How Do Tax Withholdings Work? (2018 W-4 Form Explained) W-4 and Tax Withholdings

How Do Tax Withholdings Work? (2018 W-4 Form Explained) W-4 and Tax Withholdings


in today’s video we’re gonna be talking
about the w-4 and tax withholdings I’ll be teaching you how you can dominate
your taxes in 2018 and beyond now this is the first part in a series of videos
I’m gonna make around this subject not I’ve literally spent hours diving into
various IRS publications to be able to present the information I’m going to be
showing you today I’m gonna talk about a few things right now on the whiteboard
then we’re gonna look at actual examples on screen to help you understand how
your w-4 works and how it affects your tax withholdings versus how much tax
you’re gonna owe or not owe at the end of the year when it comes to your
paycheck so that’s what I want to talk to you guys about today
now unfortunately this is if if there was one form if there was one area tax I
wish our school system would cover this! would be it
this is such an important life skill I don’t know if you guys know this but
ninety roughly ninety percent of the people in the US who work make their
living as employees and even those who are self-employed a high percentage of
them pay themselves wages and have to fill out a w-4 as well and so we’re
gonna cover this step by step by step so that you can not only see it from the
employees side but also from the employer side as well because I really
feel that you have to understand how it works from the employer side to
understand how your your the tax is being withheld from your paycheck and
how they come up with that number of amount of tax being withheld from each
and every paycheck you receive and if I lose guys at any point
don’t worry feel free to leave comments in the comment section down below and I
have downloadable materials in the description section right below this
video so make sure you take the time and to check it out it’s real quick guys
what I’m about to show you is not tax advice so please don’t take it that way
but it is definitely for your entertainment and education and I think
you will learn a lot from this but always consult with a professional in
your area if you have any questions or uncertainties about your taxes let’s
dive into this okay when it comes to your paycheck there’s really two primary
methods when it comes to how much federal income
tax and that’s what we’re talking about here is how much federal income tax is
withheld from each and every time you get a paycheck on your payday from your
employer now there’s two ways that’s calculated one method one way that’s
calculated is the percentage method the second way is the wage bracket method
tables now if this doesn’t make sense to you it’s not supposed to but in a minute
I’m going to show you on screen what they are and how it works to understand
how this all works guys you’re gonna have to know how it works from the
employee side the employer side and then from the IRS side and all three of those
pieces are going to be put together so it all will make sense in the end and
this is just part one of the video series I’m planning to Bruce three or
four videos on this series and telling until it’s totally done to give you guys
a very complete overview like I don’t think it’s ever been done before on
YouTube so that you guys truly understand how this works so it would
mean so much to me guys if you comment on these videos if you’d like the videos
that will help it rate higher and search and get this information out there to
more people why are we doing this it’s so there’s a couple reasons why it
really the first reasons for financial planning purposes if you’re gonna be
able to to be able to save as much money as you can every month and pay off debt
as quickly as possible invest as much as possible you really have to have a good
grasp on how much tax you owe throughout the year or how much tax to withhold
from each and every paycheck because what could what I’ve seen happen and I
made a video about this recently as in my top eight tax mistakes that I see
happen all time is if a person is not withholding enough taxes on their
paycheck when it comes a tax time they can oh tens of thousands and I’ve
literally seen tens of thousands of dollars owed because they were not
withholding enough taxes on their with paycheck the other side of the coin is a
person might withhold too much tax from their paycheck and the money is if
you’re withholding too much and I’ve seen that too where more people help
with over-over withhold thousands of dollars that could have been in their
pocket that they could have been using to invest they could have been using to
pay down their debt saving money or whatever but instead that money is then
trapped with the IRS until they file at to return because you can’t get that
money back until you file until in my opinion I would not give the the I don’t
want to give the IRS more money than I need to I would much rather only have a
very small refund but I also don’t want to oh so that’s why we’re doing this
video series and so that you understand your w-4 now like I said earlier guys I
really wish this stuff was taught in school this one would be such a valuable
life skill to learn but unfortunately they do not teach it and I’ve been doing
public accounting now for about seven years and as far as I know there’s no
formal education on this I have not seen it anywhere if you know where a person
can find a formal education on this particular topic
let me know but I have not seen it you know when I was getting my accounting
degree at the state university I attended they didn’t cover this at all
or are next to very little anyways and then even when you’re going through the
process of obtaining your CPA license I’ve done they you know you don’t really
cover this stuff and they’re either you talk about general tax planning and
federal income taxes but not to this level of detail not to where it can help
the average person and and there’s so many people across the entire country
that this information can help so now let’s really dive into the details all right ladies and gentlemen here we
are all right I really hope you guys get something out of this because I put a
lot of time into this and you’re about to see why let’s start with just some
basics here with your w-4 luckily chipper has been so kind and so
so open to helping us out he has actually volunteered to show us his w-4
chipper show me your w-4 please yes saya act
you’ll service okay so we’re gonna go over the exact example that I’ve put
together for you guys of chippers w-4 here in just a moment but there’s a
couple things I just want to talk to you guys about first let’s start with with
your w-4 form itself which is basically you know we’re talking about this form
right here as you guys can see this is what I’m talking about now when you
start a new job you’re probably used to getting this you’re gonna get the your
payroll person or HR person is gonna give you one of these forms and tell you
to fill it out and if for most people and used to be this way for myself but
it feels like I get like a pop quiz it feels like when you walk into a
classroom you get a pop quiz and you got to fill it out and you’re like not sure
of what the numbers should be on here or how to fill it out just correctly you
just hope when you turn in that pop quiz you hope you did as good as you could
you know you give it to your payroll person they they not sure if the numbers
are right and legally they can’t tell you how many how much to with how many
allowances to indicate on your w-4 or things like that because they’re not
gonna be the ones held responsible for your tax situation they have no
liability and so that is why it’s up to us each individual to fill us out for
ourselves so the more we know about it the more accurately we can do that now
with the w-4 there’s a boxes and we’re gonna I’m gonna go over this one by one
here in a second but really what we come down to is figuring out the number of
allowances and so allowances I want you guys to think about it’s not it’s not
the allowance you’re your mother or dad pays you when you do your chores if
you’re lucky enough to get an allowance but really allowances refers to
deductions so the more deductions you have think of allowances as deductions
so the more so so when you think about allowances I want you to think of like
