How to Prevent Owing Money to the IRS

Why Am I Being Summoned to Write a Check to IRS During Tax?

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One year, someone I know starting their career got hit with an unexpected tax bill of $800. I'm going to use an example salary to walk through it and arrive at the proper figures for your annual W4 form. The W4 form is what is used to determine the amount of taxes withheld.

Here’s the basics of understanding all the taxes you should be paying through the calendar year with a $50,000/yr as a W2 employee. Take this guide, find a tax table, and apply it to your expected W2 income to be sure you don’t get hit with a surprise bill.

Income $ 50,000.00

Std Ded $ (12,200.00)

Taxable Inc $ 37,800.00

Tax Brack ($9,700*10%) $ (970.00) $ 970.00

($37,800*12%) $ (4,536.00) $ 4,536.00

FICA ($50,000*7.65%) $ (3,825.00) $ 3,825.00

Take-Home Income Total Witholdings

$ 40,669.00 $ 9,331.00

We’ll go through this step-by-step. As stated above, your income is $50,000.

Being single, you get $12,200 that becomes nontaxable, through the standard deduction. Therefore, the taxable income is equal to $37,800.

Then, you can find a tax table for the current year. The way tax brackets work is that the first sum of money is taxed 10%. For 2019, the first $9,700 is taxed 10%. That’s where the $970 comes from. The next bracket of $9,701-$39,475 is taxed 12%. Since your taxable income is $37,800, you pay 12% of that. That’s how we arrive at $4,536.

Additionally, there are FICA taxes, which are Social Security and Medicare. The FICA rate is 7.65%. You have to take 7.65% of the entire salary, $50,000.

To calculate your take-home income, subtract the tax bracket sum and the FICA withholdings from annual salary to get $40,669.

The total withholdings can be calculated by adding, tax bracket sum and FICA withholdings. That’s how we find $9,331 worth of withholdings.

This example does not include any local or state taxes you may be exposed to, but the approach is the same.

In this example, selecting zero withholdings should get you close to your proper withholding amount given a $50,000 annual salary.

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-RR