The IRS withholding calculator is an online tool you can use to ensure you pay the correct amount of taxes. If you get a big tax refund that means you have essentially provided the government a free loan. Ideally you want to pay the exact amount you need but no more. That extra money could be invested and earn you money, rather than getting paid back to you later.
Here is an example of results the form provides:
Based on the information you previously entered, your anticipated income tax for 2015 is $6,975. If you do not change your current withholding arrangement, you will have $13,000 withheld for 2015 resulting in an overpayment of $6,025 when you file your return. If you want your withholding to more closely match your anticipated tax, adjust your withholding on a new Form W-4 as follows:
- For the only job you entered (which has a projected salary of $50,000): 5 allowances.
- Check the “Single” box on your Form W-4
Assuming this recommendation is in effect for the rest of 2015 your expected refund should be about $200. Following this recommendation will ensure that the amount withheld from your wages will cover all of your projected tax liability while minimizing your refund.
Tip Be sure to review your withholding at the beginning of 2016 (or any time there is a change in your tax situation). If you follow the above recommendation and do not check your withholding at the beginning of next year, your withholding for 2016 might be incorrect.
|Following is a recap of information entered on the preceding pages on which the above advice is based.
Prepared: May 20, 2015
|Filing Status: single||Someone else can claim you as a dependent: no|
|Number of jobs: 1||Number of dependents: 0|
|Will you be 65 or older 1/1/2016: no||Are you blind: no|
|Child & dependent care credit qualifying persons: 0||Child & dependent care credit expenses: $0|
|Eligible children for child tax credit: 0||Other credits: $0|
|Total salary: $50,000||Total plans and cafeteria: $0|
|Total tax withheld to date: $5,000||Total tax withheld from last check: $500|
|Total earned income other than salary: $5,000||Nonwage income: $0|
|Adjustments to income: $0||Total itemized deductions: $0|
|Projected additional withholding if you do nothing: $8,000|
As you can see this calculator recommends that you enter 5 allowances which will result in a 200 over payment. Most people only have two selected because they are single and can not be claimed as a dependent. Try it out and see if you can take home more each paycheck.