tax deductions so the more tax deductions you have the
less tax we have to pay right so the way this works is like this so the higher
the number that we list here under allowances the less tax is gonna be
withheld from our paycheck so the higher the number of the allowance is the less
tax is withheld because it’s because we’re getting more tax deductions that
we’re gonna OLS so that’s why less is withheld now let’s reverse this let’s
reverse it so the the fewer number of allowances the more tax is withheld from
our each and every paycheck so the fewer number of allowances means we have less
tax deductions the more tax has to be withheld from each and every one of our
paychecks so if we put 0 here it’s gonna withhold the maximum amount of tax from
each and every paycheck and then on top of that you see here in box 6 we can
even have more withheld if we want to we can say well okay well hold you know I
wanted to claim zero allowances but then also withhold another $200 per check or
whatever it may be for you so that’s how I would like you guys to interpret and
think about allowances so that the next the next thing I want to go over with
you guys real quick is what actually happens when after we fill out after a
person fills out their w-4 what actually happens with that well what it what
happens is you give it to your employer and your employer keeps it on file and
probably 90% of the time or more this information this w-4 form never goes to
the IRS the only time it will go to the IRS is if the IRS specifically requested
which is very rare and I have not heard I have not seen that happen or I have
not heard of that happening so it’s only when the IRS requested that’s when the
employers have to turn it over to them but most of the time this is just to
give to your company’s bookkeeper a payroll person and then they’re going to
figure out how much federal income tax state income taxes well if if if you
live in a state that has state income tax like California where I live
well they’re gonna look at this information that you filled out and it’s
gonna determine it’s gonna go from this form and then to the payroll person and
then it’s gonna spit out a number of tax withheld on your paycheck and then your
employer remits those taxes to the IRS later on when they file their quarterly
SAR monthly monthly tax deposits so that’s kind of how that works so it
never goes to the IRS it’s just very rare when that happens okay now I want
to show you guys what your employer sees on there and when they’re figuring out
how much tax to withhold from your paycheck based on your w-4 that you
provided them okay so then they’ll order to find that no like I said earlier we
really have to go understand this from the side of the
employer to understand how this all works there’s no there’s really not
another way I know of how to explain this other than to show you with real
examples and then let’s we’re gonna go through the full process here okay so
this is IRS Publication 15 I want you guys to remember this IRS Publication 15
this is circular eat employer notice it says employers Tax Guide so this is what
your employer is trying to figure out when they’re dealing with your each
employees taxes okay so then now I’m going to show you there’s a second ago
we talked about the still on the white board back there but there’s the
percentage method and then there’s the wage bracket method tables that we’re
going to talk about so let me show you what those are real quick guys just so
you guys have an understanding and then we’re gonna what they are and then we’re
gonna go through an actual example right of this so your employer uses these
tables and I’m flipping to it real quick to figure out your taxes so there’s two
of them in total so here we go so here’s the if you go to page 46 and all of this
I have links to all of these materials and all of these materials are directly
from the IRS website except with a spreadsheet I’m gonna show you which I
created myself but you’re free is downloadable for free it’s just to be
used as an educational tool as you’re gonna see it’s not to be used for like
actual tax planning and tax advice what I would like you to do with that when it
comes to you actually like planning figuring out what your withholdings
should I want you to use the IRS calculator on
the IRS website last month or so they released it the 2018 withholdings
calculator well I’ll show you guys that in just a minute
okay so here’s is the percentage method tables for income tax withholding now
I’m not going to go over this in crazy detail just yet but basically once your
income gets to a certain point we can’t use the other method we can’t use the
wage bracket method we have to use your employer has to use the percentage
method tables for income tax withholding now either way should get you the same
result or roughly the same result of withholdings so and as you guys can see
I want what I want to point out real quick is that notice it follows the new
tax brackets so 10% 12% 22% this follows the new 2018 federal income tax brackets
so that’s how it state that’s how your withholdings are supposed to keep in
line as you get each check paycheck throughout the year when you look at
your paycheck stub that’s how you can help helps keep you on track of how much
you need to withhold throughout the course of the year to be okay and caught
up on your taxes okay then so this is this is what the percentage method
tables looked like we’re gonna go over an example of that just a minute the
other one if I flip to it again here’s what the wage bracket method tables for
income tax withholdings look like and there’s a lot of different tables and it
covers your different filing statuses so if you’re single and then it first it
covers your filing status so if you’re single you use this one and if you get
paid weekly you use this one it also covers that one let me flip the page
so here’s know this that continues that okay so then here’s for a married person
who gets paid weekly if I keep flipping then you have a single if you keep
flipping and then we’re on single people who file single but they get paid
bi-weekly personally I get paid bi-weekly so I would use this one if I
were using this method to calculate my withholdings this is what I would be
looking at now like I said this only covers income so far like it only goes
so far down but this shows let me show you guys he says and wait it at your
wages are at least this but less than this that this and then these numbers
across here determine like this is how many
exemptions or allowances you’re claiming not exemptions I’m sorry
this is how many allowances you’re claiming on your w-4 and then by using
this information you’re able to determine how much to withhold on your
taxes and I’m but I’m gonna show you all of this guys right now so let’s go over
a real example and I’ve looked I’ve done multiple calculations and I’ve looked
this over multiple times to make sure this is correct and it should be if you
guys notice anything in my spreadsheet that is incorrect please let me know I
would love to update it for you guys and I want it to be always as accurate as
possible okay so let’s go to chippers w-4 now here we go so this is the front
first page of the w-4 and chipper has been like I said kind enough to let us
use his information so we just put his first name here he doesn’t have a middle
initial and I put last name the cocktail so chipper the cocktail his full name
his social security number we enter that there we have his home address it’s two
for one cocktail way city or town is on Cage City and then he’s single so we
marked the single box if you’re married if a person is married they might mark
one of these of course now because this doesn’t get filed with the IRS even if
you are married you can you can still mark this as a single because it doesn’t
matter it’s just kind of it’s just gonna like determine how much is withheld from
each of your paychecks this does not get get filed with IRS mine actually is
still marked as single even though I’m married but I need to update mine now
with a new tax bracket so I’m gonna probably gonna fix that coming up here
but this is you know something I need to go do myself
because what’s nice is you should always I want people to always be thinking
about if your income changes if your filing status changes if you have
