As was foretold, we've added advertisements to the forums! If you have questions, or if you encounter any bugs, please visit this thread: https://forums.penny-arcade.com/discussion/240191/forum-advertisement-faq-and-reports-thread/
Options
Explain taxes to me
Talka
Registered User regular
Registered User regular
I'm trying to set up a budget, and need to know how much to expect to pay in taxes. I've never filed them before, so I'm ignorant on just about everything related to them. I don't need everything explained, I just need to know enough to be able to plan accordingly.
Some of the details here are changed in order to preserve my anonymity.
Let's say I'm going to be earning a yearly salary of $50,000. I also live in California.
If I understand correctly, I can basically expect to pay 25% in federal income tax ($12,500) and 9.3% in state taxes ($4,650). I wouldn't pay property tax since I am on a sublease. I don't understand payroll taxes (I don't have a 401k for a year; what else would this cover?). I don't have student debts. Also if I receive a bonus that would be taxed just the same as if my income were the salary + bonus, right?
So can I basically add my federal income tax and state tax to each other, and then that's what I owe, and the remainder is what I can divy up my budget from? Or am I missing something obvious and glaring?
You'd really think there'd be some easy way to learn this basic kind of stuff, but googling has failed me here.
Some of the details here are changed in order to preserve my anonymity.
Let's say I'm going to be earning a yearly salary of $50,000. I also live in California.
If I understand correctly, I can basically expect to pay 25% in federal income tax ($12,500) and 9.3% in state taxes ($4,650). I wouldn't pay property tax since I am on a sublease. I don't understand payroll taxes (I don't have a 401k for a year; what else would this cover?). I don't have student debts. Also if I receive a bonus that would be taxed just the same as if my income were the salary + bonus, right?
So can I basically add my federal income tax and state tax to each other, and then that's what I owe, and the remainder is what I can divy up my budget from? Or am I missing something obvious and glaring?
You'd really think there'd be some easy way to learn this basic kind of stuff, but googling has failed me here.
Talka on
0
Posts
Also, bonuses are usually taxes differently (higher)
edit: Bonuses may have different amounts withheld from them based on the way your employer does it, I believe one choice is a flat 28% + other withholding, however when you file your taxes there isn't a difference between earning 50k salary and earning 30k with a 20k bonus so if your employer does withhold more you will end up getting it back when you file. Also as a note since the tax rate changes based on the amount you make, 10% on 0 - 8k, 15% on 8k - 32k, etc, and you get a surprise bonus then a larger portion of taxes will be taken out of it since it adds on to your salary and essentially all of it is taxed at the highest rate.
edit2: Just in case it wasn't clear since I was in a hurry, your tax bracket at 50k is 25% but this doesn't mean that all 50k is taxed at 25%. Since your tax bracket increases as you make more it doesn't make sense to apply the bracket to the entire wage since if you got a raise of 1k and moved brackets you'd end up losing money, instead the marginal tax rate of a bracket is applied to money in the bracket only. Using the 2010 table the first $8375 you make is taxed at 10%, the next $25625 is taxed at 15% and using the 50k example the remaining $16000 is taxed at 25%. Of course this is without deductions and whatever else applies, but it should make it clearer how tax brackets work.
No, typically bonuses are taxed at the highest amount possible. I haven't worked in payroll in about 8 years, but back then I believe it was somewhere around 36%.
Bonuses may appear highly taxed, but they are just factored into your annual pay. When you file your taxes, there is no specific area for "bonus". The government doesn't care; it all evens out in the end.
Let 'em eat fucking pineapples!
According to this, regardless of whether or not it works out in the end, he'll have 35.23% of the bonus removed from his check for taxes.
Can you explain how to came to that conclusion? It looks to me like it works exactly how I explained it above.
Let 'em eat fucking pineapples!
Bonuses are taxed at the highest marginal tax rate you are subject to.
