As we embark upon a new year many people are focusing on health, rejuvenation, and general life orderliness, including organizing paperwork to have their taxes prepared. Each year I see hundreds of tax filers anxiously sit before me awaiting their fate; hoping that there’s a magic wand in my desk drawer that will act as a force field to keep the perceived big bad Internal Revenue Service (IRS) at bay in determining that final number…refund or the dreaded balance due. So I feel an obligation to dispel the myths and eliminate some of the mystery and anxiety of tax filing.
One of the major factors in determining a tax payer’s refund or balance due has much less to do with what occurs at the end of the year or just prior to having your taxes prepared, but much more to do with what you do at the beginning of the year that sets the tone for the remainder of the year. According to IRS Publication 919, federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. As a wage earner, you pay federal income tax by having it withheld from your pay during the year. This is your “withholding.” Your withholding is based on the number of allowances you claim when you file Form W-4, Employee’s Withholding Allowance Certificate, with your employer. Unfortunately most of us are given a Form W-4 to complete when we start a job with little explanation or guidance on how to correctly complete it. Furthermore, we seldom revisit or update our withholding as we have life changes such as increases or decreases in dependent children, marriages/divorces, home purchases, etc. Withholdings are not static and not a one size fits all with many thinking they can only claim 0 or 1 on their withholding forms.
Whether your goal is to obtain a large refund, break even, or minimize balance due, you have the power to affect and predict your destiny through effective management of your withholdings. Both IRS and Georgia Department of Revenue offer tools to aid tax payers in determining the correct withholdings. The IRS Withholding Calculator is an interactive, user-friendly tool. Taxpayers enter information from their most recent pay stub and about their family situation, and the system will generate a definitive withholding number for a client to complete the Form W-4, as well as a detailed explanation of projected refund or balance due. The Georgia Department of Revenue has produced Employer’s Tax Guide to help tax payers with determining state withholdings. If you would like to preview how these changes will affect your paycheck prior to implementation, there are several free payroll calculators available. One of our favorites is offered by Paycheck City. From the home page, visitors can select calculator + standard to access a calculator for either hourly or salary pay that allows for multiple pay rate calculations as well as pre-tax withholdings to be factored into the paycheck calculation. We encourage you to use these tools!
So, go ahead and get those 2012 taxes done, but then be sure you resolve to follow that up with an annual check-up on your withholdings so you’ll be in a better position next time around. And see below for more good news about your current taxes … if your household earned $49,000 or less in 2012, you can get them done for FREE through the Food Bank’s Atlanta Prosperity Campaign initiative!
-Cicely Garrett, VITA Program Manager
The Atlanta Prosperity Campaign (APC), an initiative of the Atlanta Community Food Bank, started in 2007, in partnership with the IRS. The campaign manages 45+ Volunteer Income Tax Assistance (VITA) sites in 12 metro-Atlanta counties offering FREE tax preparation to working families and individuals with household earnings of $49,000 or less. Since 2007, APC VITA sites have served more than 50,000 metro-Atlantans and helped deliver over $66 million in state and local refunds! To learn more about this FREE tax preparation service, please visit www.atlantaprosperity.org.