children then these are reasons to consider updating your w-2 I mean I’m
sorry not w-2 but your w-4 on the annual basis you might want to update your w-4
on an annual basis depending on your situation okay then for chipper unbox 5
we’re gonna see that he’s going to claim to two allowances and we’re gonna walk
through that right now just real quick for some people they are exempt from
withholding income tax they have an exemption from withholding that’s really
for people who Zink is solo like $6,000 or less or if a
person is already overpaid has such a large overpayment from the prior year’s
taxes that they have applied to the current year then they might not have to
have any tax withheld on their check because they still will zero on this
year’s tax return so but for I’m not really talking about if you want to
learn if you’re exempt from withholdings look at this first section and the
instructions but I don’t think most people are most people are gonna have to
withhold tax from their check and so I’m really talking to the people who need to
withhold federal income taxes here and not people who are exempt if you’re
exempt you probably are gonna own Ickx – nothing in taxes anyways and so this is
really that’s really not who the video is for but if you are exempt you can
just follow the instructions in this first part right here and and there’s
very little to fill out ok in terms of accuracy now the IRS basically states
regarding this paper form now there’s this paper version of the form what
we’re looking at electronically here of the w-4 and then there’s the IRS
withholding calculator on the IRS website now which one’s more accurate
well absolutely the one on the IRS website the IRA the the withholdings
calculator is extremely more accurate than this this is not like far off the
beaten path but it’s much easier to if you’re attacked if you have a more
complicated tax situation if you’re married if you have multiple jobs if you
have all these different credits these tax credits then I’ll then don’t even
bother with this really I mean you’re the you’re gonna fill out the number of
allowances and give this first part to your employer but use the IRS
withholdings calculator all the way it will save you so much time because all
the calculations are built within it and so let’s keep walking down this example
here guys so chipper now has two allowances how do we come up with that
go down here now let’s go to the the second page or the third page I should
say personal allowances worksheet so chipper is gonna enter one for himself
because it’s just him and then so it says B if you file as married filing
jointly no he doesn’t enter one if your files head of household well chipper is
not a head of household it says enter one here if you’re a single or married
filing separately and have only one job that is chipper so
he’s got a single and he only has one job so we’re gonna put a one undie and
so then we’re gonna go to the line he doesn’t apply for the box or this
part was section II he doesn’t have to get the child tax credit because he has
no children credit for other dependents he does not have any other dependents so
there’s nothing there other credits he doesn’t have any other
credits to apply for so his is easy so we go down the line H and we add up
lines a through G and we enter the total here so that’s two so that’s where this
two is coming from so now that two is placed right here on line five on the
w-4 and that’s how many allowances he’s gonna show the employer all right so
that’s you guys follow me there I’m hoping you follow me so far now let’s go
down let’s go back down to that worksheet now if honestly like there’s
there’s this next section of deductions adjustments an additional income
worksheet I would don’t even personally like I don’t even bother with the
section I would just if if you want to get like that detailed then I are I
would just go to the IRS withholdings calculator on their website and use that
I would stop here so like right as I got to here if it became more complicated
than this this is I would stop completely and go straight to the
withholdings calculator but if if you don’t have a complicated tax situation
then pages one through three of this document will suffice I’ll leave a link
to this document below so you have it just in case you ever it’s easy too easy
to find you just google it 2018 w-4 if you ever need to find it
okay so now you see this number two and allowances on chippers gonna now turn in
this these this that before to his employer but what is that to mean the
two the two actually helps the like I said the payroll person with with
determining how much tax withhold so now your employer the chippers employer gets
this w-4 they now they as far as I know I don’t know if any employer who’s not
using payroll tax software and the real world that’s how it’s done I have not
seen anybody use the actual withholding tables that we looked at a second ago in
the PDF document and rs.15 I have not seen people using that
it would be much too complicated and much too time-consuming so employers use
software and so they go and drop this and these this information into their
payroll software then payroll software determines how much tax with hold of
every paycheck but but the payroll software is programmed with the the
percentage method and the wage bracket method so it knows all that stuff is
built into the software so but that’s where that it’s that’s how it knows to
calculate that tax so now we’re gonna actually look at a real calculation of
how woodchipper gets his paycheck how it all flows out so let’s look at my word
document now on screen on the pull that up for you guys right now and I’m gonna
walk through one example I’ve I’ve given you two or I’ve given you three examples
and all but for sake of time I’m only going to cover one in detail just so I
can walk you guys through how this works and how it would affect chippers
paycheck okay so here we are guys this is the spreadsheet I’ve put together
this like I said this is not I would not use this to estimate your taxes it’s not
designed for that use the IRS w-4 withholdings calculator alright so this
is in this first example we’re at single monthly okay so this is so this is
shivers paycheck he’s single and he gets paid once a month okay only one once a
month that he’s get a paycheck and I’ve included down here as you can see us if
you’re single and get paid bi-weekly and I’ve included one example if person’s
married if they get paid monthly so let’s walk through this and then we’re
gonna compare the numbers on this spreadsheet to the actual IRS
withholding calculator and what it comes up with versus what’s on the spreadsheet
and I’ll show you guys how this actually works this is how allowances work when
it comes to your w-4 the real deal here guys okay so basic withholdings
calculator this and all of these examples we’re gonna be using the
percentage method to calculate your tax withholdings but in in this first
example i’ll show you both i’ll show you how we get to the same result with the
the wage bracket tables as well as the percentage of the completion method all
right so this is chipper so his finally has a single right
we know he’s single he’s single mingle hey hey how often is chipper paid well
he’s paid monthly we know that shippers paid monthly
that’s very important and then what is shippers projected taxable wages now
when it comes to planning our w-4 we have to project our taxable wages now in
the next part of this series I’m gonna give you guys a downloadable spreadsheet
I’m gonna cover with you of how to project your taxable wages it is so
important it is the leading factor of this whole calculation is your projected
taxable wages so that’s why in the second part of this series I’m just
gonna cover that of how to project them but let’s let’s continue down this way
so we’re we’re gonna assume that shipper makes like forty five thousand year and
that’s right around the median income of the average single person in the United
States it’s right around forty thousand bucks
annually so but he’s at forty five thousand so I’ll remember on his w-4 we
put that he had two allowances so now we’re gonna actually see what that means
and how it all plays out and I’ve included some snippets and some
screenshots from the this stuff is from IRS Publication fifteen this is actually
in that publication but so you can see all the information on screen in one
