RE: Taxes vs. withholding (was RE: Salary Question: Bonus?)

["Combs, Richard" <richard -dot- combs -at- Polycom -dot- com>]

Gene Kim-Eng wrote: 
 
> Both the IRS and the CA Franchise Tax Board refer to these as 
> "tax rates," because withholding is considered a tax that you 
> are required to pay on income *at the time the income is
> received* but can apply for a partial refund of at a later time.

They can call it what they want, but it's not the rate at which your
income is *taxed* (the tax brackets set by Congress -- 10%, 15%, 28%,
etc.), it's the rate at which taxes are *withheld* in a "pay as you go"
*approximation* of the former. 

Conceptually, these are very different things. Confusing the two leads
people to celebrate getting a $3000 refund in April, when they should be
chagrined. 

> If you try to adjust your withholding during the year as you 
> describe, you may find yourself liable for a fine for 
> insufficient tax payments during the year, along the same 
> lines of what happens if a self-employed individual underpays 
> estimated tax during the year and then sends a big check for 
> the full year's tax liability on April 15.

Only if you *misadjust* your withholding. So, calculate correctly <shrug
/> -- maybe aim for a small refund. IIRC, there's no penalty if your
withholding and/or estimated tax payments equal at least 90% of your
actual tax liability, so you actually have a fair amount of wiggle room.

Here's what the IRS said in last year's Pub. 919 (withholding
instructions and W-4): 

"You should try to have your withholding match your actual
tax liability. If not enough tax is withheld, you will owe tax at 
the end of the year and may have to pay interest and a 
penalty. If too much tax is withheld, you will lose the use of 
that money until you get your refund."

Unless you like giving Uncle Sam and your state interest-free loans, you
shouldn't be getting thousands in refunds -- if you usually are, you
really ought to adjust your withholding downward and put the extra
take-home pay into a savings account. 

This is a public service message from the National Taxpayers Union. ;-)

Richard


------
Richard G. Combs
Senior Technical Writer
Polycom, Inc.
richardDOTcombs AT polycomDOTcom
303-223-5111
------
rgcombs AT gmailDOTcom
303-777-0436
------




^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

WebWorks ePublisher Pro for Word features support for every major Help
format plus PDF, HTML and more. Flexible, precise, and efficient content
delivery. Try it today! http://www.webworks.com/techwr-l

Create HTML or Microsoft Word content and convert to Help file formats or
printed documentation. Features include single source authoring, team authoring,
Web-based technology, and PDF output. http://www.DocToHelp.com/TechwrlList

---
You are currently subscribed to TECHWR-L as archive -at- infoinfocus -dot- com -dot- 

To unsubscribe send a blank email to
techwr-l-unsubscribe -at- lists -dot- techwr-l -dot- com
or visit http://lists.techwr-l.com/mailman/options/techwr-l/archive%40infoinfocus.com


To subscribe, send a blank email to techwr-l-join -at- lists -dot- techwr-l -dot- com

Send administrative questions to admin -at- techwr-l -dot- com -dot-  Visit
http://www.techwr-l.com/techwhirl/ for more resources and info.