Payroll income tax withholding is figured based on expected annual earnings. Employers use different pay period lengths, resulting in different numbers of paydays. Thus, a monthly pay schedule has 12 pay periods per year. A biweekly pay period has 26 pay periods, so payroll taxes must be calculated differently to compensate. Show
Taxable Earnings
Tax Brackets
Federal Tax Withholding Information
Other Tax Withholding Information
Any further questions, request for clarification or changes to tax withholding rates/amounts should be directed to the Payroll office at (231) 591-2160. Think that hefty tax refund you got last year was basically a big bonus? Think again. A big, fat refund just means you’ve been loaning the government too much of your hard-earned cash with each paycheck, and Uncle Sam is simply returning money that was yours to begin with—that’s why it’s called a refund! Or maybe you have the opposite problem. You’re getting hit with massive tax bills, and you’re sick and tired of sending the IRS a big check every April. If that’s you, we feel your pain. How much should you withhold for taxes? Should you withhold an additional amount from each paycheck? It all starts with taking a closer look at your tax withholding. Tax Withholding ExplainedEvery time you get a paycheck, your employer withholds taxes to send to the IRS. And you thought tax time was only in April? Nope. You pay taxes all year long through tax withholding. When tax time rolls around, that’s when you find out if you had too much or not enough taxes withheld from your paycheck. Withheld too much? You’ll get a tax refund. Withheld too little? You’ll have to cut a check to the IRS. No thanks! Taxes shouldn’t be this complicated. Connect with a RamseyTrusted tax advisor. You really want to have a refund as close to $0 as possible without having to pay additional taxes. Yep, zero is a winning score when it comes to tax refunds! Understanding the New W-4 FormRemember the first day of your job? Don’t worry. We don’t either. A new job is a blur of new names and spaces. But at some point, you probably filled out a W-4 form to help your employer figure out how much taxes to withhold from each paycheck. The official government title for a W-4 is Employee’s Withholding Certificate, which sounds kind of fancy. But it’s not. You won’t hang this certificate in a place of honor next to the one you got for second place in a hot dog eating contest. The W-4 is divided into five, fairly easy steps that will give your employer the info they need to calculate your withholding. Leave it to the government to label a five-step form with the number four!
The IRS introduced a new W-4 form in 2020. If you’ve been at your job for a while, you don’t have to fill out a new W-4 form. But it could be a good idea to check it anyway because the new form should help you get your tax withholding closer to where it needs to be. And besides, it’s always a good idea to do a “paycheck checkup” once in a while just to make sure your employer isn’t withholding too much (or too little) on payday. Why Do You Need to Adjust Your Tax Withholding?If you adjust your withholding so you break even (or get really close to breaking even) at tax time, you end up with more cash in your pocket throughout the year. In other words, you don’t send the IRS a big check, and you don’t get a huge refund back either. IRS data shows that the average tax refund for the 2022 tax season was $3,039.2 So, let’s say you got paid twice a month and received the average refund. That means you should’ve had almost an extra $127 in every paycheck last year! Think of what you could do with $254 or more each month! And if you went through a major life change over the past year that might impact how much you owe in taxes—you got married, bought a house, or welcomed a baby into the world—it’s a good idea to take a fresh look at your tax withholding and make any adjustments. How to Calculate and Adjust Your Tax WithholdingReady to get your tax withholding back on track? Here’s how. Step 1: Total Up Your Tax WithholdingLet’s start by adding up your expected tax withholding for the year. You can find the amount of federal income tax withheld on your paycheck stub. Ugh, we know. It’s been years since you’ve looked at your paystub, and you don’t even remember how to log in to your payroll system. But this will be worth it! Let’s say you have $150 withheld each pay period and get paid twice a month. That would be $3,600 in taxes withheld each year. If you’re single, this is pretty easy. If you’re married filing jointly and both of you work, calculate your spouse’s tax withholding too. In this example, we’ll assume your spouse has $400 withheld each pay period and receives a monthly paycheck. Then add the two together to get your total household tax withholding. Step 2: Estimate Your Tax LiabilityNow that you know your projected withholding, the next step is to estimate how much you’ll owe in taxes for this year. The IRS provides worksheets to walk you through the process, which is basically like completing a pretend tax return. If you’re married and filing jointly, for example, and your taxable income is around $107,000 for the 2022 tax year, that puts you in the 12% tax bracket. But you actually won’t pay 12% on your entire income because the United States has a progressive tax system. After deductions, your tax liability, or what you owe in taxes, will be about $9,300. Remember, federal taxes aren’t automatically deducted from self-employment income. If you have a side business or do freelance work, it’s especially important to factor that income into your tax equation to make sure you don’t end up with a big tax bill at the end of the year. Step 3: Subtract the DifferenceOnce you have an idea of how much you owe the IRS, it’s time to compare that amount to your total withholding. Take your annual tax withholding and subtract your estimated tax liability. Let’s continue our example from above and assume your estimated tax liability is $9,300. In that case, you’d have a potential $900 deficit. A positive balance indicates a refund, while a negative balance means you owe more and may have to pay the IRS interest and a penalty for underpaying your taxes. The good news is you can fix it before tax time ever rolls around! Step 4: Adjust Your WithholdingIf you run the numbers and find you’ve got ground to make up, it’s best to adjust your tax withholding as quickly as you can. The longer you wait, the harder it will be to get it just right. You have two options:
Work With a ProIf you get stuck along the way or don’t feel comfortable with your numbers, ask a tax Endorsed Local Provider (ELP) for help. They’re RamseyTrusted and can make sense of your personal tax situation and guide you toward a reasonable target. With a few minor adjustments, you can strike a better balance and look toward next year’s tax season with a lot less stress. Find your tax pro today!
About the author Ramsey Solutions Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More. |