place I just have snipped part of this right here and now so you can see how
this works so the number is highlighted in yellow
indicate numbers that came from the IRS Publication fifteen and so let’s walk
through this right now alright so we know that chipper wheat he projects that
for 2018 he’s gonna make forty five thousand dollars total of taxable wages
so after his 401 K and everything he’s gonna make he projects he’s gonna make
forty five thousand dollars in taxable ways it’s out then we look at the number
of pay periods per year and let me zoom in a little bit here for you guys so you
can see this better there we go so he’s get paid once a month right he
gets paid monthly so that means there’s twelve paychecks in a year this simple
math so if we divide forty-five thousand divided by twelve that means in taxable
wages he’s roughly getting three thousand seven hundred fifty dollars per
check so this is the projected taxable wages divided by number of pay periods
okay so the amount per check as you guys can see is is this amount right here
right three thousand seven fifty that’s what we’re projecting so now
let’s take into account how those personal income tax allowances affect
this calculation so here’s the real numbers and how it works behind the
scenes that people never see unless they’re really digging into the detail
okay number of first allowances we said two right so then there is actually a
table in IRS Publication 15 that tells you how much each allowance is worth
that’s right each allowance has a certain dollar value assigned to it so
over here I’ve taken this out of the pub there this is percentage method 2018
amount for one withholding allowance so for each withholding allowance if
you’re if you get paid monthly which chipper does chipper gets paid monthly
he makes there it’s each allowance is 345 dollars and 80 cents so $345 80
cents let’s go back over here so remember though chipper had two
allowances so we take two times three hundred forty-five dollars 80 cents so
total allowances is 691 sixty in terms of a dollar value so now we come over
here follow my mouse cursor please and notice I have minus six hundred ninety
one dollars and sixty cents so what we do is we take the amount of wages per
paycheck minus the allowances of 691 dollars so that means that of the wages
he makes three thousand fifty dollars and forty cents is actually subject to
federal income tax withholdings okay and then now we have to look at the excess
over per table for so this is deals with the wage percentage method okay there
are the percentage method for calculating your withholdings so how
where does that number come from well if we remember earlier I showed you all
those different the worksheets that within publication 15 well here’s from
the IRS Publication 15 is this the tape we’re looking at Table four this is for
people who are single and get paid monthly well if their income it says
income is is over 1100 down here but now we look at income is
over $1100 but not over 3000 $33 well that’s where we’re at here because the
income subject to withholdings is between that at three thousand fifty
eight dollars and forty cents okay so then there’s a fixed amount of tax as
seventy nine dollars and forty cents plus twelve percent of the amount over
one thousand one hundred and two dollars so this one thousand one hundred two
dollars it’s coming from right here boom right there that’s where this comes from
so now we take the amount of wages subject to withholding we we subtract
the one thousand one hundred two dollars and we get 1090 640 well that excess
amount over that is now multiplied by the twelve percent and the twelve
percent is right here that’s where this is coming from so that means right there
from the percentage method we know we have to have at least two hundred and
thirty-four dollars and seventy seven cents and withholdings okay now I know
that’s a lot of information to take in so if you need to rewind the video just
to watch that again real quickly yeah please feel free to do so but I’m
gonna keep moving forward and and you’re gonna see how this all comes comes out
together here in in the end we’re just about done now so now there’s a fixed
amount of withholdings it’s seventy nine dollars and forty cents so here’s the
seventy nine forty it’s all right here so this is why I put these visuals in
here because I don’t want you guys searching all over the place for this
information but it’s all in our s publication fifteen so now we take the
234 from here and we add the 79 40 from right here and so the total average
federal tax withholdings per check for chipper is gonna be three hundred and
fourteen dollars and sixteen cents okay so each and every paycheck chipper is
gonna have that much tax withheld three hundred fourteen dollars and sixteen
cents and now we know that chipper is gonna get paid 12 times a year right
well now we multiply this withholdings amount times twelve so the total
projected federal tax withholdings for the year for chipper is gonna be three
thousand seven hundred and seventy dollars and
two cents so now let’s do a quick rough comparison of what that amount compares
to on the IRS website with using the withholdings calculator so I’m like I
said in the third part of this series I’ll show you in detail how the IRS with
all these calculator works but for now I’m just gonna show you a really quick
example so we’re gonna come here to IRS gov we’re gonna go down to the w-4
calculator right here click on that and then if you want the actual w-4 form we
were looking at a minute ago this is where you find it and then see where it
says IRS withholdings calculator that’s what we want that is what we want to use
to project our withholding it’s hard to calculator with aleene’s whoops there we
go and if you scroll down here you’re gonna find the actual withholdings
calculator I’m gonna click on that and it’s gonna take us to this screen right
here let me zoom in because I know that’s hard to read
couple of questions that we’re gonna fly through real quick that says what is
your filing status on your 2018 income tax return
we know it’s single for a chipper but single can someone else claim you as a
dependent we’re gonna know and we’re just hit gonna hit continue
it’s gonna take us to this screen it says select the total number of jobs in
which you are currently or will be employed it says enter military
retirement pay our taxable pensions as additional separate jobs so we know
chipper only has one job in this example all the rest of this like I said I’ll go
in detail on another time so we don’t need to fill out any more of this at all
for right now you guys you can see it gets into the tax credits it gets into
if you’re 65 or older Earned Income Tax Credit if you qualify for that we’re
skipping all that we’ll go over that and part three okay let’s see hit continue
now this is where we actually enter our projected taxable wages which is why
that I think it’s so important to have a firm grasp on what your projected
taxable wages are gonna be for the year because everything else is factored into
that everything else is derived from those wages so all the calculations
don’t matter if you’re that that number is wrong so you want to get that number
right which is why we’re gonna look at that in part two okay so we’re gonna
drop in it says enter the gross wages salaries and tips you expect to receive
in 2018 now for chipper we know that’s
five thousand dollars right that’s what that’s the example we just looked at mm
any bonuses for chipper no none it says enter to the fete total
federal income tax withheld to date on the paycheck well we’re gonna assume I
don’t really care about that right now I just want to know in total what it would
be for the full year so I’m gonna put zero here and you have to put C here has
an asterisk here you have to put a zero I’m gonna put a zero in right here and
then it says select how frequently you’re paid well we’re gonna say monthly
because shippers paid once a month right in our example non wage income this is
if you have like dividends interest or other kinds of income if you have
unemployment compensation we’re skipping all that we don’t it’s not gonna impact
our example here now I’m gonna hit continue and then now it automatically
takes into account the standard deduction but if you if you itemize you
