W-2 Withholding VS Estimated Payments

W-2 Withholding VS Estimated Payments


Hey everyone. So we’re back for this third
video. The first week we talked about the W-2, the parts of the W-2, where your
wages and your tax on that came from; we talked about where your withholdings
were, how those kind of came about, and we wrapped that into last week. Where we
talked about your tax liability versus what you actually owed versus what your
refund might be for the end of the year. What we briefly started talking about in
the second video was what happens if your refund went down are you actually
owed this year. A lot of Americans were in the position where they actually had
a lower refund or owed money last year compared to two years ago because of the
new tax law and how those withholdings hadn’t changed enough. So I wanted to
talk about a couple ways you can change that. So one way we briefly discussed
last time was you could go to your payroll company or your payroll
department and increase those withholdings. So say you actually owed
money this year compared to last year and you wanted to wipe that out, what you
could do is take that amount and divide it over the number of paychecks you have
in the year. So I get paid twice a month, so there’s 24 pay cycles I’ll have. I
could take that amount owed divided over 24 and ask my payroll department to
increase my withholdings by that amount. It’s just a simple way to get that paid
in and not have to worry about it now. Another way that you can look about it
is if you have a lot of interest income or dividend income, or maybe some
pass-through income that comes from something outside your normal job, that
you don’t want it increase your withholdings for because it’s a little
more sporadic, what you could look at our estimated payments. Now they’re a little
more finicky they’re a little harder to do you’d probably want to talk to a tax
preparer about it, but essentially what you can do is every quarter, or more
frequently, you can pay into the IRS outside your withholdings and smooth
that Liability out so you’re not looking at
owing any money at the end of the year. There are some positives and negatives
to that if your income is a bit more sporadic and you only want to pay in as
your, you know, incurring that income that’s when estimated payments are a
great option. However the advantage of paying in on your w-2 is that it
actually is deemed to be withheld periodically throughout the year so you
could have a large amount of withholdings in december and the IRS
will actually count that as being periodically withheld through the entire
year. Whereas, if you did that with estimated payments, you could actually
incur penalties tax penalties for that for late payments you’ll get charged for
the tax that you had out and then a interest penalty for the amount of time
that they felt you should have been paying that in it hadn’t. So there’s a
advantage of the W-2 there that it can kind of smooth that out for you and get
rid of some of those penalties. Now the problem with that is if you’re looking
for your W-2 for your standard amount of income and it’s not as frequent as your
paycheck, you know, your normal take-home pay would be less. So there are some
things to think about there but those are two really good options to look at.
It’s something that come, you know, November time a lot of people start
asking their tax preparers about and seeing where they’re gonna line up for
next year and making estimated payments, but if you’re a little more proactive, say go
into the tax preparer now and say here’s what my paycheck looks like, I
want to know how much I’ll be projected to owe or get a refund for last year, or
this year, they’ll be able to do that now for you so you can go to your payroll
department and make those changes. It’s just something to think about so that
you’re not surprised come April. I hope you like that. If you like that tip, take
a like. Put a comment if you have any questions, and feel free to connect.
Thanks guys!

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