Payroll Withholding Calculator

If you get large tax refunds every year, then you might be withholding (deducting) too much from your pay-check each week. Withholding too much is not desirable for several reasons. First, you are giving your government a free loan at your personal expense. You need not wait until next year's tax refund to get your money. Instead, you could use your money now, during this year, as soon as you earn it. You can collect interest on it, or invest it. Secondly, receiving a large refund increases your chances of getting audited. It makes it appear that you might have calculated something wrong on your return.

However, it is also undesirable to under-deduct by too much. It can result in penalty and interest charges. That can also increase your chances of getting audited.

So it is best to withhold the minimum amount you can, but without risking penalties.

There is much confusion surrounding payroll deduction calculations. You can fill out W4 forms, but there are many special cases that do not apply to most people. Turns out, if you collect a regular pay-check throughout the year, there is a simple calculation that gives you a good deduction amount without risking any penalties. For convenience, we provide this calculation in a simple program you can download here:

Download:
 
Each download package contains the source-code, makefile, and precompiled executable for the given platform.


If you are self-employed, or some other situation, you need to make estimated payments on a quarterly basis, so the above program may not apply to you. However, for the rest, taxes are withheld in each weekly or bi-weekly paycheck. You can adjust the withholding amount through your employer. Usually the amount starts out at a default value, which may be too high or too low for your situation.

Your paycheck should also list the total accumulated amount so far withheld during the year.

About midway through the year, it is a good idea to check how much you will have withheld by year-end, versus how much you should need. And then adjust it while you still have time to make up the difference.

This program helps you calculate how much Federal or State taxes to have deducted from your weekly paycheck. The Fed and State deductions are separate. They are based on separate amounts. So you may need to run this calculator twice:   once for Federal, and once for State taxes if you live in a state that taxes income.

The program attempts to calculate an appropriate deduction amount that minimizes over-payment, while providing a safe margin to avoid under-paying. The images below show a typical usage. Question-mark buttons to the right of each prompt, provide help dialogs.

             

There are three primary input values, and one optional input:

  1. Last year's total Federal or States Taxes - If you are calculating your Federal withholding amount, then enter the final total amount of Federal taxes you owed last year. This would be the amount on your line 60 of last year's Federal 1040 form. If you are calculating your State deduction, then enter the final total amount of State taxes you owed last year. Get this from your State tax return from last year.

    (Alternatively, but generally not recommended, you could try to estimate your total tax liability by the end of this year, and enter 80% of that value. This could result in a slightly lower deduction amount, but is risky because of the difficulties in guessing ahead your end-of-year tax liability. Reasons include: this year's tax rules may change and are not published until too late, you could have unexpected income from capital-gains, bonuses, awards, raises, medical deductions, etc.. Therefore, some people pad their estimate by entering 85% or 90%, instead of 80% of the estimate. However, this is still somewhat risky, or could be more than last year's taxes anyway.)

  2. Taxes deducted from pay so far this year - Get this value from your most recent pay-check, for your Federal or State taxes, according to which one you are calculating. If you are running this program before your first paycheck of the year, then enter 0 (zero) here.

    If you receive multiple paychecks, such as your spouse's and your own, then you can place both (all) amounts in this line, and let the program add them together for you.
    Example:     7,340.23 + 4,589.19

  3. Month and Day of last pay-check deduction - Enter the date shown on the pay-check used to answer question 2 (above). You do not need to enter the year. For example: June 9, or 6/9. If you are running this program before your first paycheck of the year, then enter Jan 1, or 1/1.

  4. Current weekly deduction amount - You can leave this blank if you have not previously changed your withholding amount within the current year. However, if you have made a previous adjustment, then you need to enter the amount you are currently having deducted. You should find this on your most recent paycheck(s).

    If you receive multiple paychecks, such as your spouse's and your own, then you can place both (all) amounts in this line, and let the program add them together for you. Example:     7,340.23 + 4,589.19

Once you enter the required values, press the Calculate button. A pop-up window will then show your recommended weekly deduction amount, and any recommended adjustments.

There is often a slight uncertainty on which pay-check will be the last one to be included in this year's earnings and withholdings, due to the way the calendar falls, and the way your employer chooses to to issue paychecks. So the calculation could end up being off by one-week, plus or minus. Therefore, to be safe, this program attempts to calculate conservatively. The recommended deduction amount should cause your total end-of-year withholding total to be very close to the minimum safe amount, without going under, but may be over (only) by as much as one week's deductions.

Bi-Weekly Pay:
This program is presently configured assuming weekly pay-checks. If you receive bi-weekly pay (every other week), then multiply the final weekly deduction amount by 2, to get your bi-weekly deduction amount. Likewise, your weekly deduction amount would be half the bi-weekly amount.

For more information about the calculation, see: Weekly Payroll Deduction Calculation




Get Open Tax Solver at SourceForge.net. Fast, secure and Free Open Source software downloads   .   .   .   OpenTaxSolver Development Project   .   .   .   SourceForge.net Logo

Return to OpenTaxSolver Home