can put itemized deductions here we’re gonna assume that chipper gets the
standard deduction so there’s nothing else that I need to do here so I’m just
gonna hit continue and it’s gonna spit out our result here we go it says based
on your responses your anticipated income tax for 2018 is three thousand
seventy two seventy it says based on your responses your anticipated income
tax for 2018 is three thousand seven hundred seventy three dollars it says to
meet your anticipated tax of three thousand seventeen seventy three change
your current withholding arrangement by zero allowances plus an additional four
twenty three and the reason it’s saying that is because it knows that we’re in
the month of April when I’m filming this so it assumes that we only have eight
eight pay periods left but then the the thing I want to point out here guys is
that this is the number I want you to look at based on your projected taxable
wages this is how much tax federal income tax you have to withhold to be
fully paid in by the time you have to file your tax return for the at the foot
you know during the following year by the April 15th so this is the number we
care about so as long as it’s our total withholdings from our paychecks add up
to that amount we’re good we’re gonna zero tax that’s what we want if we
withhold more than that if we withhold four thousand dollars well we’re gonna
get a refund when we file our tax return 2004 2018 if we withhold less than that
number guess what’s gonna happen we’re gonna owe money we’re gonna have to owe
money when we file a tax return so we want to be as accurately that’s pot as
possible with our withholdings and you really the ideal tax result is zero you
don’t want to really owe money and you don’t want to have a huge refund now I’m
okay being a little overpaid because I don’t want to end up owing money but the
perfect tax result is owing zero and getting in a zero refund because that
means you’re withholding exactly enough tax without the throughout the year so
that you know you’re good you don’t have to think about it another reason I
wouldn’t really wanted to talk to you guys about this topic is I don’t want
people to stress about their taxes throughout the entire year so the more I
can do to help you guys with that the better off you’ll be and the less stress
you’ll have and the more you know better quality of life you’ll have and now
let’s look at so we saw this is what our projected tax is gonna be now let’s look
at that example on the spreadsheet and I’ll prove to you guys that my
spreadsheets accurate right now so let’s go over here back to my spreadsheet and
so based on this worksheet we projected that our total projected federal tax
withholdings for the year would be three thousand seven hundred
and seventy dollars that’s how much tax we’ve paid in okay that’s how much tax
chippers paid in this example then from the IRS website we just looked at how
much tax we were actually gonna owe and they said 377 three so our worksheet
here is only off by three bucks so in this example chipper would owe $3.00
when he can 20 with the file as taxes which is chump change which is means we
are extremely accurate in terms of projecting what our withholdings need to
be and that’s how it works guys from start to finish that’s how this
calculations done that’s how it’s done behind the scenes this is what people
don’t see this is how it’s actually being calculated now like I said this is
really just for your education entertainment don’t use this to project
your taxes use the IRS withholding calculator in the next part we’re gonna
go dive in the detail and take a professional approach to projecting your
taxable wages and how to do that and all these spreadsheets are completely
you can download them in the description section down below this video
and so make sure to check it out I know this video is long guys but that’s why
I’ve included timestamps but I’ve really wanted to give you a full overview of
how this is calculated because I could not find this information anywhere on
the Internet and as a person who went through school
to obtain a bachelor’s in accounting and who’s obtained their CPA license this is
not something that’s covered now just real quickly so we see that based on
this analysis we learned that each paycheck chippers gonna have three
hundred and fourteen dollars withheld from each and every paycheck but this
was using the percentage method what if we use the the table method what if we
used the wage bracket table method ok guys real quickly last but not least I
want to show you what what if we use the other method what to calculate chippers
withholdings the wage bracket method tables for income tax withholdings well
this would how it would be play out so here’s the so chippers single person he
gets paid monthly remember on his life before he said he
had two allowances well his wages were between this and
this and so what we do is we take our finger come over here like this and then
come down heat from the two allowances column come down here and that is his
exact withholdings amount using this method as its exact same as it was using
the the table method are the percentage method here sorry the percentage method
so is either way you do it it’s exactly the same results or should be the same
or right around the same but alright guys I hope you found this information
helpful I know this is a long video it was intended to be long cuz I really
wanted to walk you through this through the entire thing so that I mean they
they really should teach this stuff in school because I I think it’s so
important for for a person to know how their taxes are being withheld from
their paycheck okay that’s it’s really important for me and I’m sure it’s
important to you to know how much money to pay in versus how much money you’re
able to keep for yourself so you can invest more pay down your debt whatever
it may be or save more money it’s much better to that I think it’s much better
that we have our money vs. given and also
and over pain things like that but we don’t but we do also don’t want to be
greatly overpaid so that’s why I wanted to walk you through this example if you
click on the other examples it’ll it’s the same kind of scenario I’ll let you
guys figure work through these yourself so you can fully understand it of how I
got my numbers but it’s all there it’s exactly there and it’s all made up
through the IRS Publication 15 in this spreadsheet like I said which is
downloadable for free alright guys well that is all the information I have for
you today if you’re brand new to this channel I just want to say welcome I
know this is usually my videos aren’t this long but when you come this channel
I’ve been able to help hundreds of people throughout the country with their
taxes investments finances etc those are the kinds of videos that I produce here
on this channel on a weekly basis so if you’re looking really looking to improve
in those areas learn more about taxes and things like that then I would I
would strongly suggest you subscribe to our Channel and please definitely
subscribe to our channel to not miss any of our weekly videos in this series
because I have at least two more parts coming out to give it the give you a
full overview in full the health you truly learn how to plan your
withholdings for your for your personal tax situation to the best of my ability
of what I can do here over YouTube and so that you can always be on top of your
taxes and not worried about whether you’re paying in enough or not painted
enough throughout the course of the year at your job all right guys I love you
thank you so much if you stuck with me this long I appreciate it so much you
guys are a wonderful audience I’m so thankful to have you is so it’s so nice
to be able to interact with you guys so it means so much to me when you guys
drop a like and leave a comment I love hearing from you guys and I just hope I
really hope you found this helpful I spent hours pulling this information
together and honestly I learned so much more personally pulling this information
together because like I said there’s nowhere else out there that you can get
this information that I know of other than diving into the details yourself
and seeing how this all works behind the scenes with that being said make sure to
share this information with a friend make sure you drop a like guys I love
y’all peace

