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How to Calculate Your Tax Withholding: A Comprehensive Guide

Understanding how to calculate your tax withholding is crucial for managing your finances effectively. Whether you’re starting a new job, experiencing a significant life change, or simply want to ensure you’re on track with your tax obligations, this guide will walk you through the process step-by-step. And remember, for any mortgage service needs, O1ne Mortgage is here to help. Call us at 213-732-3074.

1. Open the IRS Tax Withholding Estimator

The IRS tax withholding estimator is a virtual tool that allows you to estimate how much you’ll owe in federal income tax. By inputting your information, you can see how your withholding amount affects your net earnings, tax refund, or tax due. It’s wise to recalculate your withholding if you’ve experienced a major life change, such as getting married, having a child, or purchasing a home.

2. Gather Your Documents

Before using the IRS tax withholding calculator, gather the following documents:

• Pay stubs for all your jobs. If you’re married, gather your spouse’s pay stubs too.
• Information on all other income, including self-employment, side gigs, and investments.
• Your most recent tax return.

3. Enter Your Personal Information

Start by clarifying your tax-filing status. You may be filing as:

• A single person
• A married person filing jointly or separately
• Head of household
• A qualifying widow(er)

You’ll also need to indicate if you’re claiming any dependents and if you have a job or pension that regularly withholds federal income tax from your paychecks or pension payments.

4. Factor in Your Income

Enter information about any job you’ll receive income from this year, including salaried positions and hourly jobs. Also, factor in other sources of income such as self-employment take-home pay, investment income, and income from unemployment insurance. Enter the amount of taxes already withheld from other income sources and any estimated tax payments you’ve made.

5. Make Income Adjustments

Qualifying for certain tax deductions will reduce your taxable income. You’ll be asked if you’re eligible to deduct expenses like:

• Student loan interest
• Qualified educator expenses
• Traditional IRA contributions
• Moving expenses if you’re a member of the armed services
• Alimony paid if you were divorced before 2019

You’ll then be asked if you plan on itemizing your deductions when you file your tax return. Itemizing allows you to list out individual expense categories, like charitable donations and home mortgage interest. Alternatively, you can take a flat standard deduction set by the IRS.

6. Estimate Your Tax Credits

Tax credits directly reduce your tax bill. You’ll be asked if you qualify for specific tax credits for eligible:

• Parents and guardians
• Workers who earned income outside of the U.S.
• College students
• Retirement savers
• Homeowners
• Elderly or disabled taxpayers
• Business owners
• Owners of energy-efficient vehicles
• Taxpayers who paid alternative minimum tax

7. Submit a New IRS Form W-4 if Necessary

The IRS tax withholding estimator will provide your expected tax withholding and your anticipated tax obligation. This will reveal if you’re on track to receive a tax refund or if you’ll likely have a bill when you file your next tax return. You may choose to update your W-4 accordingly. For example, reducing your withholding will increase your take-home pay, and vice versa. You can download and print a new W-4 and submit it to your employer.

The Bottom Line

If you’re wondering how to calculate your tax withholding, start with the IRS tax withholding estimator. It will guide you through the process and provide you with a snapshot of your expected tax liability or refund. Getting clear on your tax obligations can prevent a surprise bill when you file your annual tax return.

And remember, keeping up with your credit health is another important part of financial wellness. For any mortgage service needs, O1ne Mortgage is here to help. Call us at 213-732-3074 to speak with one of our expert loan salespersons today.

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