GMR 112: Know Your Tax Liability - IRS W4 Form

Episode 112
We all have to pay taxes on our earned income, but knowing exactly how much to pay can be complicated. In this episode of Getting Money Right, we break down the IRS W4 Form - Employee's Withholding Certificate to help you ensure you're paying the right amount of tax, and not too much or too little.

Show Notes

Tax Withholding Explained

Even though tax returns are due in April, you pay your tax bill a little at a time all year long through a process called tax withholding. Tax withholding is simply the chunk of money your employer sets aside from each paycheck to cover your taxes. Withhold too much, and you’ll get a tax refund. Withhold too little, and the IRS sends you a bill. The goal is to get as close to “$0” as possible.

You want to get as close as you can to actually paying your exact taxes. You should make adjustments based on bonuses, or when you transfer jobs. For commission jobs, you’ll have to play the middle, and probably have a little extra withheld, rather overpay slightly, than underpay.

New W-4 Form

Well, since the 2018 tax reform bill got rid of personal exemptions, the new W-4 no longer uses “personal allowances” to figure out how much to withhold from your paycheck.  

Instead, the W-4 is divided into five steps that will give employers the info they need to calculate your withholding:

  • Step 1: You’ll enter some basic personal information here—your name, address, Social Security number and expected filing status. Everyone has to fill out this step, but you only have to fill out steps 2–4 if they apply to you.  

  • Step 2 - 4: adds more information that might be helpful to your HR department.

  • Step 5 is simply to sign the form.

You will want to access these tools:


IRS.gov - Estimator - https://apps.irs.gov/app/tax-withholding-estimator

2019 Tax Table  - https://www.irs.gov/pub/irs-pdf/i1040tt.pdf

Tax Brackets Explained - https://bestaccountingsoftware.com/tax-brackets-explained/

Tax Credits vs Tax Deduction

  • Tax Credit is like getting cash towards your tax bill.

  • Tax Deduction reduces the amount of taxable income.

Deductions

  • Mortgage Interest deduction

  • Student Loan Interest deduction

  • Home office deduction

Credits

  • Lifetime learning credit - up to $2,000

  • Child and dependent care  credit - up to $3,500

Total Income

  • Adjustments  (moving expenses, minister’s housing allowance, etc) =Adjusted Gross Income

  • Adjusted Gross Income-Deductions=Taxable Income

Income Tax in America

  • Approximately 76.4 million or 44.4% of Americans won’t pay any federal income tax in 2018

  • In 2009 over 50% of Americans didn’t pay federal income taxes. This  means that the government basically pays these people for being citizens, they owe no federal taxes and still enjoy the school system, roads, military, infrastructure, local emergency services.

  • They are still paying sales tax, gasoline tax, potential property taxes, so they aren’t paying zero in taxes total. But they are not being asked to contribute to the federal government.

  • 44-50% of people are either paying nothing to the federal government or are getting money every year from the federal government. Just pause and hear that. We live in a pretty generous society, where 44% of people receive instead of pay.

RESOURCES


IRS.gov Tax Estimator
IRS 2019 Tax Table
Tax Brackets Explained
Budget Forms and Tools
David’s New Book - Jesus on Money
David’s New Website - www.stewardshippastors.com