1 Million Dollars

Friday, February 17, 2012

How to fill out a W-4 and how that connects to paying your taxes in April

Right now people are talking about how much they are getting back in taxes or complaining how much they owe but honestly, you have total control over your refund or lack there of, if you do a little planning and fill out a simple form from your employer.  That form is called a W-4.  Normally filling out a W-4 is easy, you let them know if you are married or not, then add how many people you support.  If you have one job, it truly is that simple and easy.  The problems occur when there are multiple incomes (like spouses who each earn income) or someone working two jobs. Or you could have a problem if you take advantage of tax credits like the HOPE credit, EITC, child tax credit OR your parents still claim you as a dependent.  If your parents still claim you, you put 0 as the exemptions because you cannot claim yourself.  If you have additional credits, that requires math.  Figure out how much the credit is and if it is more than  $3650 times your highest tax bracket, claim an additional person.  If you and your spouse both work, each should claim themselves, or one person claims two and the other claims 0.

If you have a lot of income that is not from your regular job, like our rental make sure to set money aside for it.   You can get penalized if you do not pay enough over the year but as long as you did not owe over $1000 or did not owe the year before you should be fine.  Keep in mind, if you do get a large refund, most of the time that is just your own money returned to you.  It is not "free money" or money to blow.  It is part of your wage and should be counted as such when you make your budget.

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