Doing your taxes each year can be stressful in the best of circumstances, but it’s worse when you discover you owe Uncle Sam a lot more money than you anticipated. Be aware that when you have two jobs, your spouse works or you have income from sources other than wages subject to payroll tax withholding, you may have a larger tax liability at the end of the year. Advanced planning may help eliminate the possibility of receiving a penalty from the Internal Revenue Service.
Working for an Employer
Complete a W-4 Worksheet. This worksheet comes with the W-4 form, which is the form you filled out when you were hired so your employer could correctly figure out how much tax to take out of your paycheck. Use only one worksheet even if you have more than one job or you are married and both spouses work. The IRS says combining income from multiple jobs on a single worksheet keeps you from inadvertently claiming too many withholding allowances and not having enough tax withheld.
Fill out a new W-4 form for each job you have or that you and your spouse have. Divide the withholding allowances you are entitled to, based on the W-4 worksheet you completed. For example, if you and your spouse are entitled to four allowances, you might decide to claim one allowance, so your spouse would claim the other three.
Ask your employer to take out an extra amount of tax each payday if you have taxable non-wage income such as dividends, alimony or interest. Do this by writing the additional dollar amount on line six of the W-4 form. To figure out how much extra to have withheld, multiply the non-wage income by the highest tax rate your wages are subject to and divide the result by the number of paydays you have during the year.
Submit the updated W-4 forms to your employer. It may take up to 30 days for the new forms to be processed and the new withholding amounts to start coming out of your paycheck.
Determine if you need to file an estimated tax return. Estimated returns are for taxpayers who have self-employment income, including earnings as a sole proprietor, business partner or S corporation shareholder. You should file estimated returns if you expect to owe the IRS $1,000 or more at the end of the year after subtracting any prepayments such as payroll withholding.
Fill out IRS Form 1040ES each quarter to file estimated taxes. The IRS recommends that you use their Electronic Federal Tax Payment System to file and pay estimated taxes. The EFTPS is available on the IRS website.
Submit your estimated tax return and payment on time to avoid penalties. For January to March, estimated taxes are due April 15. April and May taxes are due June 15. June to August estimated taxes must be in by September 15. Estimated taxes for September through December are due January 15 of the following year.
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