How to Calculate How Much Changing My Withholding Tax Will Affect What I Bring Home
Original post by Lee Nichols of Demand Media
While you cannot increase your gross wages without receiving a raise, you can adjust your withholding to adjust the amount of taxes withheld from your pay. Employers use the information that you provide on your Form W-4 to determine how much tax to withhold from your gross income. Adding or removing dependents changes your tax withholding and either increases or decreases your take-home pay. You can request a new W-4 from your employer at any time.
Calculate your average paycheck by dividing your gross income from last year by the number of paychecks you received. For example, if you made $48,000 last year and you were paid weekly, divide $48,000 by 52. Your average weekly pay for the previous year was $923.08.
Download a current Employer's Tax Guide from the IRS.gov website. Tax rates may change yearly; make sure you use a form for the current year.
Open the publication to the tax table that applies to your filing status and pay frequency. Select the tables for a single person if you file as head of household.
Find the row that corresponds to your average pay. For example, if your average weekly pay is $923.08 and you file as a married person, use the row for wages between $920 and $930.
Examine your current W-4 to determine how many withholding allowances you are claiming. You can obtain a copy of this form from your employer
Determine your current withholding by looking at the column for the number of allowances you now claim. For example, if you are currently claiming two allowances, then $78 is being withheld for taxes from each paycheck, based on the withholding tax tables in effect in 2011.
Look at the column for the number of allowances you plan to claim and add or subtract the difference. For example, if you increase your withholding allowance to three, subtract $63 from $78. This change increases your paycheck by $15. If you change your allowance to one, subtract $78 from $89. This change reduces your pay by $11.
Tips & Warnings
- If you pay state income tax, use the withholding table for your state to determine the effect of adding and subtracting allowances.
- If your income level changed this year, estimate your weekly pay by averaging your income since the change.
- Use the W-4 worksheet to determine how many dependents you should claim to avoid owing taxes when you file your tax return. If you underpay your withholding during the year, you may owe taxes and penalties when you file your return.
- Current W-4
- IRS Publication 15 (Circular E), Employer's Tax Guide
- Kiplinger: Easy-to-Use Tax Withholding Calculator
- IRS.gov: Publication 15 (Circular E), Employer's Tax Guide
- Kiplinger; How to Adjust Your Tax Withholding; Kevin McCormally; December 2010
- TurboTax: Form W-4 and Your Take-home Pay
About the Author
Lee Nichols began writing in 2002 and now contributes to various websites. Nichols holds a Bachelor of Arts in Web and graphic design and a Bachelor of Science in business administration from the University of Mississippi. She is currently working on becoming a Deaconess with the United Methodist Church.