How To Calculate Federal Tax

Everyone knows that they have to pay taxes, but not that many people know how to calculate federal tax. There are several factors that go into calculating your federal tax withholding and it will take a little time to do it. If you withhold too much, you will get a big refund, but a smaller paycheck. If you don't withhold enough, you will have a bigger paycheck and then owe a tax bill at the end of the year. The best thing to do is figure out how to be somewhere in between. Aim for a small refund and get as big of a paycheck as possible. This will allow you to use your money how you see fit and collect interest on it if you want. So how exactly do you calculate your federal tax rate?

How to Calculate

Start out by getting your documents. You will need your most recent paystub and your W-4. From your paperwork, determine your current tax status. When you look at your paperwork, the first thing that you need to determine is your gross income before taxes. From there, you deduct out any pretax savings accounts. For example, if you have a 401k, child care account, or health savings account, you deduct that first before anything else. All of these deductions are prior to taxes being deducted out of them, so they are not a part of your taxable income.

Once you get this number, you can now subtract the appropriate amount off of this figure for each exemption that you claim. For example, if you have children, you get a certain number of tax deductions because of it. If you are the only one in your household that works, you may also get a deduction for your spouse. Look at your tax paperwork to determine how many exemptions you claim and go from there.

Federal Tax Charts

The next thing you need to do is find a federal tax chart. You can find them all over the internet if you don't have one. They will have several tax brackets for you to choose from. Take the figure that you came up with and determine which bracket you fall into. This will tell you exactly what percentage you owe. From there, you will know exactly what percentage to deduct from your paycheck each week or month. Therefore, you will reach a good balance between a small refund and a larger paycheck.


blog comments powered by Disqus