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Money Girl
100 MG Check Your Withholding
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In this episode, I'll discuss payroll tax withholding. Understand what exactly is taken out of your paycheck, and when you'll need to adjust your allowances. Ah, the holidays. Parties shopping, time with family and friends. But for some of us, holidays do not mean business stops. If you're traveling during the holidays or need time off, you may need to stay connected to your work. I plan on using GoToMyPC to access my home computer while visiting the in-laws. I can access any file or program. I don't need to haul my laptop with me or copy important docs to a flash drive. GoToMyPC gives me peace of mind because I can access anything on my computer from anywhere. Money Girl listeners can try GoToMyPC free for 30 days. That's a month of unlimited remote access free. For this special offer, you must visit www.goToMyPC.com/podcast. That's GoToMyPC.com/podcast for a free trial. When you take a new job, one of the forms you complete for your employer is the W4. This form tells your employer how much taxes should be taken out of your pay. The money that comes out of your gross check is called withholding, because it's withheld from you and goes to the government instead. Federal income tax is called a pay-as-you-go tax, because you must pay up as you earn money during the year. Withholding is a tax collection method that benefits the government because it reduces the chance of tax evasion. It also puts the administrative burden of collection on employers who are required to calculate and submit income taxes on behalf of their employees. Your tax withholding is based on the number of allowances you claim on Form W4, and allowances the same as an exemption from tax. The more allowances you claim, the less federal income tax will be taken out of your paycheck. It's important to note that you can file a new W4 with your employer anytime your personal situation changes. You can adjust the number of allowances to avoid having too much or too little tax withheld. Your goal should be to have your withholding match the actual amount of tax you will owe. If too little tax is withheld, you'll owe taxes at the end of the year and may also have to pay interest plus a penalty for not paying on time. If too much tax is withheld, you lose the use of those funds until your money is refunded. It's a good idea to review your tax withholding at the beginning of each year. Some employers may send out a reminder notice about this, but others may not. Significant events such as marriage, divorce, the birth or adoption of a child, retirement, or the purchase of a new home will affect your tax liability. Other changes that affect income such as losing a job, taking on an additional job, or an increase or decrease in salary should prompt you to review your withholding any time in the year. Adjustments to income such as a student loan interest deduction or alimony will affect your tax liability. Changes in itemized deductions or tax credits like medical expenses, education credits, and child tax credits should also be a signal to review withholding. If you have additional income not subject to withholding, such as interest, dividends, capital gains, etc., you'll want to make sure you have enough tax being withheld. I'll put a link in the show notes at moneygirl.quickanddirtytips.com to the IRS publication 919 titled "How Do I Adjust My Tax Withholding?" Employers are required to withhold four different types of taxes from employees' paychecks. These are #1 federal income taxes, #2 state income taxes, #3 social security taxes, and #4 Medicare taxes. Are you struggling to close deals? Cold outreach is wasting the time of both the buyer and seller at every stage, especially when sellers are using outdated data. Your organization can overcome these challenges with LinkedIn Sales Navigator, the first deep sales platform. Right now, you can try LinkedIn Sales Navigator and get a 60-day free trial at LinkedIn.com/trial. That is LinkedIn.com/trial for a 60-day free trial. Let LinkedIn Sales Navigator help you sell like a superstar today. AI might be the most important new computer technology ever. It's storming every industry and literally billions of dollars are being invested, so buckle up. The problem is that AI needs lots of speed and processing power. So how do you compete without costs spiraling out of control? It's time to upgrade to the next generation of the cloud, Oracle Cloud Infrastructure or OCI. OCI is a single platform for your infrastructure, database, application development, and AI needs. OCI has 4 to 8 times the bandwidth of other clouds, offers one consistent price instead of variable regional pricing, and of course, nobody does data better than Oracle. So now you can train your AI models at twice the speed and less than half the cost of other clouds. If you want to do more and spend less like Uber, 8x8, and Databricks Mosaic, take a free test drive of OCI at oracle.com/advanced. That's oracle.com/advanced. Oracle.com/advanced. The last two Social Security and Medicare are collectively called FICA. This stands for the Federal Insurance Contributions Act Tax. Most of you know that Medicare is the federal program that provides hospital insurance benefits once you reach the age of 65. The benefits provided by Social Security are summarized by the program's official name OASDI. This acronym stands for Old Age, Survivors, and Disability Insurance. Many people don't realize that employers are also required to pay a matching amount of FICA for each of their employees with every paycheck. So the amount of Social Security retirement benefits that you will receive is directly related to the amount that you and your various employers have paid into the program over your entire working career. In 2008 and 2009, the tax rate for Social Security is 6.2%. So employers withhold this amount from your gross wages in addition to paying another 6.2% of the company's money for you. This tax is paid in each year until a wage threshold is reached. For 2008, the wage threshold is $102,000 and it will be raised to $106,800 in 2009. Once you earn the wage base amount, neither you nor your employer must pay any more Social Security tax. The Medicare tax rate is currently 1.45%. There is no wage base for the Medicare portion of FICA tax, so both the employee and the employer pay a combined total of 2.9%, no matter how much is earned. If you're self-employed, you pay both the employee and employer side of FICA tax for a grand total of 15.3%, that's 12.4% for the Social Security portion up to the wage threshold and 2.9% for the Medicare portion. In addition to the FICA matching, an employer must also pay federal unemployment taxes, called FUTA, FUTA, and state unemployment taxes or SUTA, SUTA. I'll put a link in the show notes for more information on these taxes. If you're interested in learning more about income taxes, see the Treasury website at tras.gov for their fact sheet on the history of the US tax system. I'm glad you're listening. If you're not already receiving the show through a podcast aggregator such as iTunes, I highly recommend that you do so. Subscribing to the show through iTunes is completely free and simply means that you get each new episode as soon as it's released. Cha-ching. That's all for now. Courtesy of Money Girl, your guide to a richer life.