Year-end tax planning can be nerve-wracking. Depending upon the complexity of your tax situation and the amount of money that you earn in a given year, your tax return could be fearfully complex. Whereas many folks who work for a single employer and don't take many tax deductions might have a relatively straightforward tax-filing experience, those who work at multiple jobs or manage complicated investment portfolios are liable to require the assistance of a professional. Although it can seem costly, retaining a tax preparation specialist can significantly boost the size of your tax refund. Such a move could pay for itself several times over.
When you're hired at a new job, you'll need to fill out a Form W-4 and submit it to your employer. Unless you experience a life-changing event like a legal marriage, the birth of a child, or the purchase of a new home, you won't have to fill out one of these forms each year. If you do experience a so-called "qualifying event," you'll simply need to request a new form from your employer. This is a routine procedure that doesn't need to be done immediately after the qualifying event.
Your exact tax liability will depend upon the information that you disclose on your Form W-4. If you claim several different deductions, allowances or other credits, your federal income taxes will be "withheld" at a lower rate. If you use fewer tax-reducing tools, your withholding rates will be higher. It's important to note that your Social Security and Medicare taxes will be withheld at a constant rate in virtually all situations. While you might recover a portion of these funds in your tax refund, it's unlikely that you'll be exempt from these forms of withholding.
Your total tax liability will also depend upon your total income. In the United States, taxes are withheld on a sliding scale that's designed to extract more revenue from high-earning individuals. If you earn $40,000 per year, your taxes may be withheld at a relatively modest rate of 15 or 20 percent. If you earn $100,000 per year, your taxes will be withheld at a far higher rate. The highest income tax rate is currently 39.6 percent. Since these rates fluctuate from year to year, it's important to keep abreast of any legislative trends that may affect them. If you're unclear about the exact amount of withholding tax to which you'll be exposed, you should contact the IRS or your state's revenue service.