94 Comments

  1. Money and Life TV says:

    The complete time stamp index for this video so you can go back to or skip to any part in the video like a boss!

    •The two primary methods that determine your withholdings on your paycheck – 2:10
    • Why people should care about their W-4 and Tax Withholdings – 3:15
    • W-4 and tax wittholding on screen example begins – 5:44
    • Introduction to Form W-4 – 6:25
    • What are W-4 Allowances? What Does it mean? – 9:22?
    • How your employer users your W-4 information to determine your income tax wittholdings? (IRS Publication 15) 11:00
    • W-4 walkthrough begins – 15:15
    • Example of how to calculate your tax withholdings for each paycheck begins here Uses wage percentage method: – 22:45
    • Example of how to calculate your tax withholdings for each paycheck using wage bracket table method: – 37:45

  2. Money and Life TV says:

    Hi guys thank you for all the support! Obviously this video just shows one example of how tax withholdings are calculated when a person has $45,000 in income. This example does not account for other sources of income, but we will look at that in Part 3. In part 2 we look at how to calculate your projected taxable wages like a professional. I'll try to get that video out by next week. In part 3 we will walk through the withholdings calculator. I hope you find this helpful. Hopefully this explanation makes sense. Make sure to download the spreadsheet in the description section of the video.

  3. He Provides says:

    Great public service video. Much needed info.

  4. Money and Life TV says:

    **What else would be helpful to know regarding tax withholdings or W-4? Let me know in the comment section below**

  5. amy choi says:

    Thank you so much for the video.

    I have a few questions.

    1. If the employee receives bonus, I understand that the flat withholding tax rate (22%) will be applicable. If the employee's effective tax rate is more than 22%, what should we do?
    The company amend W4 by themself or is it okay to pay additional taxes when we file the annual tax return in April 15 of following year?
    or employee should pay 'Estimated income tax' additionally other than withholding from W4?

    2. can employee change # of allowance during the year? should we inform to the company for the change?

    3. As long as the employee pay his total yearly withholding tax until his last paycheck in the calendar year of 2018, there would be no penalty. Am I correct? There is no issues in timing as long as he pays his total withholding tax due by end of the year?

    4. I wonder if we also need to consider personal unearned income (i.e., interest , dividends) for W4 computation purposes.

    Thank you!

  6. Youness says:

    Have you heard about the fire in the shoe factory?

    Hundreds of soles were lost!

  7. emikami1 says:

    This is a good overview. I notice for single filer at 0 allowance, the calculation is based on $308 (table 4 (a) in Publication 15) x 12 = $3696 of deduction. Each allowance is worth $4150 of additional deduction. So in this example, you have 2 allowance or $8300. $8300 + 3696 = $11,996. Standard deduction for single person is $12000 which is close. For married filing jointly, you get 3 allowance and $963 (table 4 (b) in publication 15) x 12 = $11556. 3 x 4150 + 11556 =$24006. Again, very close. Unfortunately, if I do this same calculation for head of household, it'll not be that close because publication 15 doesn't have a separate table for head of household.

    Knowing that each withholding allowance is worth $4150 is helpful because you can reduce the allowance to increase the withholding if you have other income. I prefer this approach because it tends to adjust for inflation from year to year. If you simply wrote an extra amount to withholding in a dollar figure, you have to adjust that every year even if the numbers only changed from inflation.

  8. DJTHECON says:

    good video

  9. MrJules says:

    As always, Informational video
    Thanks mate!

  10. drew lo says:

    Good advice…I had to cut back big time almost 10 withholdings due to a new child, and new home. Also using an MCC for the new home. Also budgeting for energy credits. My wife also goes to school for her master's. Just stinks for the loss of tax credits for student loans, job training and teacher deductions.

  11. Michael Jay - Value Investing says:

    Good content, definitely appreciated the timestamps to ease navigation. One common mistake people make is getting excited about a hug refund. "Look how much money I am getting back!" When really it was your money all along that you could have been investing or making it work for you.

  12. Money and Life TV says:

    IRS Calculator (Full walkthrough) Video can be found here: https://youtu.be/Ud9PW4fhGg0

  13. Iggy O says:

    Great video!

  14. layla lakhani says:

    Great video and very informative, thanks

  15. Jack PipBoxer says:

    Thank you very much for the video. You are doing a great job. I am looking forward to your new recordings.

  16. castro8021 says:

    wtf man? Edit out first 30mins… rest is golden.

  17. CAMILLE EVETTE says:

    Im sort of still confused about this topic. So im single with no dependents and just submitted a new w4 to my employer. For boxes 5-6 i put 0 and claimed exempt. Was that a good idea? Or should i have to change it again? I want my checks to come out bigger rather than waiting for a refund. But this is my second w4 i submitted and i don't want to get in trouble by the irs if i change it again or add the wrong info. Please help!

  18. Matt Dee says:

    Great insight. Thank you! I’m so touched by how passionate you are with you explanations; kinda funny bc I thoroughly explain things in such manners as well. It’s comforting, knowing that I’m not the only one. Certain aspects of our educational system, baffles me as well. The educational system, being a very lucrative industry. As opposed to showing true passion, as you have, to truly wanting an individual to have well rounded intelligence; so that ultimately that individual could help this economy advance. I appreciate you and have subscribed to your channel. I look forward to more videos.

