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Accurate tax withholding

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Transcript for Accurate Tax Withholding

This is Jean Wetzler.
I'm talking with Phyllis Grimes about tax withholding.
Phyllis, every year, some taxpayers are dismayed at the bottom line on their individual tax returns - a refund that's too small, or perhaps even too large - OR an unexpected amount of tax owed. What do you think is going on here?

There are a variety of situations that can affect the bottom line on a tax return:
A lifestyle change - such as a marriage or divorce;
An increase or decrease in income not subject to withholding - such as interest, dividends or self-employment income;
A change in itemized deductions or tax credits - like medical expenses or gifts to charity;
And of course, any change in wage income if a taxpayer or the spouse starts or stops working at a main or second job.
There might also be changes in tax law that affect a person's tax liability.

What's the appropriate amount of withholding?

That's a personal decision.
But ideally, the bottom line on a tax return should be close to zero.
If you get just a small refund or owe a small amount of tax, that means more of your money was available to work for YOU throughout the year.
It's important to not be under-withheld and owe a penalty.
Advance planning and careful monitoring are key.
Be alert to any changes and adjust your withholding accordingly - you can do this by submitting a new W-4 form to your employer at any time.
And if you make estimated payments, make sure those amounts are accurate.

You mentioned changes in tax law.
Has something changed recently?

Yes, there has been a change.
One of the key provisions in the American Recovery and Reinvestment Act of 2009 is the Making Work Pay credit.
The credit may result in more take-home pay for many individual workers for the rest of 2009 and throughout 2010.

Do taxpayers or employers need to do anything to accommodate the change?

Employers and payroll companies need to use the new withholding tables posted to our Web site and included in Publication 15-T, which we mailed to many employers.
Most people who receive a paycheck and are subject to withholding don't need to do anything.
The credit will typically be handled by their employers through automated withholding changes made in early Spring of 09.
However, individuals with multiple jobs and married couples whose combined income places them in a higher tax bracket may want to submit revised W-4s to ensure they have enough withholding to cover the tax for their combined income.

How can individuals determine what their withholding should be, and what can employers do to help them?

The IRS has some terrific resources employers can direct employees to:
There's Form W-4 itself, which contains worksheets.
We have an automated withholding calculator on
It's not a replacement for the W-4 but most people find it more accurate and easier to use than the worksheets.
And Publication 919, "How Do I Adjust My Tax Withholding," is a new pub with some excellent guidance and examples. Everything is on our Web site,

Thank you, Phyllis.
I've been talking with Phyllis Grimes of the IRS.
This is Jean Wetzler.

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