We’re in the depths of presenting our Year-End Tax Analyses to our Financial Zen Members.
There is one common error we keep finding this year – tax withholding.
It’s going to make April 2023 a month people will want to forget (as in some large checks will be cut to Uncle Sam).
Thankfully, it’s easy-ish to fix.
ARE YOU WITHHOLDING ENOUGH?
First, here’s an easy rule of thumb to see if you’re withholding enough:
On your paycheck, you’ll find the total federal tax withheld for the year. That number should be…
If you make less than $500,000 in household income, your federal income tax withholding should be roughly 20% of that (or $100k).
If you make MORE than $500,000, it will be closer to 30%. (i.e. $300,000 if your household income is $1,000,000).
HOW TO FIX IT
If you’re below those estimates, you’ll want to increase your withholding.
Unfortunately, a couple of years ago the IRS made this previously easy task more complicated.
Gone are the days of selecting 0, 1, 2, or 3 allowances to adjust your withholding. Now you have to enter an actual dollar amount on your W4.
Thanks, IRS! (Not.)
Just Google “Tax Withholding Estimator” to try it yourself.
HOWEVER, I strongly advise you to just ask your tax guy/gal to do it for you.
Then you’ll need to update your W4 with your employer.
HOW FINANCIAL ZEN WILL HELP NEXT YEAR
Starting in 2023, we start completing a mid-year tax analysis during our June Accountability and Implementation Meetings.
This will give our Members half a year to adjust in case they’re headed for a tax liability faceplant.