  19. Diana G Thompson says:

    Thank you

  20. B Y says:

    Awesome info. Thanks

  21. Daniel Tobi says:

    😀 I appreciate all the time you took to educate us on such an intimidating topic. I feel so much more knowledgeable and cant wait to learn MORE from you video's. Thank you!!😀

  22. CNB Productions says:

    Hii! Hopefully you can help me! Before the personal allowances worksheet was attached on last years w-4, I claimed 9 in section 5 of the 1st page of the w-4 form to keep a significant amount of my paycheck each week (I get paid weekly). I recently started a new job with the personal allowances worksheet attached (my first time seeing it). I put a 9 in box 5 like usual and I think i left the personal allowances worksheet blank. When I got my check, the maximum amount of taxes was withheld and I was pretty frustrated. How to I fill out the personal allowances worksheet if I want to claim 9 allowances in box 5?? (I know I'll owe when I file). Thanks!

  23. Michail Duran says:

    I love the content man awesome 👏🏼 video! Keep up the great work !

  24. apple blossom says:

    Hi, I'm new to all of this and a little confused about line E. It asked to put "4" for each eligible child. If I have 4 eligible children, that means that I would put 16 there; is that a bit too much? Also, line f is for non-children only right? In the past, they just ask to put number of dependent you're claiming and I would put three since I have three children, but they changed that, so it confuses me. Thanks and appreciate your help.

  25. Paulo Justiniano says:

    Well this is not helpful for someone who is married and have kids.

  26. Harsh Amin says:

    Very helpful information..you did good job explaining it..thank you…keep doing good work…

  27. Nadezda Rudnykh says:

    Great content!!! Thanks

  28. Olivia Ocera says:

    How will I know if IRS withheld too much money or if there's remaining money withheld that I didn't get from previous years?

  29. Olivia Ocera says:

    great video 🙂 trying to teach my son how to fill out his W4

  30. Najla Syed says:

    I like all your videos!

  31. Virat Kohli says:

    Superb Bro

  32. Dave Roberts says:

    PRIVATE AMERICAN NATIONAL ONLY NEEDS TO FILE A IRS FORM W8-BEN WITH THE W-4, IT'S DONE!

  33. Lori Murguia says:

    Great video! Thank you so much! I'm a Tax Specialist with H&R Block, and I'm learning everyday to improve and learn. This was very educational, can't wait to watch the next in the series. Great job!!

  34. Ada Rodriguez says:

    very well explained, thank you; I learned so much from you than any one else.

  35. Augie H says:

    That’s a great break down and I will share this with my 15 year old son, thank you for your time

  36. g24fitness says:

    Amazing!!! You are Awesome!!!🙌🙌🙌Big Thanks!!! I will share your page

  37. Talent Ayin says:

    I nearly skipped this video. The first 7 mins also was a waist of space and time

  38. K Norman says:

    Hi! Do you have an email address we can contact you at? Thanks!

  39. DAN B says:

    Stuff that should’ve been taught in high school smh

  40. HDD MOFP says:

    If you have a single member LLC and you are dealing with a payment processor/ payment gateway, will they act as an employer and withhold your money? If not how are these entities taxed by the IRS? (especially if owned by a non-resident alien)

  41. Robert Stone says:

    appreciate the video immensely, I had no idea how this was done or how it worked. Thanks!!!

  42. Denzlo M says:

    I'm single with 0 dependents. How can I keep more in my paycheck but break even @ the end of the year without having to owe back?

  43. Mataayo says:

    So if we have a baby mid year do we update our withholding immediately or wait until the next taxable year?

  44. emikami1 says:

    A frequently asked question on the internet is if you can rollover a pension payment into an IRA. It would be neat if you can do this but I'm leaning toward assuming you generally cannot.

    The reasoning goes: Exception to 10% early withdrawal penalty to a retirement plan for those under age 59 1/2 includes taking substantially equal payments over lifetime. The so called 72(t) option. RMD, Annuitization, or amortization method can be used to determine if it is substantially equal. So if your pension included a cost of living adjustment, maybe it cannot avoid a penalty based on 72(t) exception.

    One of the reason listed to make pension distribution ineligible for rollover to an IRA is if it is part of a series of substantially equal payment over life! So if it is subject to 10% penalty, maybe it is eligible for rollover.

    Not so fast. Federal government has a pension for its retirees. It has a cost of living adjustment. The instructions in the Form 1099-R noted that if the distribution is eligible for a rollover to an IRA, the employer must withhold 20%. If it is periodic and ineligible for rollover, the employer follows what was filled out in the W4-P by the employee or the default option of assuming married filing jointly with 3 allowance. Since I know the federal government pension does follow W4-P instruction, I must consider it is ineligible for rollover.

    I wish there's an IRS ruling on it. Because if it is ineligible for a rollover to an IRA, maybe it is not subject to 10% early withdrawal penalty….

  45. Marilyn Jean says:

    Omg thank you !!! This is what I was looking for online !!!!!!!! On my way to financial freedom!!! ( somewhat ) looking to save this money and hopefully put into the market

  46. Joe D says:

    Great video on this topic. Great idea including the table snips on the spread sheet. I realize this is an example but the one thing I noticed during your presentation is that you started off claiming 2 allowances then used the spreadsheet to determined the tax liability on the amount remaining (subject to tax). Should you have determine tax liability on the total income then determine the number of allowances to achieve the tax liability? I realize this is an example and we should use the IRS calculator, but was just curious if I am missing something here. Thanks for your instruction it is very much appreciated. Keep up the good work and have a great day.

  47. Leon Bennett says:

    Great video!!!!!

  48. Lore Godinez says:

    Where can i tak eclasses for EA??

  49. Pavy Rivera says:

    Single and ready to mingle! 😂 That was hilarious!!

  50. Oluseun Fajimolu says:

    You are AMAZING!! Thank you!!! Very simple to grasp! New and happy subbie!

  51. AFDD2-1.6 says:

    You are one of the Super Hero, Tax Man. LOL As a CPA as well, I enjoy your vids very much. I'm on the big Corps and hedge funds partnership taxes for years, it is very interesting to learn all those information from your vids. Love them.

