Originally published: April 21, 2023 (distributed by Andrews McMeel Syndication)
If you have already filed your tax return, you may think you can put off thinking about taxes until next year. Maybe not.
This is the perfect time to review your paycheck and how much is withheld for taxes. Too little withheld means that you'll need to write a check to the U.S. Treasury at tax time. Too much withheld means that you will get a refund -- but it's not always a good idea to manage tax withholding this way.
Some taxpayers withhold more than necessary on purpose to use the refund check to spend in the new year. If that's you, please don't tell me that you can't afford to participate in your company's 401(k).
That refund can pay for your 401(k) participation -- a decision that is fully within your power to control. Here is the point: Funding a 401(k) is a much better use of money than spending it. Would you agree? If you do, please promise to review your 401(k) plan with your benefits administrator before deciding on your withholding. And, let me know if you need help (write to me at email@example.com with some details).
Leaving aside this point, you check your withholding using an IRS tool if your tax situation is not complex. Called the Tax Withholding Estimator, it is available on the IRS website at tinyurl.com/3yzjwp4b. The tool does not record any identifying information such as your name, address or Social Security number, so you are not exposing your identity.
To use the tool, you'll need pay stubs for yourself and your spouse and your most recent tax return.
The tool will give you the details of your projected refund or projected tax owed for the 2023 tax year. The tool also allows you to make adjustments to your refund or amount owed, and it then offers suggestions on how to adjust your withholding accordingly.
If you need to make a change in your withholding, you can submit a Form W-4, "Employee's Withholding Certificate," to your employer.
One more thing. Let's review 2023 tax rates.
For individuals, the top tax rate for 2023 is 37% for taxable incomes over $578,125 (up from $539,900 for tax year 2022).
For married couples who file jointly, the top 37% rate applies to taxable income of $693,750 ($647,850 in 2022).
Additional rates, according to Revenue Procedure 2022-38 (tinyurl.com/4dz42m6e):
-- 35% for taxable incomes over $231,250 for single filers ($462,500 for married filing jointly)
-- 32% for taxable incomes over $182,100 for single filers ($364,200 for married filing jointly)
-- 24% for taxable incomes over $95,375 for single filers ($190,750 for married filing jointly)
-- 22% for taxable incomes over $44,725 for single filers ($89,450 for married filing jointly)
-- 12% for taxable incomes over $11,000 for single filers ($22,000 for married filing jointly)
Let's focus on married taxpayers filing jointly to see how these rates apply. Again, these figures are from Revenue Procedure 2022-38.
If the taxable income (TI) is not over $22,000, the tax is 10% of taxable income. If the TI is over $22,000 but not over $89,450, the tax is $2,200, plus 12% of the excess over $22,000. If the TI is over $89,450 but not over $190,750, the tax is $10,294 plus 22% of the excess over $89,450.
If the TI is over $190,750 but not over $364,200, the tax is $32,580 plus 24% of the excess over $190,750. If the TI is over $364,200, but not over $462,500, the tax is $74,208 plus 32% of the excess over $364,200. If the TI is over $462,500 but not over $693,750, the tax is $105,664 plus 35% of the excess over $462,500. And if the TI is over $693,750, the tax is $186,601.50 plus 37% of the excess over $693,750.
In a future column, we'll talk about additional tax considerations. Again, write to me with questions on 401(k) participation and tax withholding if you are not maximizing your 401(k) contribution.
To read Julie Jason's books, go to: https://juliejason.com/author/julies-books.