Real quick - I live in NYC...so I'm used to getting the **** taxed out of me. But.. Wife did a short freelance gig that paid pretty well considering the amount of hours she worked. She just got the check and it was taxed at about 10% more than our normal checks. I'm guessing this is because it's a fairly large lump sum that came in a short period of time vs. spread out over the year. So the gov. is thinking she makes this amount every pay period and is taxing accordingly. First question -- is my logic correct? Second question -- is she going to be taxed at that higher amount on her regular paychecks now (which are not anywhere near the same rate)? Third Question -- If it's not going to affect our other checks, should we claim an extra deduction to even it out or just wait till the end of the year to get some back? Thanks smart people.
yes, it is assumed that the amount she made for that well-paying gig will be consistent for the year, so her withholding would be higher. Yes, you will likely get a refund. Yes, you can adjust your deductions to offset that. I know folks that turn in a new w4 prior to bonus time to avoid such a situation.
Ok great -thanks for the help. One question though - will her regular checks now be taxed at that higher amount or will they revert back to her normal bracket? Now that the amounts aren't as high.. Thanks.
Oops, I see you answered that. I'm just kind of confused because it seems this one gig is going to f up the rest of our year. What happens when someone takes a lower paying job half way through the year? Their withholding bracket doesn't shift???? It just maintains at the highest rate? Is there a ballpark percentage to how much each additional deduction adds up to? She's only at 1 right now, but if we're going to be taxed at that higher bracket for the rest of the year maybe she should put it up to 2 or 3???
Bevo5, one thing it doesn't seem like you grasp is that the government has no role in how much the company paying your wife withholds. Companies withhold your federal tax based on the information that you give them on the W-4 they should have had you fill out and then use that to withhold funds assuming that you are getting paid for a whole year thus if she works for one month and earns $20,000 they are going to withhold assuming she makes $240,000 per year. I suggest you find someone that knows taxes and explain your situation and ask them to help you fill out a w-4. I'd suggest that if your wife often does short but well paying projects that you have a different W-4 (with more items checked) than the one you have for a full time job.
Withholding on bonus/commission income is not affected by how many deductions you claim on your W4. Bonus/commission are withheld at a standard rate by most companies that is a much higher rate than wages.
Yup gotcha -- so each individual company is simply going to withhold taxes based on the amount they are paying you. If she gets a job that pays $100/yr it'll be different then the 400k/yr job. There's no higher power making sure she pays X% on everything. It all equals out in the end. I hate taxes...that's why we both write ads for a living.
And if you don't withhold enough, and end up owing over $1,000 in additiional taxes at the end of the year, the IRS will penalize you for not givng them enough money up front. But they don't pay interest if you are getting a refund. The screwjob is a one way street.
