As an employee, when you get paid, so do Uncle Sam and the state government. If he’s lucky enough to live in one of the few states that doesn’t tax income, then he’s just paying the federal government. But for most of us, a part of our country is targeted for federal and state income tax, or withholding.
The amount that comes out of your paycheck depends on your exemption allowances. When you were hired, you filled out a W4 form and/or a statement with withholding. These forms stated your marital status and the amount of allowances you claim. Appropriations serve to divert government money into your pocket. He reads the form carefully, because he only wants to exempt what should truly be his. You can change your exemptions at any time – just fill out a new form and send it to your supervisor.
Monitor your paycheck to make sure the exemptions you claimed are being calculated into your salary. You don’t want to end up owing the government more than you already paid because your employer didn’t calculate the correct tax. The IRS website has a page to calculate your withholding. Take the chance! There are also numerous websites available on the web that calculate your paycheck for you, based on your earnings, deductions, and taxes. If you think your paychecks are not being calculated correctly, compare your check with a paycheck calculator. If the differences are within a few dollars, don’t worry. However, if the difference can add up to hundreds of dollars over the course of a year, talk to your supervisor and ask to have your paychecks reviewed for discrepancies. It could be a simple miscalculation, but it’s better to catch it early so the differences can be adjusted, rather than pay a big chunk of it when you file your taxes.
Finally, you need to understand that the tax tables change every year, and sometimes during the course of a year. For example, in February 2009, President Obama signed the American Recovery and Reinvestment Act (ARRA) which included the Making Work Pay tax credit. For tax years 2009 and 2010, Americans can expect to receive a few more dollars in each paycheck, totaling about $400.00 a year. This works because the tax table was changed so people don’t owe as much in income tax. However, this is again where I say pay close attention to your federal tax withholding. If you’re married or working multiple jobs, you may be taking too much credit, which means you’ll end up owing when you file for 2009.
Bottom line: pay attention to your paychecks. Control your income tax withholding. Calculate against current tax tables to make sure you’re paying the government exactly what you owe, not less. Take the time to spend a few minutes now and then calculating your paycheck and you can avoid surprises in the coming year.