands at tax time. My goal is to withhold just enough so the government sends me a few hundred dollars of refund.” Another reader noted that “I stick with the same withholding number I’ve used for years. It’s my husbands that I can change as he’s self-employed and makes estimated payments.”
Meanwhile, another 15.7% said they just rely on the marital status/dependent numbers that seem to apply.
That said, just over 16% said that they try to have the absolute minimum amount withheld.
But what about the remaining 36% – the group that was, by the way, the top response to this week’s survey…
Well, as you might have guessed, that’s the “other” guys. Though, honestly, most of them seemed to be in the REALLY trying to have the absolute minimum amount withheld (or as several suggested, the “Minimum to the IRS and more to my 401(k)”), using tools, web sites, and the occasional expert to help them decide what that was. Here’s a sampling:
Have adjusted it the last few years by either increasing my 401k deduction or increasing the number of dependents.
I always owe because of non taxed income received during the year so I have extra withholdings in order to stay out of penalty and interest charges.
I found a great calculator on line at PayCheckCity.com under "Free", its the W-4 Assistant where you answer a few questions and it tells you how to fill out the W-4!
I estimate my taxes using software like Turbo Tax. So far, it has worked well for me.
Try to estimate as close to what I will need to pay in taxes for the year.
I've a good feel of where we are, deductions vs. earnings, etc. My ultimate goal is breakeven...something's been working as we've owed or received a refund of less than 1% each of the past few years, including a year with a new house.
Since a majority of my paycheck is commission based, it is hard to guesstimate. Last year I had extra taken out each paycheck and got a large refund. This year I am claiming no deductions and I will check in June and September on how close the numbers are to the calculator on the IRS website. I'd rather pay more and get some back than have to write a check.
Look at last year, project this year’s income and then divide estimated amount by number of payrolls and have the same dollar amount deducted every pay period.
Calculated by a tax preparer based on my itemized deductions and marital status
Based upon the annual recommendation of my CPA
As for additional comments on the subject of taxes, tax withholding, and tax withholding strategies, readers had the following thoughts:
I pay too much!
I over withhold, but it works out because I barely get a refund, so I'm pretty much breaking even.
I'll approach it as I will my next (and last, I swear) casino trip. I'll simply wander up to the tribal member (tax official) nearest the entrance, hand 'em my wallet and say "Thanks, I hope I had a great time."
I always try to end up only owing a nominal amount. For 2010 I'll have to write a check for $13.00. I can never get that close with my state filing, though.
Try to get close so you aren't giving a "free loan" nor surprised with a big bill.
"The house is paid off, my youngest daughter is getting married I'm loosing all my deductions. for years my wife and I have claimed zero in an effort to break even. Playing with my tax software show's I have to do something or I'm going to owe big time for 2011 and that's if the taxes stay at what they are.
To me it's like Christmas in April, where Santa is bringing me a present from the government...
Like the old song..."many a tear...has to fall...but it's all....in the game."
I don't mind paying taxes for all the services I get in return. And I don't mind trying to figure out the forms--Turbo Tax is the best thing that has ever happened to fillout out forms. But I think that older people, who do not understand the crazy tax forms and don't understand Turbo Tax, should have a very simple and easy form to fill out. I will be an old person someday--I hope!--and the easier it is for my dying brain cells, the better my sunset years will be.
My goal at the end of the year is to owe the government $200 or less. That way, I haven't given them an interest free loan for the last 12 months, I have had the use of all my money all year and I can write a check that doesn't really impact my cash flow.
I'd far prefer getting something back no matter the amount, than having to write a check to the IRS.
Of course I think the employees should try to break-even - not have to pay with their tax return or get a big refund. It seems most want a big refund at the end of the year. I, on the other hand, have a spouse who owns a Subchapter S Corporation, so any income or loss flows to our personal return. This is very hard to predict so each year I just hold our M and 0 and hope for the best. Lately we often can use our refund to fund our Roth IRA contributions.
I know it’s a dumb way to save money, but we like to get a refund in April rather than have to pay.
Don't want the government earning interest on my money when it should be making money for me.
I reduced my withholding the day after visiting my tax adviser and learning we had a huge refund coming. And I prayed for a budget deal or another CR to allow the IRS time to process my refund before a government shutdown.
We like to get a refund each year so we do overwithhold. We then use the refund for a bigger purchase or savings goal. I know we could save something each month to total the refund but that takes more discipline than we have.
Took the extra money and put in 401k.
I'll run my tax numbers through TurboTax and see how I need to adjust my withholding probably late in the third quarter. I am usually within spitting distance of my final tax liability and that's the way I like it. I don't want to be in penalty territory and I don't want to have to file quarterly estimated taxes.
But my favorites were:
I used the IRS's on-line calculator (at irs.gov). I plugged in my gross comp, how much had been withheld YTD, and it came back with what withholding I should elect for the remainder of the year to end up with a small refund. It worked--I got a small refund.
Wife likes the refund. After 26+ years have learned not to go against her wishes.
I took zero allowances and then took additional $30 per week. This worked better than the dart board I used in 2009.
I'd rather get money back - I know it's a interest free loan to the government but $50 a paycheck is lost to trivia but a check for $1,200 in April will almost pay for two tickets to Kauai...."
I did the math...man, I gotta get a life.
And this week’s Editor’s Choice? It goes to the reader who noted, “You can do that? Wow, I just thought you gave them half and you’re done with it.”
Thanks to everyone who participated in our survey!
p.s. 56.9% of this week's respondents don't plan to change their current withholding for this year, while 17.6% plan to withhold less, 9.8% plan to withhold more, and 15.7% - haven't decided yet.