  52. Kat V says:

    Thank you so much for this valuable information! Extremely helpful! 👍🏼

  53. Misty Wess says:

    You are single claiming yourself as an allowance with an additional $10 per pay check amount for the federal government and $5 for the state government. For the state, write a note on the W4 Form at the top for payroll to see. How do I fill in my W4?

  54. Oz C says:

    This is an educational video well described in clarity (GOOD STUFF) so thanks so much to for this video . The only thing that I'm not satisfied is I know you're based out in the state of CALIFORNIA , which leaves me wondering how can I visit or consult a reliable CPA like yourself out in my area which is NEW YORK CITY ??? 🤔🤔🤔

  55. Miss Melody Spencer says:

    If you just started working and don't get paid much but you got two kids. How much to withholding or should i wait a while?

  56. 惡魔狼DemonWolf says:

    Lol the medication is YouTube and congrats you are the teacher. =)

  57. lupita Garcia says:

    They want to take out 5 extra on my st only make 8.85 i work at toco bell i have a kid

  58. Michael Varney says:

    Video starts at 5:51

  59. Yirmayahu Yahuda says:

    Thank you very well put definitely what I been looking for

  60. Gerald Zink says:

    I love it! Im learning so much from your channel! Anyway you could make a video explaining how the state of California deducts withholdings? The W4 withholdings cover's both federal and state right? Thanks again for all your content!!

  61. Thee Only Asian says:

    This video is so boring dude

  62. Ma. Rita Parungao says:

    Hello, thank you for this vid. You are such an awesome for sharing this video. I have a question though, since i am a new learner for w4. If me and my husband filed jointly, what will i put in the total projected taxable wages or gross wages??? Especially when using the irs calculator. Both me and my husband salary or just my salary only??? Once again, thank you very much….

  63. Keisha Simmons says:

    The best tax withholdings video I seen this far….thank you for this information

  64. John William says:

    i had to pay ( 5,000) more in 2018… what can i do? I'm single a ZERO.

  65. Randy Schrecengost says:

    Married, spouse didn't work 2018, won't work 2019, have two children, should I only claim 3 allowances so I get the full child tax credit? (Started job April 1st, gross pay is approximately 350$-400$ weekly) Plan to file married filing jointly, for the eitc if applicable. Have never filed taxes before, have been on disability for years and going back to work. (I had no earned income 2018) any advice would be greatly appreciated.

  66. Stephen Soukup says:

    Are you planning to update this spreadsheet for 2019 ?

  67. Andrea Knoll says:

    I'm an English teacher who teaches a class called Writing for Life. I will show this video to my classes because I do not understand tax forms enough myself to teach it to my students.

  68. Kevin Richardson says:

    Thank you for this video. It was helpful for me and look forward to seeing your other videos and looking at how I can apply your lessons for myself.

  69. Hi My says:

    Took 6 min to get to the point

  70. fathead fathead says:

    Can you create one for the 2019? Its already June and I want to forecast my taxes with your help. This is perfect I will forward this to everyone of my co workers. We are due for a raise this year.

  71. Fofita17 says:

    This should be taught in HS or College or both. It should be part of “Adulting 101” and other topics should include auto/personal/mortgage loans, credit/credit score, savings – Traditional/Roth IRA, 401K/403b, investing, leasing an apartment, general employment law (federal), etc.

  72. Anthony C says:

    Please get ready for the New W-4……I heard bad things.  No more exemptions….Good Luck and Thanks for the vid.

  73. Chez Davis says:

    So my question is for those that are filing jointly how do we calculate our withholdings through the spreadsheet if I get paid weekly and my wife gets paid bi-weekly? Thanks for the info it definitely helps in trying to understand this.

  74. Lenny7118 says:

    When using the IRS calculator on the second page it asks how many jobs your holding ! Well I’m retired and have no job ! There isn’t a 0 in that drop down list! So what do I do? Thanks

  75. Zarina Villarose says:

    Paycheck is being taxed and at the end of the year, again your income is being taxed. Why the double taxation?

  76. YO DB4L says:

    Thank you for information about taxes…very helpful.

  77. D Light says:

    I think I did my taxes wrong this new year it was definitely different I have never owed and they say I owe large amount can I redo my taxes

  78. Michael says:

    Great videos man! Just got a job in tax and your content is great info to finally have.

  79. Tauries77 says:

    Can you claim exempt for 1 paycheck if you claim for yourself and dependents? If so, would doing so affect your refund for the following year?

  80. tony m says:

    Wow! I always get asked by partners to calc this for the small clients. Thanks bro…you da man!!

  81. Tee Huynh says:

    Awesome video. Very informational.

  82. Tee Huynh says:

    Is it possible to get an email of that spreadsheet? Please? Thanks

  83. Jose Espaillat says:

    This video is gold! Question: Are there any penalties imposed by the IRS when someone claims less or more allowances than required by the W4 worksheet calculation? Thank you!

  84. Patrick Holt says:

    Here in July of 2019, saving this to my ‘Favorites’ so I can reference it when needed. Thank-you.

  85. Javier Sotelo says:

    Amazing video!

  86. msllubin8 says:

    I've learned as I've gone through life only a FRACTION of what u taught….Holy moly!! thank you!!!! 😍😎

  87. Ryan Helms says:

    Question, in your example on the spreadsheet, you have that the guy is claiming 2 allowances, but then on the IRS calculator it says that the allowances should be 0. I think I a missing something?

  88. GTKnetwork1 says:

    Just now coming across a video like this. Thank you for it. It's actually the most in-depth video I've come across regarding this subject. So basically, the higher # of allowances means the more we'll have in our paycheck and the less # of allowances means we'll have less in our paycheck?

  89. rscnails says:

    Do this apply to people with dual citizenship?

  90. Man with The plan says:

    I've purposely been having my employer withhold an additional 100 from every paycheck every week.. and i get all of that back at the end of the year using it like a secret savings

  91. OAKLAND SUNSHINE NEWS says:

    This information was incredibly needed thanks 🙏🏿 very much!

  92. Gargola18 says:

    Can you make a video explaining how to buy stock, etc

  93. Jasmine Kimes says:

    SO INCREDIBLY HELPFUL!

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