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IRS Withholding Calculator. The purpose of the W-4 is to ensure that, over the course of 26 pay periods, your income taxes will be paid off bit by bit so there are no taxes due at the end of the year. There’s no need to guess at the number of allowances you can take. The IRS has a withholding calculator at www.irs.gov/individuals/irs- withholding-calculator that can help you determine how best to complete the W-4. PRODUCT PREVIEW Forms 1040, W-2, 1099. April 15 is Tax Day . Every year, on or before that date, taxpayers all across America must file a Form 1040 tax return with the IRS. The form 1040 Tax Return tells the IRS how much money the employee made the prior year, and how much was withheld in income taxes. As you learned above, if the employee took the correct number of allowances, they will have come as close as possible to paying off their full tax liability. If they took too many allowances, they will have to cough up more money. Warning: Don’t try claiming on the Form 1040 you that earned less than you actually did in the hopes of dropping into a lower tax bracket and reducing your tax liability. Your employer has already reported all of your income to the IRS via form W-2 if you’re an employee, and form 1099 if you are an independent contractor. Employees and freelancers also receive copies of these forms. If you are a freelancer who worked for several different employers that year, you will receive several 1099s. II. Deductions for Employee Benefits What other bites are taken out of a paycheck before it gets to the employee? In addition to taxes, deductions are taken for the employee’s share of the cost of participating in various employee benefit programs . These are called voluntary deductions because an employee’s participation in employee benefit programs is optional. Recall from Chapter 4 that one of the many advantages of employee benefits is that the cost is often payable in pretax dollars . Although an employee’s take h ome pay is lower, the deductions for employee Light reading? The U.S. Federal Tax Code currently consists of 73,954 pages. Fin Lit Trivia Fin Lit Trivia Fin Lit Trivia Fin
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THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY
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