So two years ago I was filing my tax return and was excited to see what my tax refund would be after working at my very first adult job for a whole year. I remember clicking excitedly through TurboTax and then getting to the final page where it said 11,000 OWED. I had never done my own tax return before so I figured I messed something up and had my mom come over and do it by hand. She got the same result and immediately asked to see my paychecks.
Turns out I was only having about 5% of my paychecks withheld for taxes. I hadn’t noticed how little was being withheld because it was my first adult job and I was blissfully ignorant and enjoying the big paychecks. When I had filled out my W4 I remember being confused and the HR guy saying “Don’t worry you can always change it later jus put whatever”. I can’t even remember what I put down on that form but i really fudged it up. Then I just let it slip out of my mind. Big mistake.
So I freaked out for a while, posted on this subreddit, took the advice of /u/these-things-happen , made an initial payment of as much money as I had in my bank account and got myself on a payment plan of $350 per month. Whenever I had any extra money from overtime and sidegigs I made online payments to the IRS. My recent tax retund got taken to finally pay off the remaining amount last week so I AM OFFICIALLY OUT OF DEBT TO THE IRS. I’m so happy to be done with it.
Anyways to help any one from making the same dumb mistakes as me here’s my advice on what I learned. For you advanced PF’ers out there this will seem like common sense but hopefully it helps someone somewhere.
The basics: the lower your withholding rate the more taxes are taken from your paycheck. If you overwithhold (put a lower number on your w4 than you need to) you will get a bigger refund but then are giving the IRS an interest free loan all year when you could be using that money to pay stuff off. If you underwithhold (put a higher number on your w4 withholding than you should have) then you may owe up owing the IRS on your tax return and you may not have been prepared to pay it.
Always use the IRS Withholding Calculator to determine what to put on your W4). Update it through your HR at any time and especially if anything big happens (get married, get a second job, have a kid). Take your withholding very very seriously.
Check your paychecks from time to time to calculate the percentage of how much is being taken out in taxes and know your state/city tax rate to make sure you’re on track
If you do owe on your refund don’t be afraid to call the IRS. They are actually ridiculously nice and helpful when you call them for help - set up an installation agreement right away if you can’t afford to pay what you owe.
CAclubindia
