Q. What does the box mean on the W-4 Form that says “Married but withhold at higher single rate?”
A. This is one of the most frequent questions I get. The answer lies in an understanding of federal withholding. There are two withholding tables used by employers to withholding federal tax. One is for those who check the box “Single” in the W-4. The second table is related to those who check the box for “Married” on the W-4. There are also two income tax tables: Married and Single. The selection you make on the Form W-4 tells Read more »
APRIL 30TH, 2008
By CPA SAM
Q. I need a Pennsylvania version of the W-4. Where are they?
A. Pennsylvania has no equivalent of the Form W-4. This creates huge problems with regards to the employee reporting to the employer what municipality they reside in. Often the town of reference in the address is not the same as the municipality for withholding purposes.
That is beside the point however. W-4 forms are used by payroll departments for setting the marital status and number of allowances for an employee. Because these items don’t exist in Pennsylvania withholding there is no need for the form. PA is currently calculated as 3.07% of gross wages. You can’t claim extra allowances to reduce withholding, you are just stuck at that percentage.
Therefore, when you provide new hire forms to your employer, all you need to provide is the federal W-4 and the I-9 plus any company specific documents requested. Now, if we could just figure out a way to get the state to simplify the number of local taxing jurisdictions, payroll in PA would not be so difficult.
APRIL 24TH, 2008
By CPA SAM
Q. How do I complete the Form W-4 if my spouse is working or out of the country or retired?
A. Keep in mind that what I can discuss here is very general due to the nature of the question. The Form W-4 as mentioned before is the road map your payroll department uses to calculate your withholding correctly. A good rule of thumb is that if you claim an allowance on the W-4, your spouse cannot claim that same allowance. For instance, if you are married and put a “1″ in box A, then your spouse cannot Read more »
APRIL 17TH, 2008
By CPA SAM
Q. I need to change my withholding for federal and my state. How do I do that?
A. This is one of the great mysteries of life for most employees. How does payroll come up with those tax and deduction numbers on my paystub? When you first started working at your company, your Payroll or Human Resources department gave you several forms for completion. One was the I-9 which proves your right to work in the U.S. Another was the Form W-4 and perhaps another was the state version of this form. The Form W-4 tells the payroll department how to withhold Read more »
MARCH 24TH, 2008
By CPA SAM
Q. What’s the difference between a W-2 and a W-4?
A. Through my tenure on the IRS IRPAC advisory group, I have learned one great rule, there are thousands of abbreviations and acronyms thrown around the government. Just in payroll there are so many of them that is hard for someone who works in that field to keep them straight, let alone those who are regular employees. You have the W-2, the W-4, the 1099, the I-9, 941, 940, 94X, 2678 and the list goes on. As time goes on, I hope to decode what some of these forms are used for in the payroll world. This is the first issue in that (probably very long-running) series.
Employers use the W-2 to report annual wages paid to their employees. If you have more than one job, you will receive one W-2 per employer. The numbers in those boxes are used by your tax preparer to determine your tax liability. If you are in the company 401(k) or pre-tax medical plan, the gross wage boxes will likely be different. This is ok.
Employees use the Form W-4 to report allowances and filing status to their employer. The numbers you submit will be used by your employer to determine your withholding amounts for Federal income tax only. Social Security and Medicare are calculated as flat percentages and are not affected by your filing status. The Form W-4 is your best tax planning tool. If you work with your CPA or tax adviser on completing this form correctly, you can minimize extra tax due and minimize the refund you receive at the end of the year. Whenever a major life change occurs, make sure you adjust your W-4 values accordingly as quickly as possible.
While they both start with W’s, they have distinctly different uses. Using the correct terminology will make your communication with the payroll department much more efficient and less confusing.
MARCH 10TH, 2008
By CPA SAM
This is the first installment of the Ask CPA Sam blog. I will be answering questions submitted to me through this blog and through PaycheckCity.com’s contact page.
Q. I get a large tax refund every year. It really helps me pay my bills. Some people says it’s not so good. Can you explain?
A. This is one of the most common questions from my tax practice. The simplest way to look at this is that a big refund is an interest-free loan to the government. You pay penalties when you underpay, but get nothing if you overpay. Your best bet is to make use of your money during the year and get your tax liability to match your payments. Tax liability is the amount you actually owe found on line 63 of the 1040 tax return form. Your payments are the amount withheld from each paycheck. If managed correctly, your refund will be small, or you may pay a little extra in. This way, you have more take home pay and can either invest the difference or pay off your bills a little earlier than you thought.
You can adjust your federal withholding by submitting a new Form W-4 to your payroll department. Your state may have a similar form. You can find a very comprehensive list here.
