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I don't know how all software works, but UNC4Me's description is exactly how withholding tables work.
Bonuses are supposed to be withheld at the rate of 25% for federal tax, but that is not what typically happens in practice.
Bingo. Payroll software utilizes the withholding tables to calculate taxes based on the annualized amount of any given check. And in my husbands case, his yearly bonus and every other check he receives is taxed based on those tables and not a predetermined percent.
Yeah, it does all pretty much work that way unless a company has some weird home grown payroll software and since I wrote quite a few of those I'd even be surprised if they did. The way I described it is the accepted standard. And it would be madness to adjust one's W4 twice a month to keep up with the vagaries of his pay plan. We just understand that a large check will have deductions, including Federal and State taxes, that exceed 50% of the gross check amount.
It wouldn't be adjusting your w-4 twice a month but rather something monitor during the course of a year. I do it due to large bonus payments.
Maybe I misspoke as the software might apply the same tax table but there is flexibility in how the company codes the payment as regular or one time(supplemental) which impacts the amount withheld.
There is a possible flat 25% for fed or aggregate method so the way you described isn't the only way and annualizing income or wages isn't
I just started a job four weeks ago and got my first paycheck. The salary at 40k was good for me because Im single and have no dependents. However... after taxes are deducted, my salary drops to only 27k. I expect to be taxed but not by so much when my net pay qualifies me to receive food stamps and subsidized housing when it otherwise would be decent.
Why are earners under 60k taxed the same as someone who still has a cozy 200k in his pocket after being taxed, despite that our lifestyle is diminished immensely more?
Im not complaining about being taxed nor taxes. It just confuses me that someone in my income zone is taxed at such a high rate that it takes away so much buying power and flexibility, especially with no benefits and having to pay all of my own expenses. Theres something very unfair about it.
Usually end up paying more because of that. You need deductions and shelters. You can look into getting a IRA or some pretax shelter 401 etc. This way that money comes out before your "taxable income". OK say you make 800 bucks a week. Normally you get taxed on 800 bucks. If you put 100 bucks in a retirement program before taxes are applied you are left with 700 bucks. Your taxes apply to the 700 bucks not the 800 initial bucks.
The idea is to get as much money taken out of your gross pay before taxes are applied. It's a fine balancing act
but that may haunt you later on when you retire many times over . unless you have a dead end job or a job you enter in to day 1 near the highest tax brackets giving up that deduction now for a roth can be so much more powerful down the road that even if tax brackets don't change the difference can be huge .
i made the classic mistake of taking that 401k deduction and now i am paying a heavy price for those deductible contributions since so much is linked to retirement income .
what did taking that 401k deduction cost me today ?
the fact my 40 year career average tax rate is lower than my retirement one since 25 of the 40 years was spent ramping up.
i retired at 62 and get no medical insurance subsidy which had i had roths i would get
85% of my social security will be taxed
i have rmd's that will make our tax bracket even higher
your medicare amount is linked to income
any money taken out at 70-1/2 as rmd's and reinvested is taxed forever on the gains
you can hit a surcharge on medicare if you go beyond a certain income .
the amounts i need from the regular retirement accounts are pretty high and do not allow me to take advantage of the zero % capital gains brackets.
as you see taking that deduction for a 401k may cost you many times over what a roth would .
but that may haunt you later on when you retire many times over . unless you have a dead end job or a job you enter in to day 1 near the highest tax brackets giving up that deduction now for a roth can be so much more powerful down the road that even if tax brackets don't change the difference can be huge .
i made the classic mistake of taking that 401k deduction and now i am paying a heavy price for those deductible contributions since so much is linked to retirement income .
what did taking that 401k deduction cost me today ?
the fact my 40 year career average tax rate is lower than my retirement one since 25 of the 40 years was spent ramping up.
i retired at 62 and get no medical insurance subsidy which had i had roths i would get
85% of my social security will be taxed
i have rmd's that will make our tax bracket even higher
your medicare amount is linked to income
any money taken out at 70-1/2 as rmd's and reinvested is taxed forever on the gains
you can hit a surcharge on medicare if you go beyond a certain income .
the amounts i need from the regular retirement accounts are pretty high and do not allow me to take advantage of the zero % capital gains brackets.
as you see taking that deduction for a 401k may cost you many times over what a roth would .
One of my complaints for years while I was working is that the HR and 401k advisors did not push the ROTH. I do not think they actually understood the benefits of a ROTH and I would not expect the employees to understand retirement planning without help.
i remember my first job. i was being paid $35k/year. the company also happened to start a 401k program around the time i started so they were recommending that everyone get on it and the sooner the better (compound interest, etc.) so i got on that too.
my take home pay was around $900 every other week.
Taxes will continue to increase substantially as cash-strapped governments are on the hunt for revenue. Especially at the local and state levels. There was just a story about how Illinois is so broke they can't even pay their lottery winners:
The next big BIG bubble to pop is on the public side of the equation, not private. Everyone is waiting for a stock market crash similar to 2008-2009, but it will be the public side that crashes (think government debt and bond markets). The debts are simply not sustainable.
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