Annual Gross Pay
$50,000.00
Federal Withholding
$7,768.75
Social Security
$3,100.00
Medicare
$725.00
California
$2,373.67
CA SDI
$550.00
Net Pay
$35,482.58
So lets say you get paid $1K bi-monthly ($26K/annum). But you get a $5K christmas bonus, so your 26th check is $6K. Eventhough your annual pay is $31K inclusive of bonus, the payroll system sees the $6K check, assumes it's a "regular" paycheck, and taxes you as if you're earning $156K/annum. But you should get refunded any overwitheld amount when you file, or if you know about the bonus beforehand you may be able to adjust your withholding so the overwithholding is attenuated and the refund is minimized.
Talka, as to how much you should budget for taxes, did you fill out a W-4, and does your employer withhold taxes from your paycheck?
Exactly! Thank you for laying out a numbers example.
From this?
There's also this from 2007:
So I guess it depends on your employer.
Edit: Or not. It looks like California goes on the percentage method.
Looking for a Hardcore Fantasy Extraction Shooter? - Dark and Darker
Talka, do you have to file your own taxes? There's typically a lot more that can come out of a paycheck than just taxes, such as health care, insurance, and retirement account. Possibly union fees. If this is entirely hypothetical (you're trying to see how much you need to earn in order to get by with what you consider the basics for a comfortable life) then that's fine, although in that case I would eschew bonuses from your budget calculations.
This is very true. OP mentioned he does not get a 401k for a year (which sucks!), but if you are opting in to your companies health care group, or other things, then that money is going to be drawn from your pay check every pay period.
OP, you're going to be a "W2" employee, right? And not a contractor?
I get medical, dental, and disability plans, but I'm not really sure how these work. I thought the point here was that these didn't come out of my paycheck. At least I can't find any mention of that in the employee handbook. It just says that I get them. But then again I'm really new to these things.
Retirement doesn't kick in for a year.
I can't think what else would come out of the paycheck.
And yes, I'm a "W2" employee.
It is possible that the employer covers the whole thing, but it's also possible he'll get a company virgin as part of this benefits package.
But yeah, most likely it just means they offer it if you want to take advantage, which means paying. I think I pay about $200 a paycheck for everything insurance, but I cover my whole family.
Again, I'm really new to this, and the employee guidebook only refers to the insurance plan which has its own book I haven't seen yet. But it says that the company covers 100% of the premiums. I thought that meant nothing was taken out of the paycheck, and my health care costs would only be the deductibles and co-payments or whatever when I go to a hospital.
Yea, normally the company sponsored plans mean that they pay some percentage, I think mine is 50%, and you pay the rest. This often means that you can get higher quality health care for cheaper than if you were to sign up for it on your own.
If they are actually paying for all of it, than that is pretty cool! You could/should check with your HR department, just so you know what is up.
Gross income... 1925 (just an example - 2 week paycheck, 50k/year)
Less any contributions to traditional IRAs
Less any contributions to 401k
Less any premiums for health/dental insurance policy
Less any other pre-tax deductions
Taxable income... 1700 (just an example, could be more, could be less)
Less taxes (federal, state, social security, etc)
Less contributions to roth IRAs
Less any other post-tax deductions
Net income... 1400 (just an example, could be more, could be less)
Let the payroll department at your company worry about that part.
When you file your taxes for the year, you'll receive your W-2's in the mail with your amount of taxable income and the amount of taxes paid. Fill in the blanks on your 1040 and voila. Since tax laws change all the time, it's hard to budget for how much of a refund you'll get, or how much of a payment you might have to make.
It might help you to download a 1040 form from the IRS website and read it over. Unless you own your own business(es), or work 7 jobs, it really is as simple as filling in the blanks.http://www.irs.gov/
The Best in Terms of Pants on JCCC3
If the company is paying 100% of your premiums you are correct in thinking that nothing will come out of your paycheck.
That is uncommon and very awesome for you. Congrats!
I like to use TurboTax's free web tool to enter my data, see what extra deductions I can make, e.g. for 2009 there some some random $400 deductible I could take because of some random Obama initiative that I never would have known about otherwise, and then I fill out the real online forms and submit them for free.