The Blog Of TL Wall Accounting

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Are You Taking Enough Money Out For Your Taxes?

By now most people should be getting their taxes done. If you knew you were getting a refund you’ve probably already done them and received your money back; lucky you.

At the same time, there are a lot of people, probably half the population, that’s either already received or will be getting the biggest shock of their lives when they find out that they actually owe taxes, and not just a small amount. The main culprit? Your part time job.

This isn’t necessarily true in all states by the way, as a few states don’t have income tax. However, in states like New York that not only has a state tax, but a relatively high rate, people are surprised often because there are a few things they don’t know about.

Even though I said the rate is high, that’s only compared to other states. It’s drastically lower than federal rates. Thus, if you don’t make a lot of money, as in full time income, there’s a possibility that your weekly pay might not be high enough for whomever you’re working for to take anything out for state taxes. As it applies to federal taxes, you’ll have something taken out, but very little.

As it applies to state taxes, when it’s time to file you’ll have this lump sum of income showing that no taxes were taken, which means now you’ll have it applied to the lump sum. The amount you owe will probably supersede any full time taxes that were taken out, thus you’ll end up owing taxes of at least a couple hundred dollars if not more, depending on how much your part time job was paying you.

As it applies to federal taxes, the same kind of thing will occur, even if some money has been taken, because of how low it is. Depending on how much you were making per week, your liability could be in the high hundreds or even low thousands; trust me when I say this, because we see it often.

Does this mean you shouldn’t work any part time jobs? We’re not going to go out on that limb. What we will say is that instead of claiming so many more dependents you have your employer take out a lump sum dollar amount for both federal and state taxes. A general recommendation is to have at least $10 taken out of your weekly check for state taxes.

Federal taxes are harder to figure out, so there’s two responses for it. Either have the employer take out $15 on top of whatever they’re already taking or, if you’re also working a full time job, lower the amount of dependents you’re claiming. Many people don’t know that you can claim a negative number of deductions, which takes more money out of your check. If you’re investing the extra bit by claiming more deductions then you could end up ahead. Since most people don’t do this, you might want to explore whether going -1 to -3 can offer you some benefit.

Unless you’re prepared to pay a bit lump sum tax payment, it’s better to err on the side of caution. If you believe you can’t afford even $25 per paycheck coming from your part time job, you might have to reconsider whether it’s beneficial to you in the end, or whether you need a part time job that pays more money.

At least now you know.
 

  1. Ryan Said,

    Ensuring you know your taxes, how they work and how your personal taxes will work out is essential. As you said, receiving a surprise bill through the post with your tax owing amount is a situation that no-one wishes to be in.

  2. TL Wall Said,

    Thanks Ryan. Most people don’t think about it up front and the shock can be frightening.